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Automotive Industry Looks for Supply Chain Efficiencies

The automotive industry is going through a period of extraordinary change, one that promises to be transformative. The gasoline-fueled internal combustion engine continues to be the norm, but electric or hybrid vehicles are gaining momentum. Autonomous cars are, like objects in the mirror, closer than they appear. Tesla's CEO Elon Musk predicts that fully self-driving vehicles will be on the road by 2020.

As automotive technology veers further and further from the mechanical and electrical to the realm of the digital, Apple and Google are entering the industry. Competitive threats from these upstarts, consumer demands, and technological advances that have brought about the Internet of Things, are pressuring traditional auto makers to incorporate more – and more costly – self-driving features, such as hands-off parallel parking; and more connectivity, communications and entertainment options. Traditional automakers also continue to grapple with the complexities of global markets, global production facilities, and global suppliers.

One response by the automakers is to look for ways to save money wherever they can, enabling them to offer the emerging capabilities consumers increasingly demand, without causing sticker shock. Most automakers are gearing up to support fewer core platforms.

In the fall of 2014, for example, GM announced plans to have just four platforms by 2025.  Over the past decade, Ford halved its number of platforms. While contracting the number of platforms their cars are built on, automakers are also whittling down their number of suppliers. Ford has plans in place to decrease its roster of suppliers by 40%. Suppliers who'll end up on the winning side will be those that can best provide value: the ability to meet timing demands, achieve scale economies, keep cost down, and make the fewest mistakes.

Those looking to make the supplier cut will need to incorporate more and more efficiencies into their processes. Where will these efficiencies come from? At the highest level, many of the needed efficiencies will be derived from better planning, with more attention paid to data analysis and metrics; from finding opportunities for automation; and from replacing outdated applications (e.g., spreadsheets) with software solutions designed to improve the supply chain process.  And, when looking to become more efficient, suppliers will need to focus not just on how they work with their end customers, but on their own internal manufacturing processes.

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