After a dark period of retrenchment caused by the economic downturn of 2008-2009, automotive companies across the globe are now investing to solve some of the most interesting challenges in supply chain management. Despite significant investments and improvements over the years, these challenges remain in most automotive companies. Renewed energy and leadership within automotive companies are now teaming with technology and process advancements to address these challenges and unlock billions of dollars of value.
In January, I published a white paper addressing this very topic titled: The Automotive Industry in the New Normal: Analysis of the Industry and its Supply Chain Opportunities. I would be interested in your feedback to understand if reports of this type are useful to your work as supply chain management professionals.
My View on a Couple of Challenges
Much of the attention in the world of supply chain management goes to high-tech and consumer industries; complex product industries such as automotive and industrial are seen as slow adopters. This is a failure to understand the different challenges faced by different industries. Furthermore, let’s face it; it was Henry Ford that brought us the assembly line and Toyota that brought us lean manufacturing as well as synchronous material flow. These were watershed breakthroughs for manufacturers and supply chain management and widely adopted across a variety of industries.
Anyone who has ever been in an automotive assembly plant should have an appreciation of the precision and synchronization required to build a high-volume product that weighs in excess of 4000 pounds and contains 20,000 detailed parts. It is this product complexity that is the major impediment to automotive companies achieving the same kind of velocity as high-tech and consumer industries. Most other manufacturing industries have the ability to provide visibility from orders and demand, to parts and supply. This is typically done through bi-directional pegging. High volume automotive manufacturers do not have the luxury of maintaining a bill of material for every order. Thus, horizontal visibility across demand and supply that is so critical to velocity and effective decision making is lost. Over the years, automotive companies across the globe have built various capabilities to cope with this challenge.
The second major challenge is vertical visibility – the ability to disaggregate business plans to tactical plans and then to operational plans, and likewise aggregate in the opposite direction. This “telescoping” challenge is common across industries, but is even more challenging in the automotive industry due to the need to integrate with complex multi-year product programs that leverage the same supply chain assets that are currently being used for production.
JDA has been studying and working on these problems for years. Technologies have evolved making these challenges solvable in practical ways. As automakers enter a new investment cycle, I believe we will see breakthroughs that will lead to dramatic improvements in demand-supply and business plan-to-operations synchronization. This will lead to unlocking tremendous value for both car companies and their multi-tiered supply chains, which include virtually every other manufacturing industry: metals, electronics, textiles, chemicals, semiconductor, tire and rubber, stamping, forging and other basic manufacturing.
The report referenced above discusses how automakers have a unique opportunity with regard to these challenges and provides details on strategies for addressing them. For example, a couple of the key strategies for demand-supply synchronization are:
- Configuration-optimized option forecasting, in which true demand is understood and statistical techniques are combined with technologies that optimize around vehicle configuration constraints across vehicle lines and regions.
- Dynamic constraint management using a synchronization tower-like capability that provides the ability to seamlessly move back and forth between sales and marketing option demand and supply chain part capacity constraints.
I would welcome the opportunity to hear from automakers on how you are seizing this unique opportunity to improve revenue while reducing costs.