Content provided in partnership with

Automotive Industry

Automotive supply chain management: as good as it gets? Many observers agree that the automotive industry is running its supply chain well. They also agree there's room for improvement

Automotive Design & Production, Feb, 2003 by Lawrence S. Gould

The best Tier 1 suppliers, come "very, very close to 100% perfect orders," says Scott Lundstrom, chief technology officer, AMR Research (Boston, MA). They score perfect deliveries 98% to 99% of the time. Yet a 90% perfect-order score, unheard of in any other industry AMR surveyed, is considered a "failing grade" in automotive. Moreover, the difference in a supplier's "strong" performance versus another supplier's "weak" performance, as measured by perfect-order fulfillment, is a mere 6%. "That is the equivalent between an A+ and a C-. That's how demanding the automotive environment is." exclaims Lundstrom. "The demand is not so much about being an excellent supply chain company. The demand is about what's next."

More Articles of Interest: Supply Chain vs. Supply Chain - automotive industry distribution - Brief Article; Driving the Automotive Supply Chain for Global Competitiveness; Can supply chain management survive GM?(strike at General Motors...; Auto gets lean - lean production in car manufacturing industry; Parts tracing drives automotive supply chain: government regulations and...

Being "perfect"

In technological terms, according to AMR, the better automotive Tier 1 suppliers use more packaged software applications and system. They also use "slightly more" e-business, though Lundstrom admits this is deceiving because "automotive has shared data for many years to a degree that's unprecedented in most other industries."

More important, the major difference between "strong" and "weak"--"best" and "worst"--lies in the supplier's commitment to "best practices." The best suppliers are focused on process excellence. They insert technology where they've already improved processes to minimize costs. "Best practices are things that people do," says Lundstrom (emphasis added). Unfortunately, not everybody quite understands this. Too many suppliers struggling to better their perfect-order performance, continues Lundstrom, have "bought into the notion that somehow they can implement their way into a better supply chain. They can not. Technology helps, but technology does not fix fundamental, underlying business process problems in the supply chain."

So forget about silver-bullet software implementations.

"Best" suppliers are also focused on supplier integration, on what and how data are shared up and down the supply chain. For example, an OEM will fully disclose order information and inventory requirements to a Tier 1 as soon as the OEM knows those requirements. The Tier 1 will then fully disclose that information to its Tier 2 suppliers.

"Automotive is an anomaly. You don't find too many supply chains operating with the same purposefulness and degree of information exchange," says Lundstrom.

Of course, this all comes as a double-edged sword. Technology costs. Perfection has a price. There's a fine balance between retaining customers and destroying profit margins. AMR found that the difference in total supply chain management (SCM) costs between the "best" and "worst" automotive suppliers is half the cost. Expressed as a percent of revenue, 20% of the revenue of a Tier 1 automotive supplier is the difference in SCM costs between the best and worst performers.

Given such "perfection," what should the automotive industry look for to improve its supply chain? "It's not so much whose supply chain automotive should model, but whose business model automotive should adopt," says Lundstrom. Which leads to a discussion about automotive's physical supply chain. But first, let's address two other automotive supply chains.

The design supply chain

According to Detroit-based ClMdata, the automotive industry has a design (or intellectual property) supply chain. There, says Ken Amann, ClMdata's director of research, the automotive industry is making progress in effective integration. But it still has a ways to go.

OEMs and Tier is are aggressively pursuing what ClMdata calls "collaborative product development"--collaborative product design and design chain management, which includes such basic issues as working with suppliers, sharing designs and design activities, and realizing that they're not going to do it all themselves. The larger issue in outsourcing design work is in bringing people together more effectively into the overall environment so that all can be managed more effectively.

Such collaboration is not just a technology issue. It's also an operational issue, which involves cultural, organizational, and ownership issues, says Amann. "The technologies provided by the product lifecycle management suppliers are the enablers that allow these collaborative environments to happen. You can't just put the environment out there and expect it to work." For example, how do OEMs and suppliers handle design review-and-approval processes, as well as security and privacy issues? Guaranteed, now that these processes involve different companies, organizational structures, and people, you can't assume the processes are going to work the way they have in the past.

The customer data supply chain

Another challenge, according to Bob Pethick, lead director for automotive and industrial for Pittiglio Rabin Todd & McGrath's at its Detroit office, is in accessing customer data that's meaningful to help drive the supply chain. To date, most automotive customer data reside in dealer management systems, which "are contracted, bought, and paid for by the dealers themselves," says Pethick. "Dealers have been very protective about their customer data, especially since the OEMs a few years ago announced they were going to try to disintermediate the dealer chain."

Automotive Industry

Automotive supply chain management: as good as it gets? Many observers agree that the automotive industry is running its supply chain well. They also agree there's room for improvement

Automotive Design & Production, Feb, 2003 by Lawrence S. Gould

Find Research Guides for:

Find Featured Titles for: Sports

Most Popular Articles in Autos

Most Popular Publications in Autos