Lean is a buzz word when it comes to the auto supply chain. The automotive supply chain is one of the most complex supply chains out there. Taking some cues from the automotive industry supply chain on how to make the supply chain a lean mean fighting machine can help any industry reduce costs and make their supply chain more efficient.
The automobile supply chain is a complex web of vendors, manufacturers, and end users. The auto industry supply chain has moved toward a leaner approach to cut some of the fat out of their tremendous budgets. What can following some of their lead do for your business?
The Complexities of the Automotive Supply Chain
From the largest automotive suppliers to the smallest, there is a lot of pressure to optimize their processes to meet the high demand of the auto value chain. Through constant auditing, monitoring, and managing automotive industry supplier companies can keep up with the demand while ensuring the quality that is also demanded.
How do they step up the rigorous demands while making a profit and seamlessly being a part of the auto value chain? Automotive supplier delivers manufacturing excellence under lean optimization models that can help any business to improve their supply chain.
These suppliers focus on optimization, outcomes, improving capabilities and on time delivery. On top of that they also must focus on their own inbound supplies and their vendors. They have a tremendous bill to fill, and yet they evidently do it, because as we all know those automotive supply chains never stop cranking out parts and supplies for the automotive industry.
Let’s Take a Look at How the Auto Value Chain is Moving Along
The simplest answer as to how are auto supply chains so highly optimized that lean practice come naturally is that the demanding automotive industry will not settle for less. Automotive manufacturers move with great focus and communicate their needs to their vendors without any chance that they will misconceive what the manufacturer needs.
Automotive manufacturers develop clear cut requirements for their suppliers to follow. They develop strategies based on lean practices. They strictly require that suppliers adhere to performance and award accomplishment when performance goals are met.
Automotive manufacturers partner with their vendors and are great communicators and negotiators when it comes to the manufacture of OEM parts. Thanks to advances in technology it is possible for vendors to be monitored in real time. Networking across the entirety of the supply chain in real time allows for improvements in inventory replenishment, meeting cost goals, and improving logistical planning.
The goal is to:
- Implement standards across the supply chain that can be easily understood.
- Make it a common and repeatable process through out the supply chain to reduce risk.
- Consistent measuring and monitoring of the process to ensure efficiency of the process.
- Reduce processing variability.
- Continuously look for improvement solutions.
In other words, in the automotive supply chain, there is a constant focus on the supply chain and how it is doing. Additionally, from the largest auto parts chains to the smallest, everyone is instructed to look for ways to improve the process.
Rewards and Punishments
While rewarding vendors and/or punishing vendors is not unique to the automotive supply chain, they have been doing it longer and they do it consistently. For example, the MMOG, typically used, to grade suppliers in the automotive supply chain, uses an index that ranks suppliers from F1 to F3. These rankings are used often and a supplier in the chain that is not up to par can be significantly punished through contract penalties.
Is this the best way to ensure that your supply chain is performing as promised? It can be. Outlining expectations clearly in your contract and outlining potential ramifications if those expectations are not delivered can help to keep suppliers on their toes.
You do not need to be a multi-billion-dollar operation to draw up a contract that spells out what happens if your suppliers fail you. Of course, this will only work if you are not working with a one-off supplier that is the only one that makes the part that you need.
The automotive supply industry is vast. That means that if GM cannot get what they need from one vendor there is another vendor waiting in the wings to pick up that contract. A good example of an automotive supply chain failure because there were not enough vendors involved in the process is Tesla.
Tesla fell hundred of thousands of cars behind on their orders in 2018 because Elon Musk tried desperately to do what not other automotive manufacturer since Henry Ford was able to do. His vision was to manufacture the 10,000 plus parts that his cars require in house. He built his factory and he launched the attempt. Unfortunately, it failed miserably.
Additionally, Tesla ran into some problems for their electric cars when they could not get enough batteries for them. They were dependent upon a single source supplier that simply could not keep up with the pace.
While Tesla survived that go around, they may not be able to survive the next if they have not optimized their supply chain to include multi vendors that can meet their demands. Of course, if you are custom car manufacturer that is only building a hundred of so cars each quarter, then maybe Musk’s vision for his supply chain would have worked but you cannot rely on a single source vendor and mass produce vehicles. Just ask the 150,000 plus Tesla customers that paid a deposit and never got their cars in 2018.
Supply Fulfillment in the Auto Supply Chain
The automotive supply chain depends highly on several factors in their supply chain to ensure that there is never a breakdown in the supply chain including:
- Lean manufacturing practice and lean logistical practices.
- Real time responses to any issues, like meeting expectations, alerts, and logistic problems.
- Collaborative communication between the vendors, logistics, and every other part of the supply chain to quickly address any issues.
- Quick flexible response times to scheduling changes, demand and other changes.
- Corrective planning and actions based on key trends in the industry.
- Accurate forecasting responses.
- Corrective actions when goals are not met.
The key to optimizing any supply chain including those in the automotive industry is communication between suppliers, logistics, and ultimately the gaining activity. In other words, everyone must be on board with the vision.
Consider the global giant McDonald’s. They have a lean supply chain because they support their suppliers. They partner with their suppliers to help them succeed. Instead of the trickle-down model that many businesses use, they use a shared success model. The suppliers do not need to wait for the wealth to trickle down to them, they are partners in the success.
How do you manage your suppliers? Are they given opportunities to grow and improve alongside your business? Creating relationships with vendors through communication and offering incentives can help you to better negotiate inventory reduction and give you more power over the quality of the parts and supplies you receive from your supply chain.
The Key Metrics
There are a wide range of metrics that the automobile value chain uses to determine the performance of the supply chain. Those metrics can be applied to any business that wants to optimize their supply chain and create their own value chain.
Automobile parts suppliers are measured by:
- Their ability to deliver parts on time.
- The shipment accuracy.
- Quality of parts.
- Adherence to compliance standards.
- Ability to meet flexibility in demands.
Do you have key metrics set up for your supply chain? You should. How are your ranking the performance in your supply chain? Are you ranking performance? A disturbing large number of businesses, especially smaller business operations, overlook this very important part of optimizing their supply chain.
Take Your Cues
If an automotive parts manufacturer can succeed under the challenge automotive industries put on them, any supplier can do the same. You do not have to be a huge company to implement some of the supply chain strategies that the automotive industry is famous for, you just must be motivated and set up a plan.
Implementation of supply chain strategies that keep the chain lean can help to reduce costs, improve production, and ensure quality standards are being met. There is no easier way to optimize your supply chain than to take a plan that has been working for some of the giants of industry.
You can improve your supply chain with just a few tweaks to how you are doing business.