Talking to a friend back in June who works at Caterpillar Parts Dept and apparently there is a huge problem with metal supply as Covid shut down mining resulting in no raw materials at the start of the supply/manufacturing chain.
Actually producing vehicles for sale will take priority over spare parts availability with this problem becoming more common.
Agree with that but conversely, when a Primary factory (Vw factory) iif unable to produce saleable vehicles, May switch priority to parts orders,
to avoid holding stock at the factory (which they have to pay for) .
vehicle manufacturing is a highly complex process which relies heavily on a Fixed plan.
I will try to explain in simple terms some of the potential issues and cause / effect of the Issues in this instance that VW are facing.
The primary factory (VW) will work on a highly sophisticated Kan Ban /Sima process (similar to just in time) whereby stock of parts held for production at the VW factory is negligible, (possible Zero).
In many instances third party supplier will adopt the same philosoph.
The whole supply chain and manufacturing processes are totally reliant on (and require) a smooth planned supply process (Master plan),
dispruption to the Master plan poses serious potential contractual issues for everyone in the supply chain whom ultimately supply the primary manufacturer, (all the way down the supply chain) not to mention highly intricate logistical issues and potential future supply issues,
this is particularly true when dealing with a fluctuating “un planned“ demand / changes (eg. VW factory change the supply requirements due to unplanned cessation, Regardless of what caused that cessation)
This becomes a serious potential issue when the stoppage is within the master plan “critical” time phase; usually the third party suppliers lead time, ( in Basic terms : the time the third party supplier needs to buy raw materials, make and deliver the end product to the primary factory).
so for example when any factory has to enforce an unplanned close down it impacts the whole of the supply chain and the ability for the whole supply chain to produce widgets.
Often the supply chain is sim biotic!
in this instance third parties, cascading down the supply chain, have to react to realign their production with the Primary Factory, in particular to limit their potential loss of revenue Due to lost sales, labour / wages, fixed & variable overhead etc)
I.e. the whole supply chain has to slow / stop their own supply chain and production, which has a Nock on effect to each and every supplier further down the supply chain (all the way back to raw material producers , mines, foundries etc), who in turn have to react as quickly as possible to minimise their loss ( due to what May look like a simple slow down / stoppage from the primary factory)
This impact on the supply process can take some considerable time to work through (think of it like a Tanker ship turning at see, it takes an inordinate time for the effect of a large steering input to be fully seen at sea)
in this instance a primary manufacturer may (or may not) be committed (depending on contractial issues) to take a supply of parts from the third party supplier (VW will not take the hit and set their contracts heavily in their favour) , VW knowing full well they cannot use those parts, (they closed the factory so they don’t want the parts delivered to their own facilities otherwise VW would have to pay for the “delivered“ goods within the contract terms). due to the unplanned closure VW will do all they can to limit their exposure (financial).
in this instance VW focus will shift to shipment of parts becoming a high priority (this situation has happened several times this year At the VW factory). in this instance clearing every available asset, to recoup potential millions & limit their potential exposure by meeting natural demand for their component parts World wide, thus freeing up as much potential income (parts sales) as possible.
This leaves the Supply chain = everyone from raw material suppliers to “added value “ suppliers feeling a financial hit for the period of the close down of the primary manufacturers and therefore leaving the third party supply chain needing to limit their financial loss? Stop supply/ production, carry on supply but not invoice for parts, sell materials to other potential markets etc ? ; knock on effect, the supplier next furthest down the line has to react in The same way and so on & so on etc.
ultimately the entire supply chain slows and stops and which stages creates a potential future hiatus in future supply.
when the primary factory decide to turn the supply chain back on (start taking product for their production needs) the supply chain may not be able to fulfil demand due to the actions they may have had to take to limit their loss from the manufacture shutting production (VW factory)
Guess what ? : the primary factory now need every part they can get their hands on to make their end products:
Parts supply from the factory (to dealers / parts resellers etc) are suspended (parts offer a lower potential income.)
Supply chain is unable to react to the Primary factories Demand, in the short term, which causes all manor of logistical issues For the VW factory meaning ?
They have to Change the master Plan ! (Again & again & again)
to try and put a perspective on the potential size and seriousness of the consequences of unplanned / interrupted production: to give you some perspective:
One electronic chip component may have a lead time of 2 years ! (Two years)
that’s one component that needs to be aligned with all other components to allow the third party manufacturer to be able to complete their product And deliver it to the primary manufacture, who will build it into their end product.
I hope this explains in very simplistic terms why there are currently issues world wide.
chuck in a global Pandemic etc and you can imagine how this has / is impacting supply chains and will continue to do so for some considerable time on and off.
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