The challenges of Tier 1 and 2 companies to fulfill OEM's requirements in time of COVID-19

Today, millions of cars, washing machines, smartphones and other goods use computer chips, also known as semiconductors. And now there are not enough to meet the needs of the industry.

As a result, many popular products are missing. Purchasing a PS5 game console has become almost impossible. Toyota, Ford and Volvo were forced to slow down or temporarily stop production at their factories.

Smartphone makers are also struggling as Apple warns the shortages could affect iPhone sales. Even companies that are not directly related to computer chips are suffering the shortages, such as CSSI international, an American dog grooming machine company.

Some buyers have already noticed these problems. For example, used car sales are increasing as there are not enough new cars, often filled with thousands of individual chips.

The pandemic also affected the cost of maritime transportation. According to the International Chamber of Shipping (ICS), 90% of global trade occurs by sea, a means responsible for transporting about 11,000 million tons each year.

The stress on supply chains generated by the pandemic has deepened the differences in international trade and has caused the prices of cargo containers to rise to 10 times.

Maritime cargo transport is in an atypical situation, where a global shortage of containers has been generated, leaving consequently a negative reaction in the supply chain, interrupting international trade. This has generated different theories in shipping companies who believe that the global transport crisis will continue, while the cost of the movement of goods increases, which could have therefore an impact on the rise on consumer prices.

The most important challenge for next year and the remainder of 2021 will be having the ability to adjust capacity to market demand. This ability to adapt to changes in demand will be of utmost importance by 2022, this makes investment in technology increasingly important.

It is probably a wise choice to make use of bonded warehouses to have enough inventory near the tier 1 customers to avoid breaching contracts which can result in costly penalties for tier 2 companies.

Planning will be key to achieving the integration of an efficient logistics strategy. Therefore, cost management within this planning will be essential to know how much of the need is real to sales projections. This means, a more precise calculation of imports at the international level will be necessary to improve this situation.



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