Weak semiconductor supplies hit car sales in India; technology-based planning can mitigate challenges: EY India

As India recuperates from the impact of COVID-19, automobile OEMs have started to witness a steady increase in vehicle demand due to the revival of car sales. However, the semiconductor industry is finding it difficult to address the increasing demand as it also caters to other industries like IT, consumer electronics, mobile and medical equipment that witnessed unprecedented demand during COVID-19. This challenge in the supply chain can be mitigated with effective technology-based planning, according to EY India report titled ‘Semiconductor supplies hitting vehicle sales: How Supply Chain challenges can be effectively managed through Digital Technology & Solutions for planning’.

Vinay Raghunath, Partner and Automotive Sector Leader, EY India, said, “Today, semiconductors are an essential part of the DNA of new age gadgets spanning smartphones, laptops and cars. The post-covid demand growth across sectors has created a sudden splurge in demand for semiconductors which is another supply chain constraint that automotive manufacturers need to prioritize and address.”

Automobile OEMs were faced with the threat of decreased consumer mobility due to work from home and lockdowns during the onset of the pandemic. Vehicle manufacturers’ projections were initially correct – during April ’20 to June ’20, which witnessed nearly near zero offtake in automobile sales. Ironically, the pandemic also witnessed an increase in demand of high-end TVs, mobile phones, entertainment systems and laptops to serve the “forced to stay at home consumers”.

Yugesh Aglawe, Partner – Supply Chain, Business Consulting, EY India, said, “The current semiconductor shortage will certainly revive with time, however other similar disruptions may occur again. Automobile manufacturers should make use of rapid what-if scenario modelling capabilities that are available in modern day Intelligent digital planning solutions to assess such risks in advance. The ones who do this will mitigate their risks better and win more often in the market.”

Semiconductor manufacturing is a complex global intertwined ecosystem, which has led to a supply chain that is vulnerable to macroeconomics, natural disasters and other factors. Semiconductor companies operate in several different countries and jurisdictions with country specific and international laws relating to health and environment regulations. One such example is the equipment for lithography, a vital step needed for front-end manufacturing, an area where one player commands more than 80% market share.