'Flying blind' in an era of unpredictability: how data holds the key to the chip shortage
Automakers need a concrete data strategy to find their way out of the current chip shortage, writes Andrew Shaffer
The outset of 2020 brought many challenges to global markets, none of them foreseen. The automotive sector in Europe in particular was rocked by a concoction of Brexit, the onset of the COVID-19 pandemic, and the supply chain crisis that closely followed.
As the pandemic and subsequent lockdowns took drivers off the road and into the confines of their own four walls, headlines were dominated with tales of vehicle demand dropping off the edge of a cliff. As a result, OEMs reduced their production and future production forecasts to all suppliers—including chip companies. But as the majority of workers set up home offices and purchased swathes of consumer tech, demand for chips subsequently soared, committing semiconductor suppliers' inventory elsewhere where production was more efficient and profit margins were wider. Once demand for new cars safely rebounded, OEMs found themselves short of a piece of tech critical to their production line.
Now, over two years on since the current global chip shortage first materialised, there is still no broad consensus on when the automotive industry can expect these pressures to be alleviated. Whilst some are reporting that the shortage is finally beginning to ease, at Davos recently Intel Chief Executive Pat Gelsinger predicted that we are only in fact halfway through.
It's no secret that OEMs are rich in data; the issue at hand is that they should be using data better than they currently are
The numbers are stark and it seems like almost every day there is more bad news illustrating the ramifications of the chip shortage on automotive production. Just recently it was announced that UK car production fell by 11% in April as a direct result of the chip crisis. Even more recently, UK car sales in May were the second worst month on record as a result of significantly reduced inventory.
Electric vehicle (EV) manufacturing—previously a cause for optimism in this otherwise disrupted market—is similarly suffering from shortages of its own, proving not to be the silver bullet the industry was hoping for. In June, many EV manufacturers convened at the Financial Times' Future of the Car summit and were markedly hesitant at their future sales prospects.
So, in this time of continuous unpredictability, there's perhaps only one thing that's for certain—the automotive industry, and automakers in particular, can't afford to be flying blind as they attempt to navigate the challenges that confront them. Herein lies the key: data.
Unlike semiconductor chips, there isn't a shortage of data
It's no secret that OEMs are rich in data; the issue at hand is that they should be using data better than they currently are. Whether vehicle-specific or customer-specific, the data OEMs hold is vast. The challenge for the automotive industry lies in how to turn these pools of information into actionable insights that will chart a course out of their current difficulties whilst the chip shortage remains.
Many businesses are relying on siloed channels of communication which is holding them back from making the best decisions with the information they have. With the right technology, automotive businesses can be easily connected—but without, they risk missing critical intelligence on their sales and customers which is hiding in plain sight. OEMs need to ensure they have access to all of the data at their disposal and effective lines of communication are established so that they can obtain a holistic view of their customer and properly manage their sales pipeline during this uncertain time.
Transform information into insights
An extensive pool of data loses value without the expertise and intelligence required to translate it into insights. OEMs must create and maintain customer-centric data sets that directly help them optimise their manufacturing lines whilst supply is limited. For example, automakers have visibility of data that indicates which functions or features of vehicles have the highest usage. This data can be mined to produce insights on what features customers want and need. If this data is effectively utilised, OEMs can then strategically allocate their chip supply to the functions for which customers have shown there is demand. Last year, for instance, BMW removed touchscreen functionality from several of its models and offered customers affected US$500 in credit to spend on other features. Meanwhile, Ford has been building models without built-in satellite navigation.
Over two years on since the current global chip shortage first materialised, there is still no broad consensus on when the automotive industry can expect these pressures to be alleviated
This adds an extra layer of protection to the sales that are still possible, as OEMs know they have provided customers with the features they most enjoy alongside removing those features which are less important according to consumers. Similarly, production of vehicles or models without popular functions can be delayed to stretch chip inventory as far as possible.
As the future supply of semiconductor chips continues to hang in the balance with the additional problems of geopolitical uncertainty and record-high inflation lingering, the stakes only continue to rise for this industry that's caught in the middle. It's therefore perhaps optimistic to think that OEMs will find their way out of the woods, without a concrete data strategy. Navigating this prolonged crisis requires swift and informed decision-making, with data processes and management strategies that are fit for purpose and capable of reviving sales, with or without semiconductor chips.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Andrew Shaffer is Automotive Industry Principal at Treasure Data
The Automotive World Comment column is open to automotive industry decision makers and influencers. If you would like to contribute a Comment article, please contact editorial@automotiveworld.com
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