The automotive supply chain is among the most complex in the world. The automotive industry is also becoming increasingly global as well, being second only to the electronics sector in terms of the spread of supplies, auto manufacturers, and other third parties that make up the overall supply chain. Globalization also adds its own unique series of automotive supply chain challenges, demanding more practical solutions from auto manufactures and automotive companies.
And it’s not just globalization that causes more difficulties for those in the auto industry. Changes in the manufacturing process, shifting consumer demand, and new and disruptive trends will significantly impact the automotive supply chain network. Both internal and external factors will require that automotive supply chain managers minimize costs, optimize their manufacturing and distribution, and ensure that all parts and products get to the right organizations at the right time.
What Is Automotive Supply Chain Management?
As its name would suggest, automotive supply chain management is specifically engaged in the automotive sector. In large part, however, the supply chain of the automotive sector can be summarized in the following steps:
- Production Lines Procurement – Generally, the supply chain within the auto industry is similar to most others. There are several steps that are part of production planning, which go from spare part procurement to engine assembly and design display. The challenge here, however, is to maintain the necessary spare parts available at hand and in accordance with the standards and production lines of the product. If these spare parts are not available, the previous order of work is susceptible to change.
- Equipment and Materials Management – Automotive supply chain managers and workers in each assembly section will need to know exactly which equipment and materials they have available to install in each unit. Ideally, all basic data and mandatory installation standards would have been arranged by the production department.
- Production Parts Availability – The supply of spare parts plays a key role in the automotive supply chain’s inventory management.
- Storage and Warehousing – While some automotive companies separate supply chain management and assembly, all existing warehouses need to meet national and international warehouse management standards so that the entire supply chain will run smoothly and without experiencing significant disruptions.
Disruptions in the Automotive Supply Chain
Pushed forward by the rise of new technologies and changing customer preferences, the number of electronics fitted on finished vehicles is also on the rise. This trend has become so widespread that cars are being increasingly called computers on wheels. The automotive industry has grown in recent years to also integrate various mobility solutions and services. The automotive electronics market has also grown significantly and is expected to do so for the foreseeable future. In 2018, the market was evaluated at around $285 billion with a compound annual growth rate (CAGR) of around 7% between 2019 and 2030.
To that end, there are four main disruptive trends that are impacting the automotive supply chain; autonomy, connectivity, electrification, and sharing. Together, they are known as ACES.
- Autonomy – Autonomous vehicles are set to become a reality as more and more computer systems are integrated into them. The process of self-driving cars has started with the advanced driver assistance system (ADAS). At the current technological level, we find ourselves at SAE Level 2 – which indicated that under specific circumstances, the cars can drive themselves. However, today’s autonomous vehicles still require constant driver monitoring, even when the conditions are somewhat constant and predictable, such as on a highway.
- Connectivity – Vehicles are also seeing an increased number of systems that allow them to exchange data between themselves or with a central hub. While most such connected systems are done primarily for entertainment purposes, safety and maintenance functionalities are also beginning to be implemented. These connected systems can be either built-in, brought-in, or tethered to the vehicle.
- Electrification – The electric car is having a significant impact on the automotive market as of late, and with good reason. That said, there are four different types of vehicles that fall under the general umbrella term of an electric car. These are the hybrid electric vehicles (HEV), plug-in HEV (PHEV), battery-powered electric vehicles (EV), and hydrogen fuel-cell vehicles (FCV). While the initial transition from traditional fossil fuels to an electrified driveline will need an increasing number of electronics, the overall shift will require fewer systems, overall. An electric car will need more control systems, sensors, and high-voltage systems, but will no longer make use of injection, ignition, and other such systems.
- Sharing – Consumer demand dictates more convenience and less overall vehicle ownership. Some alternatives that have come up, in the meantime, include ride-sharing, car-sharing, micro-transit, ride-hailing, and micro-mobility. Mobile computing services such as instant access and easy payment methods have also increased the appeal of electric vehicles.
Automotive Supply Chain Challenges
There are several challenges that can affect all top industry automotive companies and their supply chain. These include the following:
When the average vehicle consists of roughly 30,000 individual parts, and each of those parts can be manufactured either in-house or by third parties, delays in the supply chain are almost guaranteed. This can significantly slow down the manufacture and distribution of critical components, which will result in production lines being shut down. With more auto manufacturers turning to just-in-time manufacturing, such delays can only spell inventory shortages and revenue loss. It’s critical that supply chain managers will be able to work with hundreds, if not thousands of automotive manufacturers and suppliers to streamline this process. To do this, they will need to:
- Integrate all of their part manufacturers and suppliers into a common automotive order and supply chain platform. This will help increase the overall visibility, allowing for early identification of delays or other such issues.
- Track exactly where all automotive components are at all times by using IoT technology. These devices will provide real-time visibility, showing the exact location of products and raw materials, as well as when they are due to arrive.
- Streamline the flow of parts between automotive manufacturers, suppliers, and other third parties. This will allow everyone in the automotive supply chain to receive and process parts more effectively.
- Use artificial intelligence modeling, as well as prescriptive and predictive analytics to understand future demand based on external risks, consumer demand, and other such factors.
