When asked how his company is managing the fallout of a microchip shortage that has crippled the automotive industry, Neil Boehm paused.
“There’s a chip shortage?” he asked sarcastically.
It was a moment of levity from the Chief Technology Officer at Zeeland-based Tier 1 auto supplier Gentex Corp., which produces digital vision, connected car, dimmable glass and other technologies for the global automotive sector.
The shortage of semiconductors, paired with a variety of additional supply chain pressures, has come to define the new operational normal in the auto industry. Automakers continue to delay releases and halt production based on the availability of materials. That volatility has trickled down the rest of the supply chain.
“It’s not just semiconductors — I think that’s the relatively easy thing to continue to talk about,” Boehm said. “It’s multiple materials. … There is a lot of variability in what’s available and what do you do if you can’t get it.”
In its most recent quarterly earnings report released at the end of last month, Gentex reported strong sales over the three-month period, but noted its performance was reined in by order volatility. In fact, CEO Steve Downing estimated in the report that Gentex delayed the production of 2 million units, which the company originally planned to ship, because of order cancellation and volatility.
As an example, General Motors announced last month that it was shutting down a couple of truck plants, all while Gentex was building parts it intended to ship to those facilities, Boehm said. Since many of those components could not be used for other vehicles, they will sit until production resumes.
“Trying to get notice earlier is very, very difficult from an OEM side. They’re getting notices really late, as well,” Boehm said. “We’re starting to see some improvement on (advanced notices). As this issue goes forward into the second half of the year, it’s our hope that it gets better. That will actually help us manage our material side better.”
Boehm also noted that Gentex has traditionally carried a large inventory to more efficiently meet the needs of OEMs, so the company’s additional inventory isn’t cause for concern.
“As we build up inventory, and GM shuts down, it doesn’t worry or concern us because we know that once those lines come back up, they’ll take the parts,” Boehm said.
As a producer of high-tech products itself, Gentex had to also find ways to effectively source the materials it needed.
One strength for the company is its vertical integration: Gentex designs, develops and manufactures products all in-house.
This has allowed Gentex to work with its customers to redesign parts with materials it had readily available and get them out in the field as quickly as possible.
“It’s not been without a lot of sleepless nights and a lot of work from the teams, but it’s gone relatively well for us,” Boehm said.
Laurie Harbour, president and CEO of Harbour Results Inc., a Southfield-based manufacturing consultancy, routinely works with small to mid-size manufactures to achieve financial and operational outcomes. From her perspective, auto suppliers certainly have no shortage of problems to contend with in today’s market climate.
“The people I’ve talked to — members of the supplier community — have said that this is a hands-down challenging situation,” Harbour said. “They are really struggling on an ongoing basis to figure out what to produce today or tomorrow or the next day. It’s just a crazy situation and they don’t really know how to sustain it right now.”
Harbour foresees the issues hanging around through next year, noting that only some of these challenges are related to the ongoing pandemic and that existing problems have exacerbated the situation.
“It’s total chaos right now,” she said. “ I just think it’s going to be that way for quite some time.”
Harbour advocates for flexibility and communication to help auto suppliers manage through the chaos.
“You have to absolutely modify how you operate,” Harbour said. “You can be more flexible. I’ve been preaching that for years. In doing that, they’ll ultimately drive more efficiency and have more ability to react.”
“It comes down to leadership,” she added. “It’s about leaders making the decision to do something different than they’ve done in the past. Without leadership, we’re just not going to get there.”
Harbour also noted that many leaders have yet to prove their mettle during times of crisis, making an unprecedented event like the COVID-19 pandemic all the more challenging.
Accurate Machine and Tool Ltd. brings the perspective of a company that supplies a variety of industries in addition to automotive.
The family-owned metal stamping and sub-assembly operation is based in Toronto but maintains a location in Middleville, where it recently finished construction on a 26,000-square-foot expansion and added a 1,000-ton press/transfer system.
When company President and CEO Peter Bodi looks across the segments of his business, he said that automotive easily stands out right now for its excess of operationional headaches.
“Certainly, from a consistent production standpoint, the automotive industry is the most volatile,” he said. “But in terms of pure business demand, everybody is pretty hot right now. The whole economy — construction, appliances — everything is hot and everything is busy.”
Accurate Machine and Tool serves Tier 1 automotive suppliers like Magna International Inc. and Denso Corp., which bear the initial brunt of the production slowdowns and delayed vehicle releases. This has trickled down to Accurate Machine and manifests itself in the form of high inventory levels, Bodi said.
“We made a bunch of parts and then we don’t need them for a month,” Bodi said. “The good news is, from what we can tell, demand is going to be very strong well into next year, but it’s a bit of an inconvenience in terms of having to hold inventory.”
While he could certainly do without the added stress and volatility, Bodi maintains a positive outlook on what is to come for the automotive segment of his business.
“The general consensus in the automotive sector seems to be that the middle of next year to the end of next year is going to be strong,” he said. “So sitting on the inventory is not ideal, but it’s also not going to be fatal. The money will come in, you just have to sit on it for a little bit.”
News coverage in the manufacturing section of MiBiz is made possible by advertising support from The Michigan Economic Development Corporation. MEDC markets Michigan as the place to do business, assists businesses in their growth strategies and fosters the growth of vibrant communities across the state. This advertisement has no effect on editorial consideration in MiBiz.