The automobile supply chain for manufacturing cars, trucks, and other vehicles is one of the most complexes in the world. It’s becoming more global too, second only to the electronics sector for the spread of suppliers, manufacturers, and other third parties around the world.
Globalization adds some unique complexity to the automobile supply chain and demands practical solutions from vehicle manufacturers and brands.
In this article, we will discuss uses of supply chain in automobiles, its challenges, solutions, and many more!
Procurement of Production Parts
In general, the supply chain of the automobile industry with other industries is similar. Several steps in product production sequentially starting from the procurement of spare parts, engine assembly, to display design.
The challenge is to maintain the spare parts that are used so that they are always in accordance with the standards and lines of work or design of a product. The necessary parts must always be available. If not, then the order of work that has been done before can change.
Operator and Equipment Management
Workers or operators in each assembly part must know exactly what equipment and components they have to install in each car unit. Clearly, all basic information and mandatory installation standards have been arranged by the production department.
It’s not only that, but the workers also need to know everything that is related to the use of tools to install spare parts to find out the correct torque settings for every single screw that exists.
Availability of Production Parts
In the automobile industry supply chain, the supply of spare parts is indeed a very important role. Procurement services must also be efficient and meet customer satisfaction aspects. Variations in vehicle parts and components must always have various preparations.
This is caused by the car model and configuration options of each motor vehicle owner. The availability of important parts must also be available to car owners for a long period of time. For example, some German car companies even supply original car parts that are more than 30 years old.
There are a number of things in the availability of spare parts production that must be standardized and integrated according to the logistics process of parts throughout the supply chain, which include estimates and planning of spare parts demand, connectivity of all partners to parts logistics systems, warehouse management of goods entering goods out, until the inventory of spare parts in the annual period.
Poor Visibility and Routing of Parts Results in Delays to Automobile Manufacturing: The average vehicle has around 30,000 individual parts. Each of those parts is either manufactured in house or sourced from a third-party provider. A delay in just one section of the supply chain can slow down the manufacture and distribution of critical components, resulting in the production line getting shut down. As automobile builders and brands move towards just-in-time manufacturing, any impact on the smooth construction and distribution of vehicles means inventory shortages and revenue loss. It’s vital that automobile supply chain managers can work well with thousands of manufacturers and suppliers to streamline parts manufacture and distribution.
Impact of External Factors Significantly Disrupts the Automobile Supply Chain: The global nature of the automobile industry makes it very sensitive to the external political, economic, environmental, the marketplace, and other factors. Tariffs, trade deals, and political maneuvering can significantly alter the costs to import and export parts and vehicles. Environmental disasters can disrupt large parts of the automotive supply chain. Changing consumer demands with a shift to more electrical vehicles and better fuel efficiency mean that buying trends are being disrupted. Automobile supply chain managers need early sight of these risks so they can understand the likely impact and plan accordingly.
Lack of Visibility and High Fixed and Variable Costs Impacts Profitability for Automobile Manufacturers: Automobile manufacturers have high fixed and variable costs throughout the supply chain.
- Investments in machinery, automation and production lines
- High staff salaries due to technical skills and unionization
- Retirement and pension provisions for employees
- Research, development and other forward-looking functions
- Utility costs to run machinery and maintain a healthy and safe working environment
- Commodities costs for buying steel, aluminum, rubber, fabrics, and other raw materials
- Third-party costs from automotive suppliers, manufacturers and logistics providers
These costs can significantly impact price points and profit margins, so it’s vital to get visibility of expenses, on both a fixed and variable basis.
Poor Quality Manufacturing Leads to Failure and Product Recalls: Some car companies have had with automobile recalls over the years. A lack of oversight and auditing in the supply chain can lead to issues with quality, resulting in vehicles not performing as expected. This damages reputation, harms revenue, and results in inefficiency and waste.
Optimize Automotive Parts Visibility, Inventory Management, and Routing Through the Supply Chain: Supply chain managers have a few options:
- Integrate all suppliers and parts manufacturers onto a common automotive order and supply chain platform. This increases visibility for a central view of parts and allows for the early identification of delays or other issues.
- Track exactly where automobile parts are at all times using IoT and similar technology. These devices can show the location of parts and products and when they are due to arrive.
- Streamline the flow of parts between automobile suppliers, manufacturers, and other third parties. This allows everyone in the automobile supply chain to be prepared to receive and process parts quickly.
- Use predictive and prescriptive analytics and AI modeling to understand the likely future demand for automobile parts and vehicles based on consumer demands, external risks, and other factors.
Introduce Effective Risk Management for the Most Likely and Impactful Potential Issues: There are several principles supply chain managers can follow to mitigate negative consequences:
- Conduct an extensive risk identification and prioritization exercise to seek out all of the potential issues that could hit the automotive supply chain. Prioritize these risks by the impact they could have, the likelihood of them happening, and the ease with which they can be mitigated or resolved.
- Get contingency and risk mitigation plans in place with key vehicle parts suppliers and manufacturers. This could include backup manufacturing, alternative logistics providers or even relocating some operations to different countries to take advantage of tariffs or trade deals.
- Analyze the automobile marketplace to understand exactly how consumer demands are changing. Build these findings into an overall strategy and understand exactly how these findings filter down into the supply chain.
Insist on Deep Visibility and Accurate Cost Controls Throughout the Automobile Supply Chain: with the right agreements, modeling, optimization, and analytics, it’s possible to accurately understand and control automotive supply and manufacturing costs:
- Get robust contracts and agreements in place with all internal and external automobile parties that accurately define costs, provides expense controls, and require reporting on meeting those targets.
