Supply chain for the automotive industry

The supply chain for the automotive industry integrates four groups of players: original equipment manufacturers (OEMs), first-tier suppliers, sub-tier suppliers, and infrastructure suppliers.

As the automotive industry shifts from a traditional local business model to a global one, OEMs and their suppliers are experiencing much disruption and many challenges.

Key challenges faced by automotive companies

Transforming from local to global

Increasing globalization drives increased operational complexity. This requires a focus on integrating technology and processes which is costly and time consuming. While growth is clearly a goal of many automotive executives, cost reduction continues to be an important driver. The challenge is to balance these needs as well as managing supplier partners, product quality and local regulations.

Automotive companies are often restricted by local content and compliance regulations, requiring the establishment of multiple support centers across the globe. Local supply chain networks are required for accessing local markets and ensuring that products meet market-specific requirements.

Low cost country sourcing

More and more supply chains originate in low-cost countries, primarily in Asia and Eastern Europe and as a result, traditional organizational structures and business practices are being challenged. The aim is to achieve greater scale and cost efficiencies while capitalizing on rapidly expanding markets such as China and India.

Outsourcing is clearly a long term strategy. The attraction is lower employee costs and an educated labor pool. However, there are additional factors to consider such as extended lead times, quality assurance and protection of supply that need to be managed.

Transport

In local supply chains transportation is a low percentage of overall costs compared to parts and labor. Most companies do not consider transportation a core competency and outsource it to third- or fourth-party-logistics companies. Globalization increases both inbound and outbound (“move”) activity so transportation costs increase as a percentage of overall costs. Some automotive companies are considering taking control of their logistics network.

Risk in the automotive supply chain

Supply chain risks have increased due to globalization initiatives. Automakers (OEMs) are passing more responsibility down the chain to lower-tier suppliers, who often have neither the experience nor the capability to perform the tasks they are being assigned. Failures in lower tier supply can be critical so support such as engineering assistance, process and financial support are often provided by the automakers.

Supplier collaboration and visibility

Customer queries such as “where is my order?” require automakers to have scalable, repeatable, and globally consistent processes. These are necessary to track orders, goods in-transit and inventory. A combination of a systematized approach and human intervention is necessary to be effective given the diverse time zones, languages, and cultural business environments of the global automotive industry.

Companies must maintain and preferably enhance supply chain flexibility and customer responsiveness whilst managing product complexity and cost control. Designing supply chains for automotive manufacturers requires a high level of technical skill and global experience.

Supply chain for manufacturing

“Make” is a key function in the supply chain for manufacturing and has a high potential for making operational and technological improvements.

Plan --- Source --- Make --- Deliver --- Enable --- Sell

In the global marketplace, a manufacturing company is increasingly dependant on the efficiency of its extended supply chain for its success. Its ability to synchronize information and accelerate the flow of material through the supply chain is its competitive edge.

In the “make” function, actions are scheduled and managed to ensure successful production, testing, packaging and pre-delivery of manufactured goods. Most of these actions are measurable which makes them targets for continuous process improvement. Areas such as production output, quality control and employee productivity provide the main opportunities for reducing costs and speeding up production.

The manufacturing challenges

Manufacturers are faced with growing global competition, shortened product life cycles and volatile demand combined with more complex supply chains. Customers demand customized products and shorter lead times so companies have to improve their ability to deliver by evaluating shortcomings in their processes. One of hot topics currently is to encourage firms to be more demand driven rather than rely on forecasting. Visibility of information ensures the right response to changes in demand as they happen.

Process improvement tools

Profitable businesses are those firms that have extensive experience in operations management and have highly-tuned processes. Success is often achieved through the continual application of improvement methodologies, such as Just in Time, lean, six sigma, and theory of constraints (TOC), usually with the assistance of some external help. These tools can be used independently or in combination. “Lean” manufacturing, a hot topic, is a systematic approach to eliminating waste and enabling continuous improvement through asking the question “is there a better way to do this?” TOC* is a method for identifying and overcoming key bottlenecks and constraints which inhibit an organisation from achieving its manufacturing goals.

Process improvement has to be aligned with the business goals and needs to involve top management in the strategic issues affecting the supply chain.

The people factor

Various methods can be used to train, motivate, lead, and energize employees. To benefit from the more sophisticated improvement methods, it is vital to identify missing or poor management and technical skills. Some of the areas where workforce skills need to be upgraded and mastered are in the new design and simulation technologies, project management and quality assurance.

Companies that can combine process improvements in the supply chain for manufacturing with skilled, motivated and experienced employees will have the competitive advantage over their peers.

Supply Chain Consultant vs Supply Chain Company

What is the difference between a Supply Chain consultant and a Supply Chain company and how can we choose the right service provider? The answer is not immediately obvious because these terms seem to be interchangeable. However, the main difference is in the approach. Supply chain consultants provide informed and impartial advice to organizations to improve the performance of the overall supply chain. Supply chain companies typically provide a defined range of operational services based on economies of scale linked with related advice and support.


Supply Chain consultants

Most organizations are immersed in day-to-day operations and although they may recognize problems in the supply chain they lack the time or expertise to make improvements or to reduce their risk exposure.

Supply chain consultants define and specify realistic strategies but do not always stay to implement the recommendations. They develop solutions using statistical and analytical tools with the aim of integrating various disparate supply chain functions.

Supply Chain companies

Typically, supply chain companies provide industry-specific supply chain management solutions, often on a global basis. The top companies in this sector are multi-national and provide the full range of services: plan, purchase, store, move, and logistics support. They may have a pre-defined set of services and use their own proprietary technology.

