Demand may be up in the automotive sector, but the industry's supply chain still is struggling to recover in the post-recession economy.
Car sales could match or exceed pre-recession 2007's annual numbers (16.1 million units) by the end of 2014, Supply Chain Insights said in one of its latest reports. But the report also warns:
Unlike other industries with low margins, the automotive industry has not yet developed supply chain resiliency to weather fluctuations in demand. Over the last decade plus — while other low margin industries have refined processes and technologies to improve profitability and manage cycles and complexity — the automotive industry remains stuck in backwards thinking and old paradigms. This is especially true of the North American automotive companies…
Supply chain leaders balance growth, costs, cycles and complexity…
The automotive industry has not yet mastered the act of balancing growth, profitability, cycles and complexity while also remaining resilient in the face of fluctuating demand.
Ouch. That's a pretty direct way of saying this segment of the supply chain needs to get its house in order.
Where could the improvements start? One big issue has been keeping up with the new global gush of demand. Sales are returning to pre-recession levels, but emerging markets bring with them layers of complexity, Supply Chain Insights said.
The latest rampup in worldwide demand and sales has put pressure on suppliers, especially those further back in the supply chain, and many of them are struggling to keep up. The temporary workaround by US auto plants this year was to shorten or eliminate the summer shutdowns (typically at the beginning of July) when they retool for the production of the newest vehicles. That may have helped, but it hasn't solved the bigger issue involve with supply-demand planning.
Supply Chain Insights also sees a weak spot in the way the auto industry handles inventory and its cash-to-cash cycle. “Any improvement in inventory management, for example at the manufacturer level, is usually matched with an equal setback farther down the supply chain.”
For instance, the industry's average days of inventory climbed from 39.7 in 2000-2003 to 45.8 in 2008-2011. Last year's figure was 50.1. Inventory turns — a pretty telling indicator of how companies are balancing supply and demand cycles — is another area needing attention. On average, the automotive turned inventory 9.9 times annually between 2000 and 2012, but the percentage of change in inventory turns in that period was minue-16 percent. This means the turn rate has not improved at all.
Given these numbers, the way inventory is handled shouldn't be surprising. The industry should be working toward “total inventory reduction in the value chain,” the Supply Chain Insights report said. “Instead, [inventory] is being shuffled between various tiers of the supply chain.”
It will take time before these things come into balance, but there are steps the auto industry can take to boost its supply chain performance. Supply Chain Insights recommends culling best-practices from other industries, improving partnerships to move inventory and cash-to-cash cycles away from being a zero-sum game, and investing in digital supply chain tools, such as integrating 3D printing with CAD/CAM tools to improve supply chain design.
What's your biggest automotive supply chain pain point, and how are you fixing it?