The consequences continue to unfold on both sides of Ukraine from the invasion by Russian troops since last week. In the short term, several European factories are going to be left without a fundamental component, cables, worsening chronic supply problems.
Once again, the “just in time” (JIT) production system suffers a major setback. For almost a couple of years now, automakers have had to stop making tens of thousands of vehicles for Lack of componentsfirst due to the stoppages in Asia, then due to the closure of half the world, then due to the recovery with limited supply.
The quintessential components that have been most missed have been microchips or semiconductors, pieces of electronics that can be used for various vital -and not so vital- systems of a vehicle. Sometimes cars could be completed without them, another time there was no choice but to stop the factories.
To this problem has been added that of certain disruptions in logistics in other components, shortage of certain raw materials and rising prices. And since all this was not enough, now an armed conflict also has consequences. Ukrainian suppliers cannot work normallyRussian troops have violated its borders.
Promotional video of Ukraine supplier Leoni Wiring Systems (2017), with English audio
Ukraine, due to its attractive costs -because they are low-, even though it is not part of the European Union, it has been an attractive destination for the manufacture of wiring and cable harnesses with connectors. One of the reasons is the abundance of raw materials from the former USSR country. UkraineInvest data indicates that some 22 automobile companies have been established in the countrywith 38 production plants and some 60,000 people working.
Among the suppliers that used Ukrainian labor to manufacture cables, we can mention Forschner, Fujijura, Kromberg & Schubert, Leoni, Nexans, Prettl, SEBN, Sumitomo or Yazaki. Around 7% of all the cabling imported by the European Union came from Ukraine according to the 2020 AlixPartners international trade study. In the video above we can see how they did their job under normal conditions.
The preparation of automotive cables has been done for decades using standard mallets. Each cable has to have an exact length and thickness, go into a specific hole in a standardized connector in the form of a clip, and with several collection points made with tape so that they are not scattered. It is fundamentally manual work and difficult to automate..
On average, a modern car needs up to 5 kilometers of cables. They connect everything that runs on electricity, from a simple temperature sensor to high-voltage battery cables on electrified models. If a cable is missing, something instantly stops working.
To produce the cables, machinery, specialized labor, a significant area, million-dollar financing, tools, access to raw materials, etc. are needed. If the Ukrainian suppliers cannot work, the problem is very big, because it takes time to relocate all lost production.
At the moment we know that the BMW Group, Porsche and Volkswagen Group have had to stop the production of the factories dependent on the cables of Ukrainian origin. Many others will have to stop their lines when the stock wiring runs out, which can be a matter of days. For example, Volkswagen plant in Wolfsburg will stop in two weeks (again).
Factory of the joint venture of Ford and Sollers in Russia
Across the Ukrainian border, in Russia, there are also numerous problems. The original manufacturers that were based there have decided to stop production. Not only that, the flow of new import vehicles, components, etc. is also cut off. Manufacturers avoid physical transportation issues and penalties.
even noticed AvtoVAZ, part of the Renault Group (the most exposed of all in Russia), which has almost all of its supplier park in its country. Dependence on components subject to international sanctions will harm them, as well as the collapse of the ruble and other economic indicators that have been altered by force majeure.
The short-term solution to end the lack of stock is increase production in other factories, including those far from Europe, to compensate for the volume lost in Ukraine. All this will obviously have an additional cost for manufacturers, since the “just in time” system works fundamentally in times of peace and when the entire logistics chain works without interruptions or obstacles of any kind.