When should a firm use a supply chain consultant?

The business environment changes quickly so to stay competitive firms need to move fast to keep ahead. One way to do this is to redesign or revamp the supply chain to be more responsive and flexible. Consultants devise supply chain strategies based on an organization’s operations, resources, and other capabilities.

One key objective is to harmonize and integrate activities that may have been working independently because of for example, location or product line. Using analytical tools such as Six Sigma, defects can be minimised, processes can be improved and costs reduced. Lean manufacturing, often called “lean”, aims to eliminate waste and deliver better “value” for customers. Top consultants have the qualifications and solid extensive experience in using these tools across many industries.

When should a firm use a supply chain company?

To get products to market faster, move products internationally or understand the complexities of foreign trade, the choice of an established supply chain company could be the answer. Such solution providers can help reduce costs, lower inventories and increase the speed of throughput using applicable technologies.

Supply Chain consultant or Supply Chain company?

Companies that have simple supply chains in an uncomplicated industry may not have the need for a detailed analytical assessment of their operations or a strategy review. But if they do, supply chain consultants could be the answer.

Supply chain consulting will change your bottom line

Supply chain consultants – how can they impact our bottom line?

Profitability is impacted at every stage in the supply chain where processes are running at a less-than-optimum level. Lack of visibility due to poor or limited information is a key contributor. Paying inflated prices, escalating labor rates, high inventory holding costs, too many product lines, poor transportation choices, the list goes on. Supply chain consultants are here to help you.

What keeps supply chain executives awake at night?

Data and information are vital to an efficient supply chain. A major concern is the lack of critical supply chain process visibility. Often this is due to no enterprise-wide information system and a low level of automation in areas such as forecasting, logistics and inventory management.

Focusing too narrowly on cost savings rather than reducing Total Cost of Ownership (TCO), not working on improving supplier relationships and ignoring sourcing risks, result in less than expected savings from the sourcing process.

How does a supply chain consultancy provide answers?

• Strategy and Redesign. Consultancies look for ways to streamline and rationalize the supply chain to impact the bottom line through increasing speed of operations and service, reducing complexity and increasing flexibility using technology.

• Sourcing and Procure to Pay process. Savings of up to 40% on purchased goods can be realized through streamlining the procurement process. Sourcing direct materials from low-cost countries helps companies to improve their competitiveness.

• Process Optimization. You can optimize the flow of goods and services by getting help to redesign key elements of the order-to-delivery process. Improvements are achieved by consultants using expert tools such as Six Sigma and Lean manufacturing techniques.

• Inventory Management. Inventory costs are impacted by redundant and slow-moving stock, poor demand planning and erratic production. Attention to formalizing demand planning, fine-tuning the number of stock items and managing wastage will impact the bottom line.

• Organization Restructure. As companies become more global, new capabilities and a broader knowledge of industry markets are required. Decisions need to be made on how to deal with opportunities and how to stay competitive in an inflationary environment.

Measuring success of a consulting project

Typical projects have a bottom line impact which consultancies will project as their deliverables. Some of these could be

• Up to 20% cost savings in procurement of specified commodities
• 1% to 5% of improvement in revenue through customer interfaces
• Inventory reductions reducing warehousing costs by up to 30%

Supply chain consulting can provide bottom line savings.

Consultancies vary in size, capability and price. They also vary in their range of services and level of expertise. Do research your options and take note of others’ experiences before committing time and money.

Supply chain solutions that lead to improved productivity

Supply chain productivity

What are the main supply chain solutions that lead to improved productivity? A supply chain is an integrated network of facilities and distribution options. Each link in the chain may have its own agenda which does not allow for maximum efficiency. The challenge is how to manage the overall supply chain to improve its performance across multiple locations and diverse operations.

Increasing visibility within the supply chain

Real-time data is the key here and using technology to obtain critical information will speed up business decisions. To have full visibility it is necessary to analyze every order for every customer to establish the revenue for each product. Knowing which products are not profitable means plans can be made to discontinue these lines or dispose of them.

Three main issues must be carefully balanced so that changes in customer demand can be satisfied: customer satisfaction, flexibility and inventory management.

Improve service to the customer

Automating the sales and purchasing processes, tracking and locating inventory items quickly, and ensuring accurate pricing will all improve productivity. Tracking these areas and tackling the underlying issues will contribute to productivity and will improve relationships with customers.

Use the knowledge that you have

Working with Sales and Marketing on account planning is a way of improving productivity in the supply chain through understanding customer profitability. Selecting the right relationship with profitable customers, using the most cost-effective sales process and understanding order cycles per product will produce better financial results. Developing other key internal links with production, operations and distribution personnel will also contribute to better knowledge sharing and understanding of each others’ roles.

Improve inventory performance

Improving productivity in inventory management requires reducing inventory carrying costs and obsolescence. To control and streamline inventory use proven information systems to improve forecasting and planning, match supply with customer demand, and create sales and purchasing forecasts based on specific items and time periods. Set inventory goals and track progress against those goals.

Use purchasing power

Reducing your supplier base can produce efficiencies in the supply chain. It means that fewer suppliers share your business and they can become more price-competitive. Work with suppliers to reduce inventory, streamline deliveries, and ask them to propose continuous improvements to add flexibility to your supply chain. Increasing their market share can increase your profitability.

Drive operational efficiency

Quality information makes it faster and easier for supply chain professionals to perform analyses and take appropriate corrective actions. The main supply chain solutions that lead to improved productivity combine technology and people to decrease operating expenses and optimize labor efficiency.