Supply Chain Management in Automotive Industry

This is a comprehensive analysis paper on supply chain management in automotive industry, discussing the industry's supply chain process, lean and agile concepts, and the role of technology. Key findings show positive market growth and the importance of flexibility in market success.

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Global Supply Chain Management
Automotive industry
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Executive summary
This is a comprehensive analysis paper on supply chain management in automotive industry;
there are three main sections to this report. First art elaborate on automotive industry and its
supply chain process with reference to different automobile manufacturing organizations. Second
part discusses the way these companies configure their supply chain with lean and agile
concepts. Third part includes information on role of technological advancement in supply chain
management. Key findings states positive market growth of automotive industry in global
market, developing markets are showing dramatic rise in sales with stagnant growth in developed
markets. Pull strategy is being used to manage supply chain as first customer demand for product
and then further processing is done. Lean and agility are key elements to manage cost, time and
quality. It is difficult to choose any one factor, rather automobile companies need to implement
both concepts, according to market demand, and flexibility plays key role in market success.
Technological advancement has brought shift in manufacturing process with implementation of
electronic data exchange, internet, and cloud computing and real time data sharing facilities.
They help in ensuring all stakeholders are kept informed and communicated continuous
regarding process, it help in reducing paper work, saves time and cost.
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Table of Contents
Executive summary.........................................................................................................................2
Introduction......................................................................................................................................4
Supply chain....................................................................................................................................4
Automotive industry........................................................................................................................5
Supply chain in automotive firm.....................................................................................................5
Key flow in automotive supply chain..........................................................................................5
Product flow.............................................................................................................................5
Information and value flow......................................................................................................6
Financial flow...........................................................................................................................6
Supply chain process....................................................................................................................6
Production planning.................................................................................................................6
Material requirement planning.................................................................................................7
Suppliers...................................................................................................................................7
The as-is process in automotive industry.................................................................................7
Distribution strategy.................................................................................................................8
Supply chain strategies by different automobile companies...........................................................8
Lean supply chain............................................................................................................................9
Agile supply chain...........................................................................................................................9
Leagile supply chain......................................................................................................................10
Role of technology in automobile supply chain............................................................................10
EDI.............................................................................................................................................11
Cloud manufacturing..................................................................................................................11
Conclusion.....................................................................................................................................12
Bibliography..................................................................................................................................13
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Introduction
Global era of business offers both opportunities and complexities. Organizations strive hard to
ensure market sustainability, minimize cost, on time delivery without compromising on quality;
all these activities together work as supply chain management (Blanchard, 2007). It aims towards
process and value maximization to customers and other stakeholders. Effective management of
supply chain helps in gaining competitive advantage. Automotive is a large scale, high
investment complex industry, its supply chain network is dynamic and complex. This paper aims
to evaluate supply chain process of automotive industry, its technological advancement and
application. This paper include introduction on supply chain, automotive industry, its supply
chain components, technological components and their role in performance enhancement.
Supply chain
Supply chain can be defined as functional process that aims to include structural and
infrastructure elements into strategy to enhance business performance (Cetinkeya & al, 2011). It
is initiated with purchase of raw material to delivery of product to end user. Further, supply chain
system of automotive industry is complex due to several components used in manufacturing
process. There is upstream to downstream integration process that is strongly connected to
create customer value and also for small vendors involved in the process. In automotive
manufacturing almost twenty thousand components are being used, these products are purchased
from several tier 1, 2 and 3 suppliers from different markets. Manufacturing process also include
different lean management process, further delivery is also complex (Babu, Prof. KVSN
Jawahar, 2012). There is intense use of technology to manage products, purchase, manufacturing
and sales. Industry factors, uneven demand; market volatility; companies trying to source
products from low cost countries to reduce manufacturing cost and other risk factors. It also
encounter product of high logistics cost, leading to need for better technological advancement to
improve automotive supply chain.
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Automotive industry
Automotive industry is encountering positive market growth in last five years with improving
economic condition and technological advancement. Industry growth rate is 4.5 percent. It is
expected that in year 2019 total industry revenue will mark $ 3 trillion (IBIS World, 2019).
Almost 1780 companies are operating in the market. Industry is performing well, however share
of developing market has increased from 30 percent in 2007 to 60 percent in the year 2012.
