How automotive companies can stay competitive in an era of change and uncertainty by innovating in their supply chains.
August 7, 2019
Automotive Trends and Challenges
Globally, the automotive and manufacturing segments have seen record-setting profits over the past decade. Gradually, the source of those profits has been shifting from Europe, North America, and Japan to emerging markets in the rest of the world, which means production and supply patterns are shifting too.
Regulatory pressures continue to tighten, raising costs and lowering margins. Tariffs and trade disputes are increasing costs and uncertainty. Manufacturers are evaluating and investing in new technologies, and waiting anxiously to see which will gain traction with consumers. Beyond these factors are four trends in the automotive industry that are fundamentally reshaping how we think of mobility and how we interact with vehicles: connectivity, electrification, sharing and automation. However, these innovations are not only transforming vehicles, they’re adding complexity to the supply chain. They are complicating products, the manufacturing process, and trading partner relationships. This is putting enormous pressure on automotive supply chains, from inbound supply to plants to aftermarket parts and the servicing of vehicles.
As we know, supply chain disruptions and stockouts at plants can mean stalled production lines and lost sales amounting to millions of dollars. When Aisin, a supplier to Toyota, had a plant fire in 1997, it forced Toyota to shut down production lines for two days and cost Toyota an estimated 1.46 billion dollars in revenue and 70,000 cars. And with the increasing sophistication of vehicles, comes the increasing risk of design defects, systemic component failure, and costly recalls.
Technology: Both a Problem and a Solution
To a large extent, the development of technology has driven the increasing complexity of the automobile, and consequently the automotive supply chain. But it is technology and process change that can rescue it. From Henry Ford’s black Model T, to today’s sophisticated, self-driving Tesla, complexity has grown. The average vehicle now has 30,000 parts, and year by year, the number of parts and complexity of each system and sub-system grows. From the engine and drivetrain, to new safety features, advanced driver assistance systems (ADAS), and autonomous systems, vehicles are getting ever more complex and sophisticated.
All of this complexity and sophistication requires a similarly intricate supply chain to provide the parts for manufacturing and aftermarket servicing. The typical manufacturer has thousands of suppliers, spanning multiple tiers, across the globe, which makes managing the automotive supply chain a major feat.
But it becomes much simpler if the technologies in and around vehicles was applied to the supply chain. Companies can use the same technologies and trends that are transforming vehicles to transform their supply chains.
Versions of the key trends of connectivity, electrification, sharing, and automation, can be harnessed to simplify, synchronize, optimize and automate much of the supply chain. This will bring equally transformative value to automotive companies, the same way that technologies within vehicles brings added benefits to their customers.
Because the automotive supply chain is so complex and involves high value goods, the efficiency of the supply chain has a disproportionate effect on company performance. Aligning supply with demand, reducing inventory, and optimizing transportation can save automotive companies millions of dollars a year, while simplifying supply chain management, and improving service levels to OEMs and consumers.
It starts by recognizing the automotive supply chain for what it is — not a linear chain with serial or hub-and-spoke connections, but a multi-tiered network of richly interconnected trading partners. And in today’s world, that network is seldom static. Rather, as economic and political forces buffet the industry, companies must adapt quickly, re-align inventory, make adjustments to products and production schedules, target new markets, and increasingly end old partnerships and forge new ones.
Legacy technologies, designed primarily for the enterprise, with low cadence batch processing that are “hardwired” to partners, makes for a sluggish, rigid, and immensely complex supply chain. Gains, in part, are lost in blind spots, choke points, and inefficiencies elsewhere which render the supply chain inefficient. Compounding that, decisions and optimization are based on bad data, leaving it out of touch and unresponsive to the actual market and supply chain conditions. This drives up lead times, demand and supply variability, and inventory levels, while providing poor levels of service to customers.
Connectivity with Digital Networks
Leading technologies, such as multi-party, automotive digital networks connect all trading partners, including dealers, service centers, manufacturers, all tiers of suppliers, contractors and logistics providers, to a single version of the truth (SVOT). The network digitally connects and synchronizes external systems to this SVOT, enabling OEMs, suppliers and contractors to share vital data such as demand, forecasts, inventory levels, and capacities in real-time. The network transcends silos to enable real-time data flows that can drive forecasts, orders and fulfillment, inbound and outbound logistics, and adjust them as necessary based on real-time execution data.
A digital network eliminates virtually all information lag from the system, giving companies a real-time view of their complete supply chains. This minimizes variability and uncertainty, reducing the need to carry high levels of safety stock, and enabling companies to dramatically lower their inventory levels while maintaining reliable and smooth supply, both inbound to plants and to customers and dealers. For instance, Dana Incorporated, the world leader in the supply of highly engineered drivetrain, sealing, and thermal-management technologies, implemented a digital network, and achieved remarkable results, including reducing inventory by 31 percent.
Supply Chain Control Towers for Visibility and Control
While multi-party digital networks provide a backbone for automotive industry networks, they also enable powerful multi-party solutions that are difficult, if not impossible, to achieve with traditional systems. With a network-based control tower, companies have a global view of operations, across their sites and regions.
While data is aggregated so managers can see total demand and supply to plan accordingly, the details are not lost, meaning users can drill down to view near real-time inventory, orders and shipments. With a live dashboard of the supply chain, anyone on the network has complete control of the level of detail they wish to see.
Any control tower worthy of the name should provide users with the ability not only to monitor the supply chain, but also to exert control and take corrective action when necessary. If users need to intervene, they can do so through the dashboard, drilling down to, for example, an order, and making adjustments, which are then deployed to the network or to the relevant external systems.
This level of visibility and control is especially useful in the event of a recall. With the ability to identify and track parts, assemblies and vehicles across the entire value network, OEMs and suppliers can know the scope and impact of a recall. This limits the risk of major or blanket recalls, as companies can target only the affected parts and vehicles, minimizing the cost, duration and customer inconvenience that a recall inevitably entails.
Automation and Autonomy
Control towers running on real-time digital networks, provide more powerful optimization and automation opportunities, as they have access to the full range of real-time data from across the network. They run on actual execution data and real, calculated (as opposed to static and estimated) lead times. Intelligent agents running on the network can optimize traditional areas such as forecasting, supply planning, transport planning, demand sensing and shaping, multi-tier demand and capacity collaboration, and multi-tier network planning.
Just as vehicles are becoming increasingly automated, with Level 5 autonomy on the horizon, so are the intelligent agents that are enabling the autonomous supply chain. They sense, analyze and respond to anticipate problems and resolve them autonomously with a speed and accuracy unmatched by human planners. For example, intelligent agents can identify a projected part shortage at a plant, and autonomously create or adjust an order to ensure supply and continued production.
Future of Automotive Supply Chains
The explosion of data driven by the Internet of Things (IoT) is bound to accelerate as IoT penetrates further into vehicles, factories, and the supply chain. This will only increase the need for highly scalable platforms to support business networks – ones that can provide a global view, enable rapid analysis and provide AI-assisted resolutions.
The companies that will succeed in this new economic reality will be those that effectively leverage these new technologies, in vehicles and in their supply chains, to respond quickly to changing market conditions and consumer preferences. Most importantly, they will adopt technologies like supply chain control towers that enable close collaboration with their customers, suppliers and partners to bring new products and innovations to the market quickly and efficiently.
About the Author
Nigel Duckworth is a senior strategist at One Network Enterprises, provider of a AI-enabled business network platform that enables all trading partners to manage, optimize and automate complex business processes in real time. To learn more, visit www.onenetwork.com or follow them at https://twitter.com/onenetwork.