As the US opened back up for tourism, it came time to plan a road trip through Arizona. My excitement grew as I looked through Airbnb listings, restaurant reviews, and suggestions on the “Top 10 Things to do in Sedona”. That feeling didn’t last however, as my excitement turned to dismay when I discovered renting an economy car for a week would cost almost as much as my mortgage.
Traditionally, these sky high rates would have been the result of normal supply and demand fluctuations, but this year the reality is much more complicated. In fact, it is a product of bad supply chain planning and the ripple effects are impacting almost every facet of your life right now.
For rental cars, the story starts with a self-induced, worldwide supply shortage. According to the Motley Fool, rental car companies turnover their fleets, on average, every 13 months. That’s 92% of their fleet each year. When Covid hit and no one was traveling, these companies sold off their cars in order to reduce their holding costs – a good financial decision in the short term. Now, demand is rising as people are traveling again, but many customers are either unable to find or afford a rental because supply remains sparse. The shortage persists not because of a strategic decision to drive up prices, but because semiconductors are making it impossible for rental car companies to replenish their fleet with new cars.
The connection between semiconductors and rental cars may seem like a stretch, but the story continues. Consumer preferences in cars have evolved so that manufacturers are enabling more high tech functionality in their automobiles increasing the need for semiconductor chips in onboard computers. At the same time, the pandemic caused demand in personal electronics to skyrocket as people worked and entertained themselves at home during prolonged lockdowns. In that moment, chips that might have eventually ended up in cars were reallocated to meet the surging demand in personal electronics.
Semiconductors have long supply chains in general, but in May of 2021 the average lead time grew from 7 days to 18 weeks according to Bloomberg. Then, factor in the automotive manufacturer’s lead time of over 12 weeks to build a new car, and it takes roughly 7 months to get a new car. Capacity constraints on other materials for popular cars is pushing out deliveries even further and the overall supply is so limited that the cost of a new car has risen to the third highest price point on record. Yet, not even these increases in price are going to make up for the $61B in USD shortfall that the automotive industry is facing because of supply chain disruption.
With negative impact caused by siloed processes, poor supplier collaboration, limited visibility, inaccurate demand forecasting, rigid logistics the ripple effects are constraining automotive manufacturers, dealerships, and the rental car companies. And restaurants, timber mills, plastics manufacturers, personal products brands, furniture retailers, meat processing plants, coffee importers, pool chlorine producers, medical oxygen suppliers….the list goes on.
While the pandemic has created an unprecedented amount of volatility that no organization would be immune to, there is a lesson to be learned from this experience. Disruption is continuous within the supply chain as is increasing global complexity and interconnectivity between industries. Whether the cause is a deadly virus, ships stuck in canals, or simply raw materials being unavailable, there will always be disruption.
Mitigating the impacts of these disruptions requires investing in an end-to-end, predictive supply chain platform that not only monitors and manages operations across networks connecting from raw material sourcing to customers, but also has the capability to predict challenges and suggest ways to reduce negative and maximize positive outcomes.
Organizational leaders wanting to reinforce their operations to withstand and thrive in a volatile world can visit our website to learn more about the o9 Digital Brain.