The automotive industry is now using logistics in a more proactive way to provide the flexibility which is required due to diversifying model ranges. There is also the question of quality, of course. Components that have been acceptable in previous years are being failed by more stringent testing. Matthew Beecham spoke to Brad Brennan, managing director of emergency logistics specialist Evolution Time Critical.
In what ways is the automotive industry now using logistics? What are you seeing?
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We first witnessed the automotive industry’s growing appreciation of the role played by logistics through vehicle manufacturers’ acknowledgment of the cost of supply chain failure. This led to a greater resilience and realisation of the financial and reputational savings that could be made through safeguarding operations and, as understanding has developed further, logistics are now strategically used as a way of optimising production.
Vehicle manufacturers are seeking higher levels of quality, safety and production efficiency than ever before, and the effective use of logistics with in-built contingency enables the implementation of higher risk strategies that have until this time been prohibitively perilous. Growing awareness of the supply chain’s vital role in providing production efficiency has led to an increase in the visibility of operations at each stage: this transparency has given OEMs greater control of their logistics and provides a window, within which resolute strategies that safeguard operations can be put into place. An overall view of logistics networks operating within a supply chain enables vehicle manufacturers and their suppliers to work together in providing a unified contingency that is only possible where cross-chain awareness is displayed.
Whereas logistics has been previously seen simply as a method of transporting components between suppliers and OEMs, the heightened awareness of its potential role as an enabler for evolving production strategies sees operations under increasing scrutiny. This will continue to intensify as manufacturers carry on pushing boundaries and stretching the supply chain in an attempt to optimise processes.
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By GlobalDataAs supply chain operations are stretched, as an emergency logistics specialist we have to ensure a safety net that minimises the impact and likelihood of any failure. While there has been no drop off in the demand for traditional premium freight, as production strategies increase in risk and manufacturers review networks more frequently, our ability to safeguard operations is seeing logistics move out of the shadows and become an important enabler for the automotive industry.
Increasing awareness of supply chain importance and its potential for enabling more efficient processes has led to far greater visibility at all levels – manufacturers are becoming more knowledgeable of the systems, networks and lead times in place to supply them, which makes analysis and protection of operations through contingency planning more thorough and robust. The development of these more resilient processes allows for a tightening of supply chain activities, and heightens the awareness of where potential fractures are most likely, which provides a head start where just-in-time deliveries may be relied upon.
This increase in demand for proactive contingency work does not just cover the safeguarding of operations, as we have also helped manufacturers shift live production across continents without a dip in supply. The ability to enable such activity is timely, as globalised production is seeing manufacturers adopt more fleet-footed production strategies as they seek locations that provide the optimum combination of costs, dependable supply, physical capacity and market locality.
How have diversifying model ranges and fluctuating demand due to model variance changed the logistics scene?
Such trends have intensified pressure on suppliers and changed the way that lead times and forecasting are treated. Fluctuating demand, for example, can be driven by disparity in US and European trim levels, which leads to smaller stock orders for Tier 1 suppliers and a forced increase in unit cost, or resulting in inefficiency through overstocking of components.
We have seen vehicle manufacturers issue a five day fixed forecast for a number of cars, for instance, but Tier suppliers may be operating on two-week schedules to some of the suppliers who work to longer lead times. If the shorter forecasts regularly fluctuate then supply problems can be encountered as the supply chain cannot react fast enough, in which case emergency logistics is able to bridge supply and ensure continued production. This is only a short-term solution however, and consideration of suppliers’ long-term capability and requirements is crucial to avoid jeopardising steadfast production.
Volatile demand can also be the result of more than one factor combining. Fluctuating component requirement or last-minute OEM stipulation is being caused by the high diversification of special models and the unpredictability of market demand. It is another area where emergency logistics expertise has been able to bridge unstable links, but we are also able to analyse operations to predict brittle areas in the supply chain and help plan for supplier shortfall or stock excess.
One of the benefits that we have seen of the emergence of these trends is a marked improvement in inter-plant communications. Suppliers require a contingency for unplanned orders caused by model variance, which is leading to stock balancing now spanning all of a company’s facilities rather than just a single warehouse location. However, an improvement in communications between logistics providers and suppliers is vital in order to provide clarity throughout an increasingly convoluted supply chain.
To what extent are components that have been acceptable in previous years now being failed by more stringent testing? And how does that impact on your business?
Premium vehicle manufacturers are stipulating improving standards of suppliers’ component quality in order to meet the demand of increasingly sophisticated buyers, which translates into a higher rejection rate on the production line. Components have passed in-house testing but are falling short of more rigorous inspection by the OEM.
This is especially true of interior trim: a vehicle manufacturer recently told us of stocks that were rejected due to the quality in appearance of stitching on seat bases, in an area that would never be seen by the customer and did not compromise durability. Quality standards are not generally slipping; it is that manufacturers demand higher quality at the same price, and the societal expectations of sophisticated buyers is likely to drive this intensifying scrutiny year on year.
The lack of flexibility caused by the long lead times operated by some Tier suppliers jeopardises the ability to easily fill gaps in supply where component rejection has occurred. Emergency logistics is able to facilitate just-in-time deliveries that operate outside of conventional timetables, but this short-term solution does not tackle ongoing doubts over supply dependability where the need for higher quality has arisen. Pressure on suppliers is also heightened as buffer stocks, that have been utilised to maintain supply, require regeneration under intensifying quality control. If an evolving marketplace deems that components are fundamentally not fit for purpose then suppliers could be left over-stocked with obsolete components and face costly penalties in terms of inefficient production.
Have you seen changes in the way automakers are using contingency planning in the supply chain?
The remainder of this interview is available on just-auto’s QUBE Global light vehicle HVAC market- forecasts to 2030
