Automotive Engineering - March 2021 - 23

COVER STORY

" In many cases
we have greater
know-how and
efficiency than
the supply base. "

FORD MOTOR CO.

ecurity at Ford's Dearborn Proving Ground was
tight on a frigid January day when we arrived
for SAE's interview with Hau Thai-Tang. The
gate guards were armed with infrared thermometers, and signs everywhere demanded masks be
worn. Not even Bill Ford was permitted on site without
a temperature check and PPE, we were told.
The reasonable and safe ground rules for our wideranging conversation with Ford's chief product platform and operations officer included sitting 10 feet
apart in an empty hall adjacent to the test track. We
elevated our voices to cut through the mask muffling.
A striking blue Mustang Mach-E provided a backdrop
for talking electrification strategy. It also gave context
for sharing his view of the other pandemic: the industry's worsening microchip shortage.
" I just had a meeting with our global Supplier Council,
our top 12 global suppliers, " noted Thai-Tang, who previously headed Ford global purchasing after more than 25
years in vehicle development. " This chip shortage is
structural; it's a fundamental imbalance between supply
and demand across all industries. " The constraint, he explained, is happening four levels down in the supply
chain - below the Tier-1s who provide the electronic controllers who buy the microchips from chip suppliers, who
buy the silicon wafers from the wafer foundries.
" It's very difficult for an OEM like Ford to call up a
chipmaker or wafer supplier and say, 'Tell me what's
happening with your production' because they'll say,

AUTOMOTIVE ENGINEERING

'You're not my customer - my contractual obligation is with the next
tier,' " he said. The sourcing crisis forced at least eight vehicle OEMs to
lose hundreds of thousands of units in production; Ford estimated a
10 to 20% loss in 1Q21 output, hitting operating earnings by up to
$2.5 billion if this level of constraints contunes through the first half
of the year, the company said. The situation also sparked an ongoing
blame game. Chipmakers fault the auto industry's obsession with low
inventories. OEMs and suppliers counter that semiconductor manufacturers have favored consumer-electronics companies because
gadgets drive most of their profits.
" The timeframe from wafer manufacturing to OEM assembly plant is
26 weeks, on average, " Thai-Tang asserted. " We needed to look a halfyear ahead to predict what the rebound was going to be. " Through the
second half of 2020 many Ford suppliers were scrambling for parts
because of intermittent COVID disruptions. When the chip shortages
started, they assumed a similar cause, " and thought that with a bit of
inventory and mix management they could recover, " he said.
What the industry didn't recognize is when auto production shut
down in spring 2020 because of COVID, causing purchase orders to dry
up in the supply chain, the silicon wafer and chip makers basically reallocated their capacity to other industries that were growing. Consumer
electronics benefited from people staying (and working) at home. Other
trends such as 5G deployment also were driving up demand.
" They did what any good business would do - they optimized channel
and mix, " Thai-Tang said. His solution to avoid similar crises: Build genuine
transparency across the value chain and gain more precise understanding
of lead times. " The wafer foundries are highly capital-intensive, so those
companies are reluctant to add incremental capacity if they're not convinced of a sustained uplift in demand, for 12 or 24 months, " he said.
March 2021 23

Automotive Engineering - March 2021

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