5 Critical Supply Chain Competency Improvements Needed in the Automotive Sector
The 11th annual Automotive Logistics Europe conference was held in in Bonn, Germany last week for two days of intense networking, discussions and learning.
The discussions were focused on worldwide automotive trends and challenges and tackling lingering inefficiencies in European supply chains. According to IHS Michael Robinet, though the West European light vehicle production is expected to fall 6% in 2013, the overall outlook for the automotive sector is positive, with single digit growth till 2020.
Despite the global economic situation, whether it is a sequester in the US or under-utilized capacity in Europe, the automotive supply chain continues to rapidly evolve driven by fundamental changes in operating models, product platforms, operating models and the supply, production and distribution footprint across the world.
One key trend specifically caught my attention. German premium brands aside, most OEMs are adopting a more regional model of production of vehicles. OEMs are largely settling to a “global source – regional make – regional sell” operating model. Michael Robinet of IHS pointed out that a push for more regionally-based vehicle production will likely lead to lower levels of exportation of finished vehicles from one region to another. However, the consolidation of global vehicle platforms across regions continues to drive an inter-regional flow of parts and components across the globe. In this regard, Helge Wöbke, head of logistics for Europe, Middle East and Africa at TRW Automotive, pointed out that even with a regional operating model, it is not practical for much of the supply base to co-locate across multiple regions. Ford’s Bert Bong, who last year took over as manager of material flow and supply chain management at Ford Europe indicated a significant increase in material and components from Ford’s European operations to other parts of the globe.
I believe that this trend requires a fundamental change in supply chain management. OEMs and suppliers need global visibility in order to align and synchronize multi-tiered supply chains for fast responses to demand and supply changes, and to make intelligent tradeoff decisions based on real insights. In my opinion, the automotive sector needs significant improvement in some of critical enterprise competencies:
- Improving visibility, alignment and synchronization across functions, and more importantly across the supply chain, and with a focus on customer service. This is critical given gradual reduction in vehicle inventory in the channel and working capital reduction pressure across all supply chain stakeholders.
- Supply risk management – where companies need to develop core capabilities to detect supply and capacity problems, assess the impact, come up with business tradeoffs and publish the change.
- Speed and accuracy of decision making is critical. In this case, automotive companies need to focus on capacity planning and capacity constraint management disciplines and processes in order to remove unnecessary latency and lack of visibility across the value chain.
- Collaboration across stakeholders – collaboration is not merely passing data between partners. It is about context and content specific collaboration to understand who is impacted by a change and mutually resolve it inside and outside the enterprise.
- Companies need to eliminate information latency between strategic, tactical and execution windows and eliminate the artificial boundaries. For example, a static monthly S&OP reporting cadence is not sufficient. Tying it to weekly and daily execution is critical. A seamless flow through planning timeframes is possible only if companies diligently work towards removing the patchwork of applications and Excel. S&OP, capacity planning, constraint management and inventory management processes need to be revisited to establish discipline and alignment in decision making required for globally distributed supply chains.
By the way, there were many great photos taken at the event and you can check them out on the Automotive Logistics Facebook page.