EV Manufacturing is Stretching Supply Chains to Their Limits
Martin Pahulje - May 27, 2021
The demand for electric vehicles is booming more than ever before. Consumers are looking to purchase the vehicles for various reasons, including reduced harmful emissions, quieter engines, and reduced gas expenses. It seems as though electric vehicles are the cars of the future. Still, as they are relatively new and sparse, the automotive manufacturing industry struggles to keep up with growing demand. These vehicles require complex and unique parts that companies must acquire and manufacture, all of which may require additional labor and machinery. In addition to this, manufacturers must continue to work on their other products, so it has proven extremely challenging to keep up with this sudden surge of demand.
As of 2018, J.P. Morgan forecast that by 2025, electric and hybrid-electric vehicles will make up for approximately 30% of all vehicle sales. This is a staggering percentage as it increased from 1% in just 2016. Years later and this number has only continued to rise. As a result, supply chain companies are being stretched thin to match manufacturing with the current consumer demand. We will discuss the implication that the demand for electric vehicle manufacturing has on supply chains and how to achieve scalability to combat it.
What’s the Issue?
You have probably noticed a growth in electric vehicles on the road yourself. You may have also noticed designated parking spots for electric vehicles or charging stations located at gas stations. As mentioned, these vehicles bring several benefits to owners; reducing gas expenses and being more environmentally sustainable. In addition to this, these vehicles are being encouraged by the government and policy sectors. Because these vehicles are significantly more sustainable and environmentally friendly than their alternatives, they are an excellent means to reduce the automotive industry's carbon footprint. For these reasons, demand for electric vehicles has surged over the past few years, but manufacturers and their supply chains struggle to match supply with demand.
A significant issue in the supply chain is the lag in manufacturing the cells that make up the complex batteries necessary for electric vehicles. As a result of this, many companies have had to limit or postpone the production of their vehicles. To resolve this issue, manufacturers are looking to scale their supply chain. Ideally, this will make manufacturers capable of supplying the consumer electronics industry to then supply the transportation industry. To put the magnitude of this situation in more transparent terms, consider this: a cellphone requires one battery cell, and a laptop requires a dozen, but an electric vehicle requires thousands of cells. There is not enough supply on hand to satisfy demand, and as supply chains push manufacturing to meet these requirements, it is slowing down operations and spreading resources thin. The question is, how do you scale an industry by 100 times as quickly as possible? Manufacturers would need to acquire more raw materials, talent, machines, and factories to create the cells needed to manufacture the vehicles. See the problem?
Scaling Supply Chains
There are a few ways that manufacturers are attempting to combat this issue. One method is manufacturers attempting to make batteries themselves. While, if successful, this could solve their supply shortage, it will force them to continue spreading their supply chains thin. Another option taken by Volkswagen and BMW involves strategic investments with battery manufacturers. These agreements will provide manufacturers with long-term supply preference, securing capacity and long-term pricing once applicable batteries are available. With this method, it is crucial to have multiple suppliers as a precaution. This way, should a disruption occur with the supplier, production does not come to a halt. While these may be feasible solutions to the battery shortage, they do not address the issue that supply chains are being spread too thin. The only apparent solution to this is increasing the scalability of your supply chain. It is not practical for a manufacturer to increase the number of products they manufacture without increasing the systems, machines, and talent required to handle such a production volume. So, how do you increase scalability?
First and foremost, you need to understand what scalability entails. Scalability is all about being able to adapt your business, in this case, your supply chain, to cope with additional demands. While an efficient supply chain should be flexible, this does not rule out standardization as a capability. Standardization is a critical component of achieving scalability. Implementing standardized and repeatable processes will significantly increase your production rate, thus allowing you to produce a greater volume of goods. Utilizing an all-in-one system will substantially simplify the data you analyze in addition to the processes you conduct. A singular source of data is key to receiving clear and concise data that can streamline the supply chain network.
Furthermore, automation significantly contributes to scalability in the modern supply chain. A significant component of the modern supply chain is speed, and this goes hand-in-hand with scalability. Automating your supply chain involves the leveraging of digital technologies to lower operational costs. This can be achieved through various processes and technologies, but AI and ML tend to be the most common – for a reason. In the automation process, smart technologies will identify repetitive tasks and automate them. This will optimize your supply chain tremendously, not only eliminating human error and speeding up production but also allowing your team members to put their energy towards more significant tasks.
Another excellent step towards increasing scalability is through outsourcing tasks. Many companies do not have the capacity or capital to invest in their own storage facilities or production capacity. In the automotive industry, most vehicle manufacturers do not manufacture each individual material that goes into a final product. These companies outsource to others in order to alleviate some of the work and focus their resources on a smaller scope of the supply chain. It is vital to note that companies should only outsource non-strategic tasks rather than core competencies. In addition to outsourcing, sharing resources can be an excellent help in increasing scalability. Just as vehicle manufacturers now are looking to pair up with battery manufacturers, this can be done with most materials. Hiring independent contractors can be a great benefit when you need experience talent fast.
Supply chains are struggling to keep up with the growing demand for electric vehicles. As a result, vehicle manufactures are halting production or spreading themselves too thin, setting themselves up for expensive and dangerous risks. While there are various ways to combat this issue, one thing is clear: organizations need to scale up their supply chains. Whether it be through outsourcing, standardization, or automation, manufacturers must optimize their supply chains to keep up with demand. The demand for electric vehicles will only continue to grow, so it is essential to catch up now.
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