- Run financial modeling and analytics that take into account the total fixed and variable costs associated with building-specific vehicles.
- Use predictive analytics to understand how automotive costs will change depending on internal and external factors.
- Audit pricing and costs on a regular basis to ensure everything is aligned with your modeling, agreements, and expected cost controls.
Introduce Stringent Quality Reporting and Visibility for Automobile Suppliers and Manufacturers: This is an issue with automobile supply chain visibility, and you can use various processes to deal with the problem:
- Agree with suppliers and manufacturers that they will conduct internal quality management checks and audits on critical parts and manufacturing processes.
- Arrange for independent, external audits of suppliers and manufacturers to ensure adherence to quality standards.
- Implement rigorous batch control and tracking to identify the source of potentially faulty parts.
Improving Supply Chain Management
Here are some guidelines to improve automobile supply chain management:
- Materials management: Collaborative efforts to developed several products and services to harmonize processes across the automobile industry for its members to utilize addressing logistical challenges.
- Finished vehicle logistics: Establishing industry standards that will reduce costs and improve the processes followed to manage the finished vehicle supply chain for the OEM and their service providers.
- Customs and trade: Import/Export goods effectively while protecting customers’ information by maintaining all data to avoid business disruption.
- Cyber initiative: Secure the exchange of information for supplier partners who collect, process, manage, access, or store OEM data.
- Packaging and labeling: Guidelines and standards for packaging, labeling, identifying, shipping, and returning throughout the automotive industry.
Use Supply Chain Design Technology to Tackle Automobile Industry Challenges
Dedicating time and resources to optimize inbound logistics sometimes takes a back seat to outbound logistics efforts. Controlling the inbound transportation network and evaluating alternate network designs can reduce costs, improve service times, and minimize asset usage.
Here are a few examples of how automobile manufacturers and suppliers have leveraged supply chain design technology to create efficient inbound supply chains.
- Facility selection: Sourcing decisions are some of the most vital ones automotive manufacturers face. This challenge is often referred to as the “off-shore vs. near-shore” or “low-cost vs. local” question. By using modeling technology, companies can make supplier and manufacturing location decisions that are optimized across the entire supply chain, identifying the tradeoffs across all the different cost elements.
- Transportation route optimization: It can be done alone or in conjunction with either supply chain optimization or simulation. Using advanced algorithms, transportation routes are defined to minimize the cost of inbound shipments, while considering realistic cost and constraint structures.
- Product flow-path optimization: The process of moving products from supply through production and eventually distribution presents myriad choices. The collective set of these choices make up a product’s flow-path through the supply chain. Modeling all the alternative flow options and using smart algorithms to determine the best choices takes the guesswork out of these decisions and provides a useful reference in boardroom discussions.
- Consolidation center selection and analysis: For a company with multiple suppliers making different products in a relatively small area, a consolidation center (CC) may be used to combine smaller shipments for fewer larger shipments and reduced transport costs. Flow path optimization can identify which products/suppliers should go to a CC, and network optimization can recommend where and how many CCs may be needed.
Facility and Manufacturing
Demand for different automobiles shifts over time to new regions or different quantities, and suppliers and cost structures change as well. Facility locations and inventory levels should also change to keep in-sync.
- Production footprint: Modeling the production footprint and analyzing varying scenarios helps a company balance existing capacity with the investment required to add additional production. This may mean investing in additional capacity in certain locations or perhaps completely moving production capacity to other facilities within the network.
- Inventory optimization: Inventory is your insurance against variability in the supply chain, but one of the biggest sources of variability in demand, and demand can be highly unpredictable, or very slow-moving, as with service parts fulfillment. LLamasoft inventory optimization recommends end-to-end stocking levels and appropriate ordering behavior after it thoroughly analyzes and automatically classifies the underlying demand patterns. This results in right-sized inventory levels.
- Network optimization: Network optimization is often a starting point for companies exploring supply chain design and can identify major improvements in cost, service, and sustainability – often leading to total supply chain savings of 10 percent or more.
With endless combinations of mode, routes, and carriers from which to choose, automobile manufacturers are turning to supply chain and transportation network design to simplify outbound logistics decision making.
Here are a few examples:
- Evaluating new modes, lanes and strategies: Using modeling technology, companies can identify optimal DC-to-customer assignments, determine the ideal mode mix and LTL/FTL combination, create optimal multi-stop delivery or pick-up routes, determine the best utilization of assets, evaluate driver work schedules and even perform service-based greenfield analysis.
- Backhaul optimization: When designing transportation networks, efficiency is the name of the game. Many manufacturers are utilizing “milk runs” or backhaul optimization in order to make the most of driver time, assets, and fuel. Transportation route planning technology enables companies to design optimal multi-stop routes.
- Considering new delivery options: Should we continue to ship our own products, or consider shipping directly from foreign suppliers? For example, a domestic auto manufacturer could analyze the costs and service times of utilizing the outbound logistics network of Chinese suppliers to deliver direct instead of first shipping to the US.
Supply chain management and assembly are no less important. Some automobile companies often separate the two. To be sure, all existing warehouses are obliged to meet national and international warehouse standards so that the entire supply chain can run smoothly.
Thus, understanding the complexity of supply chain operations is an evolving and challenging part of business management in a global economy.
Cover Image: BMW M