COVID, chips just part of supply chain headaches

A coronavirus outbreak at a microchip factory in Malaysia will force Nissan North America to halt vehicle production at its plant in Smyrna, Tenn., for the next two weeks.

It was not alone.

Volvo had to shut down its assembly plant in Gothenburg, Sweden, last week as a result of a shortage of chips. BMW and Mercedes-Benz have warned that the next few months could be problematic for meeting production plans because of the chip shortage. And Tesla CEO Elon Musk said on Twitter last week that "we are operating under extreme supply chain limitations regarding certain 'standard' automotive chips. Most problematic by far are Renesas & Bosch," he added.

The issues reflect the current state of affairs for supply chains in North America and around the world.

Even as they are rebounding from a year of financial challenges, suppliers continue to be dogged this summer by daily operating difficulties.

"For the most part, we're seeing that the majority of small and medium suppliers are healthy now," said Laurie Harbour, CEO of supplier consulting firm Harbour Results Inc., which surveys parts and tool producers to gauge their condition. "And that's because companies in the U.S. and Canada got federal funding that helped them restore profitability, and allowed them to pay down debt and clean up their balance sheets."

But she reports more than a quarter of suppliers appear to be struggling — not just because of the microchip shortage or the economic disruptions of the pandemic, but because of ongoing challenges in daily business.

"They will continue to be challenged over the next 12 to 18 months because of a variety of supply chain operating problems," Harbour told Automotive News.

Among the operating headaches:

• Manufacturers are facing delays getting factory tools back and forth across the Canadian border, where much of the tool industry is located.
• Raw materials, such as resins and steel, are seeing substantial price increases and, in some cases, supply shortages.
• Work forces are still missing people, partly because COVID-19-era government unemployment benefits are competitive with low-end factory wages.

"A Tier 1 customer is at your door saying, 'I need these parts,' " Harbour explained. "But you can't make them because five of your people didn't show up today to run the press."

To be sure, at the root of all current supply chain challenges is the lingering — and resurging — pandemic. Communities and factories around the globe are still trying to figure out how to return to normal.

In various places around Asia, such as Malaysia, COVID-19 vaccinations are rolling out slowly, and governments have restricted some industrial employers where workers are not yet vaccinated.

Nissan's decision last week to stop production at Smyrna because of problems in Malaysia is a significant issue for the automaker. Smyrna is the source of its bestselling product, the Rogue crossover.

Automakers' production halts represent challenges to supply chains. But Harbour believes many small and midsize parts companies are thriving despite the hiccups.

"Even if the automaker has stopped production because of the chip shortage, many components don't require chips," she said. "So your customer might be telling you to go ahead and produce all the parts you can, even without your full work force. What we're seeing is the supply chain banking a lot of parts inventory in storage for when all these problems get sorted out. When that happens, I predict you'll see things really take off."