The automotive supply chain for manufacturing cars, trucks and other vehicles is one of the most complex 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 automotive supply chain, and demands practical solutions from vehicle manufacturers and brands.
It's not just globalization that creates difficulties for automotive suppliers and builders. Changes in manufacturing processes, consumer demands and new, disruptive trends all impact on the vehicle supply chain network for raw materials, parts and finished automobiles. Both internal and external factors require automotive supply chain managers to minimize costs, optimize manufacturing and distribution, and ensure that parts and products get to the right organizations at the right time.
In this article, we explore some of the main challenges facing automobile manufacturers, together with the steps you can take to manage the automotive supply chain and minimize impact.
Challenge #1: 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 automotive supply chain managers can work well with thousands of manufacturers and suppliers to streamline parts manufacture and distribution.
Solution #1: Optimize Automotive Parts Visibility, Inventory Management and Routing Through the Supply Chain
This is a complex area to get under control, but 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 automotive 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 automotive 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 automotive parts and vehicles based on consumer demands, external risks and other factors.
Challenge #2: Impact of External Factors Significantly Disrupts the Automotive Supply Chain
The global nature of the automotive industry makes it very sensitive to external political, economic, environmental, 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.
Automotive supply chain managers need early sight of these risks so they can understand the likely impact and plan accordingly.
Solution #2: Introduce Effective Risk Management for the Most Likely and Impactful Potential Issues
Although every automobile manufacturer will manage risks differently, 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 overall strategy and understand exactly how these findings filter down into the supply chain.
Challenge #3: Lack of Visibility and High Fixed and Variable Costs Impacts Profitability for Automotive Manufacturers
Automotive 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.
Solution #3: Insist on Deep Visibility and Accurate Cost Controls Throughout the Automotive Supply Chain
Fortunately, 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 automotive parties that accurately defines costs, provides expense controls and requires reporting on meeting those targets.
- Run financial modeling and analytics that takes 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 modelling, agreements and expected cost controls.
Challenge #4: Poor Quality Manufacturing Leads to Failure and Product Recalls
We all remember the issues 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 reputations, harms revenue and results in inefficiency and waste.
Solution #4: Introduce Stringent Quality Reporting and Visibility for Automobile Suppliers and Manufacturers
This is an issue with automotive 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.
Other Risks in the Automotive Supply Chain
We’ve covered several of the major challenges above, but as you dig into the vehicle supply and manufacturing process more, there are many areas you can improve including:
- Accurate inventory control of raw materials, parts and finished vehicles
- Aligning production cycles with consumer demand trends
- Ensuring that all makes, models and trims of vehicles are in stock
- Forecasting future requirements based on changing marketplace tastes
Find Out How to Solve Your Automotive Supply Chain Challenges
Blume solutions provide automotive companies real-time visibility to ETA across all modes, enabling re-planning based on exceptions, tight control on freight assessorials and a more streamlined parts recall process. Blume solutions also deliver an efficient supply chain and expedite time to market, minimizing automotive companies’ carbon footprints.
Blume Digital Platform enables supply chain pioneers and visionaries to manage their trading partnerships and get real-time visibility to drive efficiency, customer satisfaction and growth. In an era of increasing customer demands, ongoing technical disruptions and consumer demands for transparency and ethics, our platform is not only open, but is also neutral amongst participants.