The automotive supply chain is one of the most sensitive, complex and fine tuned supplies chain in the world. The reason for this is that car manufacturing is a global industry, with various suppliers and vendors located in different countries. A car brand may be German, American or Japanese, but parts of it were made in China, Turkey, Romania, Poland or elsewhere.
Imagine juggling dozens of suppliers each situated in another country and in a different time zone. It would be next to impossible without a few basic requirements:
- Effective communication channels
- Standardization in packaging materials and transportation
- Clear processes that can be reproduced by implementation anywhere
- Simple and traceable order processing.
How the Automotive Supply Chain Grew to This Level of Complexity
The reason for such a complex logistic loop within the automotive supply chain is simple: competition. There are dozens of car brands and hundreds of thousands of vendors for them, manufacturing anything from windshields to car seats or small components.
The days when a car brand could manufacture everything in-house are long gone. Tesla attempted to do so in 2018, and ended up unable to deliver 150,000 pre-ordered automobiles on time. Cars have become extremely complex and outsourcing manufacturing is a basic necessity in order to:
- Reduce labor costs, with a direct impact on pricing policy
- Scale up production to meet increased demand
- Make sure that each part is manufactured in specialized facilities, according to specific standards.
What Other Industries Should Learn from the Automotive Supply Chain
Although unique in its complexity, the auto supply chain is not a separate entity from other supply chains. Actually, the level of specialization it reached should be an example for logistics managers across the world. There are valuable lessons to be learned from the way car brands manage their many suppliers and production facilities.
The most important aspects that should grow into best practices in all industries, according to the experts at Logistic Packaging, are:
1. Implementing Lean Logistics Processes
Simplicity is the hardest thing to achieve, but it is rewarding. Lean logistic processes are transparent and traceable. Each part involved has control and accountability over their share of work.
In the automotive supply chain, lean logistics allow companies to:
- Respond to any issues in real time
- Create accurate forecasting
- Identify corrective actions when any party falls behind in reaching their assigned targets and goals.
2. Empowering Suppliers and Holding Them Accountable
What happens when one of the suppliers of Volkswagen Group cannot deliver an order on time? The decision makers will quickly find another supplier and apply contract penalties to the defaulting vendor. At the same time, a vendor that constantly meets their goals receives more orders and is privileged in payment terms and conditions.
This how the automotive supply chain maintains high standards among suppliers: by applying a system of rewards and penalties. The system is so well perfected that it allows new vendors to enter the logistic loop and removes those that cannot meet their contractual obligations.
3. Standardization Helps Everyone Join the Logistic Loop
There is a lot of standardization in the automotive supply chain. At Logistic Packaging, we experience it every day through the specialized packaging we produce for our clients in the auto industry.
For instance, Galia containers and VDA-KLT containers are standard packaging materials for the French, respectively, German auto industry. Each model has a unique code, which allows suppliers to be able to order the exact product they need from any professional packaging producer. When discussing with a potential new supplier, the representatives of the car brand simply tell them what type of packaging they must ship their products in.
4. Implementing Relevant KPIs for Suppliers
Constant evaluation of the suppliers is what keeps the automotive supply chain lean, productive and cost-effective. The main problem is finding relevant KPIs (key performance indicators) to use in performing this evaluation.
For the auto industry, some of the KPIs are:
- Quality of products and average number of rejected parts per order
- Ability to meet tight deadlines
- Flexibility in adapting to new order quantities
- Accuracy in packaging and shipping procedures
- Adherence to compliance policies and standards.
5. Collaboration, Not Competition among Stakeholders
To speak in auto terms, each vendor in the automotive supply chain is a cog in a complex mechanism, not an individual competitor in a car race. There is a lot of transparent communication between suppliers in order to make sure that orders are delivered in a logical order so that the car assembly lines work smoothly at all times.
It is worthwhile looking at ways of implementing a similar policy among your various suppliers. Instead of getting flooded with orders of one type of products while stocks are low on the other, find ways to bring all suppliers on the same page and encourage them to coordinate with each other.