A kink in the supply chain during any part of the process can have a tremendous ripple effect across production.
"This is a classic example of the bullwhip effect," said Razat Gaurav, CEO of supply chain software and analytics firm Llamasoft. "Small changes in demand, as they propagate further upstream in the value chain, the variability and the volatility grows dramatically."Narumon Bowonkitwanchai | Moment | Getty Images
Much of the problem begins at the bottom of the supply chain involving "wafers." The wafers are used with the small semiconductor to create a chip that's then put into modules for things like steering, brakes and infotainment systems. A 26-week lead time is needed to build the chips before they are installed in a vehicle, according to Hau Thai-Tang, Ford's chief product platform and operations officer.of vehicle assembly plants. As the facilities closed, the wafer and chip suppliers diverted the parts to other sectors such as consumer electronics, which weren't expected to be as hurt by stay-at-home orders.
"Those chip manufacturers as well as wafer manufacturers started redeploying their capacity to like consumer electronics, which was growing because of people working from home and virtual working patterns," Thai-Tang said during an investor conference last year. "Fast forward, if you add 26 weeks to when they made those decisions, the drop-off or the trough in the supply started to hit automotive the latter half of last year, going into Q1.
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