A survey of major vehicle manufacturers, Tier 1 and 2 suppliers has provided the automotive industry with the 10 most valuable logistics lessons to take into 2014. Emergency logistics specialist Evolution Time Critical has analysed production trends and market activities to highlight potentially volatile areas that have jeopardised business optimization in 2013, requiring time-sensitive contingency or re-evaluation of future strategies.
“As a provider of emergency logistics and specialist analytical services, Evolution Time Critical is an enabler for the automotive supply chain and in a position to observe the inside workings of the industry,” says Evolution Time Critical managing director, Brad Brennan. “This affords us an impartial viewpoint on evolving trends in the industry, the diverse approach of differing automotive manufacturers and suppliers, and enables the development and implementation of solutions to common problems. This is not restricted to just-in-time deliveries and bridging broken links in the supply chain, but can also provide preventative solutions as manufacturers seek ultimate production optimization.”
The survey’s top 10 lessons for the automotive industry in 2014 are as follows:
Contingency for production agility
“Increasing production agility in 2013 has driven a number of trends and posed numerous challenges for suppliers to overcome,” says Brennan. “These are broken down into four main areas: a high volume of run-out vehicle models causing fluctuations in supplier demand and stock reserves; Tier 1 customers moving production lines to develop more flexible and efficient methods; changes in OEM demand and variance of specification resulting in a need for adaptability and capacity to accept last-minute changes to orders; and fluctuating forecasting resulting in a need for effective stock balancing and inter-plant communications.
“A successful agile production footprint is dependent on a consideration of the requirements of all parties in the supply chain and a unity that allows the production cycle to work as one, which ultimately benefits OEMs, suppliers, and consumers.”
Inter-chain visibility is crucial as the economic climate continues to fluctuate and automotive manufacturers take larger risks as they seek to optimize production and costs. Financial troubles are often masked from the manufacturers by a lack of visibility beyond Tier 1 level, and bail-outs of Tier 2 and 3 suppliers are not uncommon. Increasing visibility at all levels is vital as supply chain management techniques evolve, and to avoid long-term supply shortage.
Perils of fluctuating forecasts
Fluctuating manufacturer forecasts have led to problems in markets that are both exceeding and falling short of expectations. “In markets exceeding forecasts a traditional measure to enable flexibility might be to put an extra 20% capacity in to a car’s production volume at the Request for Quotation (RFQ) stage, but the resulting costs to Tier 1 suppliers led to preparing only for predicted vehicle sales,” says Brennan. “Production downtime can occur if a vehicle far exceeds expected sales and Tier 1s have no way of increasing production to meet demand.
“Conversely, inefficiency can occur where sales are well below forecasts. Working on a five-day logistics network developed for expected sales, where the volume is lower than anticipated, suppliers are often moving on four days – this leads to inefficient operation and potentially convoluted schedules as dispatch days and quantities meander from originally schedules. Optimization of the network for reduced volumes is crucial for efficient production.”
Unified product management
The pressure on OEM logistics has been increased by more sophisticated methods for production management which involve more detailed parts call-offs from suppliers: “Instead of an agreed number of parts being required each day, some OEMs are moving towards a trend whereby they detail each part for a specific car moving down the production line,” says Brennan. “New schemes such as this have sometimes stumbled on first implementation, highlighting the need for extensive consultation and preparation at all parts of the supply chain for harmonious introduction of new methods.”
Global market variance
Fluctuation in demand between US and European models can affect trim levels and impacts the supply base, according to Tier 1 suppliers. This can lead to smaller stock orders, which can either push up unit costs or result in overstocking and inefficient operation. Moving forwards, analysis of forward planning and appreciation of the variables at all stages of the supply chain is crucial.
Supplier peak capacity
Variance of specification and fluctuating demand has led to some suppliers nearing peak capacity. This can have a negative impact on part quality, with defects not always detected until on the production line. Safety stock contingency avoids initial delays, but suppliers can struggle to replenish the diminishing safety stock and face longer delays in 2014. Consideration of suppliers’ capability and aligning longer-term requirements is vital to avoid jeopardized production.
Fluctuating supply requirements
“One Tier 1 supplier has witnessed a noticeable change in customer demand,” says Brennan. “An OEM may issue a five-day fixed forecast for a quantity of cars, but Tier 1 companies may have to issue two-week schedules for some of their suppliers who work to longer lead times. If the five-day forecasts regularly fluctuate then this can lead to supply problems and the need to pull in components to meet demand.”
Increasing quality, reducing costs
Products and components are often requiring a higher quality and complexity, necessitating a more complex process for production but without passing on increasing costs to the manufacturer. Such expectations can increase the strain on suppliers seeking to appease potentially agile customers looking for the best, most cost-effective option.
Globalized production risks
“Another problem posed by production agility has been highlighted by a Tier 1 company that we have spoken to,” says Brennan. “The OEM they supply moved production to another country. This led to the loss of large volume business at the original plant, but also introduced the problem of supporting the OEM from facilities that were previously unaccustomed to dealing with such volumes.” Such ubiquitous changes of location provide huge challenges to suppliers to maintain seamless supply of parts whilst balancing production and controlling costs.
A number of automotive manufacturers and Tier 1 suppliers have begun to actively develop the ability to transfer its employees throughout the organisation globally. The aim is to counter the inefficient application of resources that some companies have hitherto been suffering. “This not only fits in with effective supply chain balancing that we have witnessed, but gives automotive manufacturers the ability to support various global peaks in business operations driven by new model demand, model year changes and run-out editions,” says Brennan. “Companies are seeking symmetry in their global operations to avoid overlap, inefficient resources and a unified structure across all areas of their business.