External Disruptor Factors
With the automotive industry being increasingly global, it is also becoming more sensitive to external economic, political, environmental, and other such factors. Trade deals, tariffs, and political tactics can greatly influence the costs of imports and exports of parts and finished vehicles. Environmental disasters, for instance, can disrupt large sections of global logistics. This comes in addition to the changing consumer demands towards electric vehicles and better fuel efficiency. As such, automotive supply chain managers need to be aware of these risks as soon as possible so that they can better understand their impact and plan accordingly.
To do this, they will need to introduce effective risk management strategies. Even though individual automotive manufacturers will manage and attempt to reduce risks differently, there are several common principles that all supply chain managers can follow. These include the following:
- Conducting comprehensive risk identification and prioritization exercises. These will be used to seek out any potential issues that could affect their supply chain. Risks will need to be prioritized based on their impact, likelihood, and ease by which they can be resolved or mitigated.
- Form risk mitigation and contingency plans that will include backup manufacturing, alternative logistics providers, or even relocating some key operations to different geographical locations or countries.
- Analyze the automotive marketplace to get a better understanding of changes in consumer demand. Use all of this data to constitute an overarching strategy and learn how these insights affect the supply chain as a whole.
High Fixed and Variable Costs
Automotive manufacturers have to deal with plenty of high fixed and variable costs all throughout their respective supply chains. These costs can include everything from production lines, machinery, automation investments, high salaries, R&D, utility costs, raw materials, and third parties. All of these costs, put together, can significantly impact the overall price point and bottom line, making it vital to increase expense visibility.
Luckily, with the right modeling, optimization, and analytics tools, it’s possible to get a better handle on these supply and manufacturing costs. To do so, supply chain managers will have to:
- Acquire robust contracts and agreements with all internal and external automotive partners and third parties. These contracts need to define costs, provide expense controls, and require reporting to ensure that the targets are being met.
- Run financial modeling and analytics systems that analyze the total fixed and variable costs associated with building vehicles.
- Utilize predictive analytics to get a better understanding of how automotive costs change depending on both internal and external factors.
- Audit costs and pricing on a regular basis to ensure that everything is in line with your analytical models, third-party agreements, and cost controls.
Substandard Quality Manufacturing
In general, a lack of oversight and auditing of the supply chain has led to quality issues, which resulted in vehicles not performing as expected. As a consequence, there have been many vehicle recalls over the years. This will not only result in inefficiency and waste but will also harm revenue and damage the automotive manufacturer’s reputation. To counteract these issue of automotive supply chain visibility, managers will have to:
- Come to an agreement with both manufacturers and suppliers on conducting regular internal quality management checks and audits on all critical areas of the manufacturing process.
- Arrange for external audits on auto manufacturers and suppliers that are independent and able to ensure the adherence to all quality standards.
- Implement rigorous tracking and batch control to identify the source of any faulty parts before they reach the assembly line.
Other Automotive Supply Chain Risks
While the above are some of the most immediate automotive supply chain challenges, there are other areas that can stand from some additional improvement. These include things such as:
- Aligning production cycles with changing consumer demand.
- Accurate inventory management of parts, finished vehicles, and raw materials.
- Ensuring that all vehicle models, makes, and trims are in stock.
- Analyzing and forecasting requirements based on evolving marketplace trends.
To effectively satisfy and adapt to these challenges, automotive supply chain managers will need to:
- Match their products and services with demand, based on growing component clusters.
- Develop partnerships with professional third parties as a means of accelerating development, increase the speed to market, and reduce risks by sharing them.
- Take the changing consumer demand and marketplace trends to reorganize and/or relocate production and warehousing locations.
- Optimize and reduce costs by implementing an integrated and digital supply chain.
Integrating Inbound and Outbound Logistics
To improve their supply chain and risk management, managers will need to integrate their inbound and outbound logistics processes. While these are critical elements of the overall supply chain, they are often siloed. This means that when a disruption occurs on the inbound side of logistics, the outbound transport planners have a difficult time trying to adjust accordingly. However, by integrating the two processes through a shared IT infrastructure, such as a transportation management system (TMS), supply chain managers can ensure that both sides of the logistics are aware of each others’ actions, lowering the incidence of production line disruptions.
You might even be able to leverage Internet of Things (IoT) devices to keep track of raw materials throughout the supply chain and never be left unaware if and when a disruption occurs. You can quickly switch to your buffer stock, reshuffle your production schedule, or contact a different logistics service provider, instead of having to stop production altogether. This will help improve throughput, as well as on-time customer delivery.
At the end of the day, this seamless integration between inbound and outbound logistics sits at the foundation of any supply chain optimization efforts. The reason is that, without any high level of real-time visibility and transparency shared between the two, it will be incredibly difficult, if not impossible, to accurately predict the outcome and consequences of any proposed changes. You can implement new initiatives in inventory management, route planning, production planning, asset management, or operations planning, but without having access to mission-critical, master data from inbound and outbound logistics, you’re, more or less, operating in the dark.
If you want to take advantage of all that today’s technology has to offer and are looking to partner up with a professional third-party logistics service provider, RedBird Logistics is at your service. Our supply chain solutions and logistics services will ensure that your operations will be digitally transformed and will be on top of all industry best practices. For more information, feel free to contact us directly!