Despite of positive growth, key challenges encountered by industry players include complexity
of process and cost pressure due to intense competition; there are diverging markets and
manufacturer needs to adapt local market requirements; customers are more aware and seek
technology and continuous connectivity with the seller (Harvard Business Review, 2011).
Supply chain plays key role in managing these issues, by narrowing cost gap, providing new
service platforms etc.
Supply chain in automotive firm
Key flow in automotive supply chain
Product, information, value, risk and financial flow are major elements of supply chain. Each
element plays crucial role in reducing cost, enhancing effectiveness and functioning.
Product flow
It deals with product movement from starting that is purchase of raw material to end that is final
consumer. Different raw material procurement strategies are implemented by automotive
companies. For example, Tata Motors uses an e-procurement strategy to get material from
China; with this centralized procurement process with use of different technologies SAP, VCM
is implemented. Ford follows an integrated pull based system with continuous flow and stability.
It implements synchronous material flow system that ensures continuous flow of material and
product with the help of lean manufacturing. However for product delivery common strategy is
implemented in automotive industry as all organizations sell products through deals, retails and
exclusive showrooms (Chandak, et.al 2014).
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Information and value flow
Different information flow within supply chain includes inventory level, sales forecasting, order
tracking, delivery schedule and performance metric. If manufacturer fails to give information on
inventory, it might lead to reverse inventories and financial loss to suppliers and manufacturer.
Just in time is key inventory management strategy in automotive industry. Managing sales
forecast on order data causes market uncertainty, it is crucial that sales data are shared among all
partners and suppliers, it also help in reduction of bullwhip effect. Order tracking software help
manufacturer in analyzing which supplier is currently working on his order. Companies like
Mahindra and Mahindra, Tata Motors implement ERP solutions to collect real time data for
analyzing whole order process (Fasanghari, et.al, 2008).
Financial flow
It includes wide range of payments made throughout the year. Problem encountered is
streamlining the process as every supply chain transaction has account payable and receivable.
Much time, several invoices are paid at a go, which require reconciliation at later stage.
Electronic invoice presentment helps in automation of specific financial tasks, collection of
required information and posting of transaction in general ledger automatically.
Supply chain process
Production planning
Aggregate production planning is opted for production plan; it helps in calculating number of
units that need to be produced by translating the sales target into output units. For instance,
several car models are made by Tata Motors, aggregate planning will help in calculating total
number of cars that company needs to manufacture in year but it does not mention number for
each model. Scheduling is made using graphic user interface (Croxton, et.al 2001). Maruti
Suzuki is another company that implement VBSS intranet and extranet for information sharing,
vehicle tracking and production planning. Production process analysis shows cars are sent to
different units for different task and quality management. it starts with assembly of body parts to
body shell, followed by paint, then it goes to assembly shop to ensure product is assembled
according to customer specification, followed by further quality check and then to warehouse
(Kumar, 2013).
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Material requirement planning
Collection of raw material is the first step of supply chain management. Material requirement
planning facilitate in inventory requirement analysis, raw material flow, on time delivery,
consistency and reliability (D, et.al, 2014).
Suppliers
Supply chain success is strongly dependent on supplier management, their adequacy of ensuring
delivery of quality product in set time and cost. They are responsible for managing almost sixty
percent of products to assembly line. Further, other parts are brought to assembly unit using just
in time strategy to recue cost, it include parts like doors. There is presence of hierarchical
suppliers in automotive industry (Ellram & Cooper, 2013). For example, tier 1 suppliers include
globally present producer of parts such as dashboards, engine, they have their separate
manufacturing units. They make their own engineering and decision solution and work using just
in time approach. They have their own set of tier 2 suppliers who supply them assembly parts. It
include companies settled near global suppliers, it can be regional players. Tier 3 suppliers are
responsible for delivering raw materials to tier 1 and 2 suppliers. There is rising trend of
complete module outsourcing and assembly of products by actual manufacturers (Mangan, et.al.
2008).
The as-is process in automotive industry
Due to high capital intensive and cost driven strategy, automotive supply chain focus on
adopting pull business strategy, under which companies tries to build product according to
forecast and delivery.
Build to forecast strategy is less adopted approach these days, it requires sales forecasting by all
automobile companies in the industry. With the help of production plan, market demand is
analyzed and factory production schedule is made. Further, all customer order entry is analyzed
to evaluate customer demand and production schedule is made to execute work at assembly unit.
