8 Oct 21

Dr. Klaus Schmitz of Arthur D. Little talks semiconductor shortage: light seen in 2022

The shortage of semiconductor chips around the world is affecting vehicle sourcing and procurement for many companies, and according to Dr. Klaus Schmitz who is partner at consultancy company Arthur D. Little, light at the end of of the tunnel could be seen in 2022 but more towards the end of the year. 

Global Fleet was fortunate enough to have a chat with Dr. Schmitz about this dilemma, addressing issues such as why this is happening, ways to overcome it, and the expectations over the months to come.

How did this shortage of semi-conductors, and in turn vehicles, come about in the first place?

Schmitz: The root cause of the shortage is due to the fallout from the COVID-19 pandemic. Besides a surge in demand for laptops and consumer electronics brought on by a significant number of staff working from home, the pandemic also resulted in production problems in terms of semi-conductors and automobiles.

The health crisis initially resulted in vehicle orders being cancelled, but when orders started picking up again, automakers had very low supply.

The shortage was also brought on by other things such as fires, droughts and power outages taking place around the world so we can say that a bit of bad luck and maybe some poor decision making is to blame.

Also keep in mind that 5G implementation is taking place in some countries, technology which calls for more chips from both the network side and the consumer side. In the end, there is a broad range of factors which have now created a perfect storm.

How much downtime is the automobile industry facing today?

Schmitz: It takes approximately 4-6 months for semiconductors to arrive at OEM factories and some car deliveries could take 6-12 months. 

As such, many procurement professionals have actually ordered more than what they need so we are expecting a “bullwhip” affect, meaning that the lack in supply could see a hard comeback in the future. 

It is difficult to say when supply will meet demand, but it does seem like the worst is over.  If COVID-19 vaccines continue and no new variants go rampant, we could start seeing some light at the end of the tunnel by the end of 2022.

How many chips does an automobile have? 

Schmitz: It really depends, but microchips are used in many of the core components of cars. Among the components I am talking about are navigation and entertainment systems as well as for things like seatbelts, airbags, and monitor displays. 

In a premium car, approximately 100 electronic control units (ECU) can be found, not to mention another 3,000-4,000 chips.

Remember though that the chip shortage is not only impacting the automotive industry but many other production sectors as well. 

Is there a difference between brands and models?

Schmitz: In general, lacks in production has impacted all brands but it does seem like the Japanese brands are doing a bit better. 

For instance, the Toyota production system of Just in Time (JIT) - which allows individual cars to be built to order – together with the buffers the OEM has put in place is helping with the supply issue. Western brands usually have less buffers.

It seems that Japan and its electronics suppliers have learned to prepare themselves in the face of tsunamis they have experienced.

As for the car models, there are some OEMS which are prioritizing certain types of vehicles. For instance, Volkswagen and Mercedes Benz are focusing on more profitable models. This commonly means more expensive ones, including those that are environmentally clean, meaning electrified vehicles (EV) and hybrids.  

Regarding American brands, Ford has reduced some of the higher security features in some models and General Motors has reduced its focus on some diesel models.

Although some brands are prioritizing more expensive models, one route a fleet manager could take is to order a simpler type of car. However, although equipped with simpler chips, remember that these vehicles still have quite a few of them so delays could still occur. 

Vehicle production forecast 2021-2026 (source: Arthur D. Little)

Tips for Fleet Managers

•    prolong vehicle holding periods even further
•    pool your demands
•    consider a “greener” fleet
•    reduce overall vehicle options
•    broaden the scope of automobile brands
•    anticipate demands with more lead time
•    optimize preventative maintenance routines
•    embrace new fleet management solutions

Klaus Schmitz, together with Wolf-Dieter Hoppe who is also a partner at Arthur D. Little, gave insight to participants of the latest Global Fleet Managers Club workshop on 5 October. 

Now more than 140 members strong, the Global Fleet Managers Club is aimed at giving international fleet and mobility managers an opportunity to share their best practices and to network. Together, the fleets they manage total more than one million vehicles. If you would like to become a member, complete the application form here!

Authored by: Daniel Bland