Rapid Change is Driving the Automotive Industry – Part I

There is no question that the automotive industry has seen rapid change and improvement over the past three years. To learn more about what is impacting the industry today, Supply Chain Nation spoke with Louis Yiakoumi, Group Publisher for Automotive Logistics magazine to get his insights for our Expert Insights series. Here is an excerpt of that conversation.

SCN: What are the biggest logistics challenges automotive OEMs and suppliers are facing today?

Yiakoumi: The automotive industry is going to change more in the next 10 or 20 years than in the previous 50 to 100 years from factors like external competition, Google cars and other new entrants coming into the market. Mobility changes will affect urban transportation because of too much traffic or to address environmental issues. We will see self-driving cars, electric cars, more car-sharing schemes like Zip cars and so on.  Those will have a big impact on the automotive industry. And one of the biggest impacts, apart from mobility, will be the increased competition. This will lead to more cost pressures for the car makers, and that will impact logistics.

One of the biggest issues for automotive logistics is its perceived relevance. A lot of car makers still don’t realize how important logistics is. For them it’s just a cost. They don’t see it as an enabler of global manufacturing and sourcing, or as a way of increasing customer loyalty through great service. They just see logistics as a cost to be eliminated.  Because of that, they don’t bring logistics into their business processes early enough. That leads to a lack of investment in logistics and the supply chain.

Transportation infrastructure is also a big issue globally for some of the most important markets that the car makers are entering. But when they look at how they should invest in logistics for their company for that region, it’s still very much about cost as opposed to what can we invest in to make sure the infrastructure’s there to make our logistics and supply chain better in the future. It’s all about how to reduce cost at this moment in time in logistics.

Globalization is obviously a big issue. There’s a trend at the moment toward near-shoring, re-shoring, or bringing manufacturing back locally, but globalization is not going to go away. And as logistics and infrastructure has started to improve in some of the big regions, we’re now moving on to the next regions where a lot of investment still needs to be made. I think selecting the right markets is a big issue for automotive logistics – where should your manufacturing be based, where should your sourcing be done? That’s going to have a big influence on automotive and logistics.

The other thing that will be changing in the next few years, as the importance of logistics is recognized, is increased logistics investment by the tiered suppliers. A lot of the suppliers still manage part by part and region by region. While that gives them the ability to get their parts for their own plan, it doesn’t lead to a global logistics and supply chain strategy. So I think that will change. But the OEM’s focus on cost and price inevitably gets passed on to their suppliers, so that impacts suppliers’ logistics investment. OEMs will have to adjust their strategies with suppliers if they want to improve logistics across the supply chain. The external challenges such as infrastructure, macroeconomics, and controlling the rise in cost across the supply chain will still be there. Therefore, enabling the most efficient use of assets and resources across the extended supply chain is going to be the main driver over the next few years.

SCN: Are the challenges different in different markets around the world?

Yiakoumi: Yes and no. We organize conferences all around the world and one of the problems we have is we could almost put the same program in any of the regions around the world. In fact, we joke that BRIC should actually mean Better Rail Infrastructure and Customs. Rail is always a big issue. Rail development, infrastructure and customs are issues globally. In North America it’s linking with Canada and Mexico. In Europe it’s linking with Russia.

Having said that, the infrastructure challenges are slightly different in each region. China often invests in resources to develop their infrastructure. Russia often invests in infrastructure, but they’re poor on world trade issues, for example. India has a slow decision-making process, usually politically driven or restricted by politics. Each region in India, even small regions, has significant power to restrict investment that could improve the whole of India. Regions will fight for what suits them best or for their own political agenda. So the issues are kind of similar—rail, customs, infrastructure improvement—but the approach or the challenges they’re facing are different in each region.

Investment from the global logistics companies in the various regions is also an issue. The car makers are waiting for more real investment from the global logistics service providers (LSPs) to become world class in the BRIC countries and emerging markets. The car makers want the investment now. They want investment in IT even though LSP’s returns will be 5 or 10 years in coming. But global logistics providers can’t afford to wait that long for their investment to come to fruition. And the LSPs are busy and profitable enough already, so there’s less incentive to invest in world class standards.

We work a lot with governments and one of the questions that nearly every government asks is how can they reduce the cost of logistics as a proportion of their GDP. Good question. The BRIC countries and the other markets are slightly less mature markets.  Logistics costs are high in these regions. But their growth is so strong that perhaps they’re not looking at how to become more efficient in the long term, which is where the real cost savings will come. I’m making very broad statements, but they’re not doing enough to look at long-term improvements and long term efficiencies, because they’re too busy managing current priorities. So you have the car makers, LSPs and the regional governments all focused on costs and short-term priorities and, in my opinion, not enough investment is going into long-term infrastructure and logistics.

SCN: Thanks for those insights, Louis. In part II of this blog, launching on February 18, Mr. Yiakoumi will discuss what automotive companies are doing to overcome these challenges, as well as what the hot topics were at the recent Automotive Logistics conference.

  1 Comment   Comment

  1. Great review of the auto supply chain and the opportunities to leap frog competition. Look forward to Part II.

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