Next stage is to prepare a supplier schedule to make material planning and other production
related schedule to provide adequate material just in time of need. However, this strategy is less
popular these days due to risk of high inventory cost and loss (Suthikarnnarunai, 2008).
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Build to deliver is another strategy that evaluates annual sales made by the company, followed
by monthly sales schedules. It help in analyzing monthly demand of the product, using which
resource allocation, supplier schedule is done. Order entry is done by collecting orders from
customer, recorded in centralized system of seller. Further, feasibility check is conducted
followed by supplier scheduling and distribution planning (Mentzer, 2001).
Distribution strategy
Supply chain management starts with planning and ends with distribution to consumer. Effective
distribution plan aims to sell end products quick and effective manner. For example, Tata Motors
has opened a subsidiary named TMLD to manage all distribution and logistics activities. There is
almost 1500 sales outlet. CRM is managed through DMS software and continues support to
dealers. Export and tie up with local dealers is used for international markets.
Supply chain strategies by different automobile companies
For example, supply chain process of BMW is built to order system; it starts and ends with
customer. Under this supply chain process, firstly customer make request for the product to
dealer, which is further communicated to production headquarter in Germany and it is recorded
in centralized system. It helps in calculating cost of manufacturing and lead time. Build to stock
strategy is used to supply all parts to the assembly unit. Further, assembled unit is sent to
warehouse, tested and then transferred to dealer. Technology plays key role in supply chain
management in BMW; My SAP is being used for seamless communication among various units.
Different stages of supply chain process are discussed below.
Maruti is another automobile company; its supply chain management is based on vendor
development strategy as 74 percent production is outsourced. Key supply chain strategies
adopted by company include Kaizen, 5S, MPS. 5S strategy in supply chain aims to ensure proper
planning, standardized production through right management. 3G strategy focus on risk
management, it represent Genchi, Genbutsu and Genjitsu, which means during any accident or
abnormal situation, responsible manager should visit the location of issue, conduct proper onsite
visit to analyze the problem before taking any action to it. Lean manufacturing process is
implemented and MOS strategy for total quality management of final product.
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Mahindra and Mahindra produce different type of personal and commercial vehicles. Its key
supply chain strategies include vehicle TAT, 3p and Kanban strategy. Kanban aims to ensure just
in time approach through proper demand analysis. Three bin systems are used to manage product
and material demands. Three bins are managed at factory floor, factory store and supplier store.
It includes information regarding products requirement and availability. Empty bin signified
need for new product, just in time approach is used to fulfill these demands (mahindra.com,
2016).
Lean supply chain
Lean management aims at removal of unnecessary activities and wastage from process to reduce
cost and save time. It is a process of value stream creation to eliminate waste and work according
to schedule. Toyota is classic example of lean manufacturing; it helped the firm in reducing
waste from supply chain process, continuous improvement, removing inconsistency and over
burden. Different techniques implemented by Toyota include just in time, JIKODA, Kanban,
Total quality management. Lean management process in Toyota includes reduction in personnel
and manufacturing cost. It is achieved by re assignment of operations. Further realization of
waiting time and elimination of over production waste is done by producing according to
velocity of sales. Three primary wastes that are excessive workforce, excessive facilities and
excessive inventories are removed. Further excessive overhead expenses are controlled (Monden,
2012).
Agile supply chain
Contemporary business has widely accepted the concept of agility, business require flexibility
and adaptability towards change. It holds immense importance due to intense competition and
fast innovation. Agility in business cycle is supported with development of technology that helps
manufacturer to share database with marketers and production personnel. It helps in easy sharing
of information and problems in process. It helps business to deal with quick market change,
fragmentation maintain quality and demand. Agility helps in enhancing supply chain
responsiveness and flexibility without compromising on cost and quality. However, agility
involve cost to company, therefore management should decide on degree of agility they can
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provide and at which stage of value chain also. Five key elements of agility include alertness,
accessibility towards relevant data, ability to make quick decision based on available
information, swiftness and flexibility.
Leagile supply chain
There is integration of lean and agile supply chain concepts leading to implementation of new
concept i.e. leagile. It is done by positioning the decoupling point to respond volatility of the
market and level up streaming scheduling. It aims to enhance supply chain performance.
