Developments in supply chain management in the automotive industry – the factors shaping the way components are supplied to the world’s vehicle manufacturers – are set for major change, according to a new report from the Economist Intelligence Unit, entitled Automotive supply chain management.
The total market value of the global automotive supply chain for parts and bought-in components is over $900bn, but the number of suppliers has declined dramatically over ten years, from approximately 30,000 in 1988 to less than 8,000 in 1999. Recent M&A activity and growing internationalisation of the supplier base will ensure that this decline continues, the EIU claims, with a further drop to 5,000 by 2005 forecast.
The main findings of the report are as follows:
· E-commerce and new information technology will radically reshape the whole automotive supply structure.
· Vehicle manufacturers will move increasingly towards build-to-order systems with component suppliers restructuring to meet the optimum 5-day lead times between vehicle order and delivery.
· The move to modular cars – with fewer “building blocks” – will rapidly transform operating relationships in the supply industry and accelerate sector rationalisation. Dana’s ‘rolling chassis’ initiative in Brazil and the example of Europe’s Smart car, 80% of which is assembled from modules, point the way ahead.
· A reduction in the number of platforms by the vehicle manufacturers will enhance scale opportunities and trim supplier costs.
· The EIU warns of a future shift in the balance of power between vehicle manufacturers and their suppliers – in favour of the latter. Already the global market for automotive seating is dominated by only 3 suppliers. This imbalance and concerns over dwindling added value opportunities are supporting a reassessment by the vehicle manufacturers of earlier policies on outsourcing.
· Advanced vehicle manufacturing techniques will usher in additional roles for component suppliers on the vehicle assembly lines themselves. At Renault’s Flins plant the paint shop operation is already contracted out to an external paint supplier and there are further parallels at other plants in Europe and South America.
· A key development through the 1990s, the practice of just-in-time (JIT) supply of componentry, has now almost fully realised its potential, with some vehicle companies reconsidering related practices.
· The pace of globalisation in the supply sector must be stepped up at all levels if supplier companies are to survive.
E-commerce is becoming a profoundly influential factor on all aspects of the car industry:
· E-commerce is already shaping a new and dynamic retail and marketing environment, and the vehicle manufacturers are now looking to it to revolutionise relations with suppliers and the whole way in which they manage their supply chain. Smaller supplier opportunities will be enhanced through direct Internet bids for vehicle manufacturers’ business – stepping up the level of competitiveness and internationalisation of the mix of suppliers.
· Recent moves by GM and Ford to put their purchasing operations on the Internet, thereby creating possibly the biggest e-commerce sites in the world, will speed up the purchasing process between manufacturer and supplier, cut costs and increase operating efficiencies. Ford’s AutoXchange-a joint venture with Oracle, the US software group-is predicted to have a total volume of business of around $200bn per year. Longer-term AutoXchange’s services will be made available to other vehicle manufacturers and their suppliers. GM Marketsite-a link-up with Commerce One-will be a joint venture between GM and Isuzu Motors who will together spend $500bn-$600bn on purchases made through the system, compared with the $500bn that GM alone currently spends in a year. Participants will be able to conduct transactions through on-line catalogue and a bid/quote process or an on-line auction.
· Components suppliers themselves will also purchase supplies on the web: Visteon, the Ford-owned components supplier, is already buying parts from suppliers at global web-based auctions. One of the benefits for the company was that it enabled Asian electronics firms to be included in the bidding process, which was not possible before.
· Both Ford and GM have announced plans to use the Internet to transform in-car technology and revolutionise product development. Ford has signed up with Yahoo! To supply online services in Ford vehicles from 2001. These will be combined with online maintenance, traffic and account management. GM is working with America Online to boost web based marketing and to look at ways of integrating its OnStar Telematics activities.
A rapid move towards build-to-order systems
A number of manufacturers, for example Ford and GM, are rapidly moving towards build-to-order systems on a regional basis. By only producing the vehicles that customers order and delivering them only when required, vehicle manufacturers will significantly reduce the order-to-build lead time. Toyota already claims a five-day lead time which is considerably shorter than other vehicle manufacturers have said was possible-Honda estimates that its North American factories can build and deliver in 30-45 days. In addition, manufacturers will reduce the numbers of vehicles in distribution centres while the factories could save considerable sums of money by reducing or even eliminating incentives. This will involve a sea-change in attitude and considerable upheaval in the organisation of purchasing departments.
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