During last week’s live webinar hosted by Automotive Logistics – Maximize supply chain resilience through integrated planning and execution – supply chain experts gathered to discuss the best way to recover from a crisis and what needs to be done to prepare for the next one.
Auto industry logistics professionals are used to dealing with supply chain challenges, but the disruption and uncertainty caused by Covid-19 has amplified two main concerns: how to generate more cash and how to avoid or mitigate the risks. The need to improve cost performance in inventory, network and logistics goes hand in hand with the need to manage variability, be it shipping delays, capacity shortages, or excess inventory.
Automotive manufacturing is a capital intensive industry and the automotive supply chain is very complex, involving the manufacture and movement of high-tech parts on global supply lines, usually on a just-in-time delivery schedule. . The industry is not good at dealing with sudden stops and starts, which put considerable pressure on the supply chain and have costly repercussions in a number of areas.
âWe spent most of 2020 in crisis management mode, managing inventory, monitoring accounts payable activity and ensuring supply stability once we had to restart the wheels,â he said. said Kelly Bysouth, Supply Chain Manager at International Automotive Components (IAC), a leading OEM supplying interior components to the majority of the world’s major automakers.
Ensuring supply stability is a particular problem for the automotive industry, especially when supply lines are suddenly interrupted, as finding alternative parts is easier said than done.
âA lot of the parts we buy in the auto industry are specific engineering parts and a lot of those parts take long lead times to get tooled,â Bysouth explained.
Identifying alternative sources of supply is one thing. Having the foresight of when to go ahead with that supply and weigh shipping options is another. It’s complicated by the fact that there is no real end-to-end visibility left in the automotive supply chain.
âMore often than not, Tier 1 suppliers don’t have the right level of visibility from an integrated supply chain perspective,â Bysouth said, â[and] the OEMs themselves – as big as they are with as many resources as they have – are also struggling.
This is evident from the current semiconductor shortage which is forcing automakers around the world to revise their production forecasts for the first quarter. Automakers send requests to their tier suppliers for information on purchasing semiconductors, but many just don’t have the answer either.
âThere are certainly opportunities for improvement [visibility] across the automotive supply chain, from OEM to the lowest level, âBysouth said.
The need for better top-to-bottom visibility is a constant demand BlueYonder hears from its customers, according to Salim Shaikh, head of digital transformation at the supply chain management software provider (formerly JDA Software). In a recent example, a leading supplier of wire harnesses and electrical distribution systems was facing accelerated costs and excess and obsolete inventory, due to the Covid disruption.
âAs we move into the March period and Covid has struck, [the supplier] realized that they were unable to respond to the rapid exchange of requests that were occurring from OEMs, âShaikh said. âOEMs would change their EDI request signal two or three times a weekâ¦ and they weren’t able to meet OEM needs due to lack of end-to-end visibility. “
In the absence of this visibility, suppliers must be more responsive and equip themselves with the tools and talents to recover quickly. According to David Breaugh, regional business manager for the Americas at Microsoft, vendors are trying to restructure their networks and rethink where to store inventory and finished goods so they can be more responsive to their markets.
âAs such, they are looking at the design of the network, to become more demand driven and really look to more data driven operating models,â he said. âIt requires a different infrastructure than most businesses don’t have today. “
OEMs and tier suppliers need better scenario planning and a robust set of contingencies to navigate not only the current crisis, but the next and next, which BlueYonder is helping automakers. For example, Renault, which previously ran sales and operations planning (S&OP) scenarios on a monthly basis, now runs them several times a week on a much faster schedule, according to Shaikh.
Another of its customers, Mahindra & Mahindra used BlueYonder aftermarket technology to reduce inventory investments by 20%, while increasing customer service agility and responsiveness. This is done through tools that provide better visibility into demand and inventory supply and distribution plans.
âReducing inventory, preserving cash flow, and harnessing machine learning and AI are the three areas we have seen traction and invested in,â Shaikh said.
However, what is also crucial is that the right transformation process is in place so that the workflow is aligned even before the technology used to make the process faster and more efficient is chosen.
âOnce you’ve spent the time defining the process you intend to use, you can do a good job of choosing which system you can apply to run that process,â Bysouth said. âMore often than not, when you do a system transformation, you find a system and then try to fit it into the process. Really, it should be the other way around.
This is something Microsoft’s Breaugh agreed with, arguing that companies shouldn’t pursue painstaking proof-of-concept pilots without first knowing what they actually want to achieve.
âRather than saying we want to use AI on something or talking about the latest technology in the Internet of Things, [we should ask] for what purpose, âhe said. âWhat are we trying to deliver? Is it about improving the level of service, launching a bunch of new products, or trying to reduce the time to market. If we can focus on the results, we can design backwards and decide which technologies need to be combined and in what order we deliver.
What is also needed for this type of change to occur is for companies to be receptive to change at the highest level of management and to be proactive in their adoption of the technology necessary to make it happen. For some companies, this is a culture change and requires commitment at the board level, said Ehap Sabri, industrial manufacturing manager for the US supply chain at KPMG.
Sabri said it’s important to have the support and commitment of top management, as business leaders talk to end users and make decisions.
“It is important that they show their support and their willingness to maintain that support,” Sabri said. “I notice some reluctance after Covid to take this trip, so it is very important to articulate the business case and the benefits.”
Another reason for hesitation in leading change, according to Sabri, is its success rate in the auto industry.
âWe don’t have a great success rate in the transformation – it’s only 30%,â he said. âThat’s why we spend a lot of time highlighting the success factors and how we can increase them. It is important.”
This success rate can also be improved by ensuring better employee satisfaction, which is linked to the deployment of tools for better visibility of the supply chain, according to Kelly Bysouth. She explained that the demand and supply planners at IAC have a tough 24/7 job due to the constant changes in demand. Equipped with better tools, these people could become the decision makers they aspired to be, rather than just âspreadsheet jockeysâ.
âThe CEO and CFO of your business need to support the transformation,â Bysouth said. âIt can’t be pushed from the ground, it has to be sponsored. It is a success factor for launching and implementing projects. You need high level sponsorship.
The next crisis for the auto industry could be imminent and being able to strike the right balance between agility, resilience and responsiveness will separate the winners from the losers.