According to Christopher (2005), hybrid strategy is based on the concept that 80 percent of
company revenue is generated from 20 percent of its product. Further, it is possible to manage 20
percent production in lean manner with effective replenishment planning and 80 percent of
production in agile manner. Another assumption is there is set base demand for every company,
which is predictable. Therefore, this base demand must be managed in lean manner and peak
demand season should be managed in agile manner. Third assumption is to postpone the risk and
uncertainty in supply chain by postponing certain supply chain activities. Decoupling point helps
in segregating the production for lean and agile systems. This strategy aims at minimizing cost,
removing uncertainty, reducing risk and fostering stability in supply chain process. It also helps
automobile companies to become flexible and respond to changing customer demand. It gives
more scope to innovation, reducing cost, ensuring sustainability and profitability in long run.
Role of technology in automobile supply chain
Recent market is highly driven by technology; it is era of mass customization, quality and
flexibility in manufacturing. There is rising pressure of producing different products in small
batches in less time without compromising on quality. Therefore companies within automotive
industry are applying intelligent manufacturing system that include internet of things, cloud
computing, cyber physical system, data analytics to create smart working environment. This
strategy aims to ensure all physical flow and information are available whenever and wherever
required. Intelligent manufacturing system is based on science, helps in advancement of
production and integration of product life cycle using smart sensors, adaptive decision making,
intelligent device and data analytics. It provides service oriented architecture to deliver
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collaborative, customized and flexible services. Under internet of things strategy all production
resources are converted into smart manufacturing units that can act and interact with each other
automatically. It allows human to human and human to machine interactions. It helps in
producing on demand through real time data collection and sharing with various stakeholders
involved in the process. For example, Huaiji Dengyun Auto-Parts (Holding) Co., Ltd., is a SME
engine valve manufacture of automotive parts, they implemented RFID enabled shop floor
manufacturing process, it helped in providing accurate data to enable real time project visibility
(Zhong, Xu, Klotz, & Newman, 2007).
EDI
In simple terms it is an information exchange system that facilitate in sharing different company,
document and information through common interface among different parties involved in supply
chain process. Big three automobile companies such as General Motors, Ford and Chrysler offer
their first tier supplier to communicate information through EDI system. It helps in reduction of
paper work, delay in goods transit. It helps companies in communicating their material
requirement and back precise delivery schedule. For example, General Motors have a centralized
data exchange system named EDSNET that help in connecting more than 30 GM data processing
centers with over 2,000 suppliers (Koperberg, 2006). Internet also helps in managing purchase,
information exchange and order tracking in supply chain.
Cloud manufacturing
Cloud manufacturing aims to use cloud computing and virtualizing techniques to share
manufacturing resources. It is applied to complete production process including designing,
simulation, manufacturing, testing and maintenance. These techniques help in digital sharing of
resources. Cloud deployment modes, manufacturing resource modeling, demand and service
balancing are key area in clod manufacturing.
This strategy is radically changing automotive industry through expansion and development. For
example, Volkswagen is planning to implement cloud computing to launch a private cloud for
managing different websites of its sub brands. Automotive industry requires large scale
simulation, dealer’s network. Cloud computing can also help in making car manufacturing
system smart by enhancing GPS and entertainment systems within car. It also helps in enhancing
security and reducing risk of breakdown and production failures.
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Cloud computing will facilitate manufacturer in providing cost effective and scalable platform
for getting data insight and innovate new products and services by integrating various cloud,
analytics and other technologies. Manufactures can participate more effectively in collaborative
and agile development of products.
Almost all automobile manufacturing companies are adopting technology to enhance their
supply chain process. it include SAP, DMS, CRM, cloud computing, real time data sharing for
smooth product, distribution and customer relationship management.
Conclusion
Automotive industry has a complex supply chain process that require strategic planning to ensure
proper plan to deal with global market needs, different economic and social demands effectively.
There is no one strategy for all; rather supply chain strategies also need to be flexible to equip
with local market needs. Though there are challenges encountered by industry players, it
includes cost pressure, risk management and environmental issues. However, there is huge scope
or green supply chain in near future with technological advancement. Developing markets
provide further scope for industry growth, there is need for government support and
infrastructural development. Data is the new key for manage effective supply chain through
intelligent information sharing and managing processes.
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