The automotive supply chain is grappling with ever more complex and often contradictory challenges as vehicle manufacturers pursue increasingly diverse solutions to shifts in customer expectations and geographic demand. Robert Wright spoke to Brad Brennan, Managing Director of emergency logistics specialist, Evolution Time Critical, about the importance of logistics flexibility and the growing recognition of how integrating premium freight into an optimised supply schedule can help to offset increased risk.
Increasing supply chain complexity is a key influence on the risk of failure for companies operating globalised production strategies. This is exactly the approach taken by the majority of vehicle manufacturers, who are seeking the most cost-effective and dependable supply to multiple locations worldwide, against a background of vehicle production volumes rising by close to 4% in 2014 against the prior year and likely to continue growing. A greater focus on logistics planning is vital to safeguard operations as vehicle manufacturers seek to optimise processes and production.
“The automotive industry supply chain is grappling with a range of factors that together present a challenge significantly tougher than anything seen before,” says Brennan, who lists the challenges: a greater variance of models; increased personalisation of vehicle specifications; higher quality expectations from both manufacturers and their customers; and the breadth and global spread of Tier suppliers at many levels and unit cost. “These all combine to drive a clear requirement for the flexibility provided by a wide variety of freight options in order to safeguard operations,” he says.
One major element currently limiting flexibility is the issue of conflicting lead times between suppliers. “This is why a vehicle manufacturers’ visibility of its supply chain operations is crucial. OEMs ideally need to identify a potential issue before it becomes a problem – this enables more accurate forecasting, an appreciation of potentially fractious supply points and the ability to implement contingency plans.
Ultra-responsive logistics provision is able to bridge fractures in the automotive supply chain as a short- to medium-term response, but as operations become more convoluted a greater level of in-built contingency is required to ensure consistently robust protection of supply channels, explains Brennan. “Fortunately, the importance of dependable supply chain activity has received much greater attention at senior executive level in the automotive industry over the last 18 months in particular, prompted by events such as the Bardarbunga eruptions which serve as a reminder of the impact of the 2010 ‘ash cloud’.” Brennan’s reference to Bardarbunga is in the context of the on-going seismic crisis at the Icelandic volcano, which began erupting in August this year and continues to be a potential threat to air traffic. This sharper focus – coupled with the subsequent improvement in understanding of the challenges – has allowed logistics to suitably adapt so as to mirror production strategies. “As the financial and reputational cost of supply chain failure has become more widely recognised, so too has the potential for logistics as an enabler of higher risk strategies that allow greater efficiency throughout the production and assembly process.”
The greater importance placed on dependable freight is driving an alternate utilisation of traditional techniques. Brennan cites premium freight as an example. This has previously been regarded as a contingency measure used only in emergency situations. Now, he says, it is increasingly factored in to the shipment schedules for high-value components such as head-up displays. In this example, dependable delivery and consistency of supply is more important than the initial freight cost. “The cost of individual unit breakage is also a concern,” he concedes, “but it is awareness of both the cost of failure to deliver on time and the limited availability of reserve stocks of components such as these that drives in-built contingency for premium freight in the first instance.”
The ability to develop complex supply chains that are also robust is borne therefore from a greater understanding of the nuances of freight and supply chain continuity, cost of failure and the measures required to safeguard optimised operational efficiency. As awareness and knowledge of processes becomes more widespread throughout the automotive industry, logistics strategies are able to accommodate greater risk because total supply chain failure is safeguarded against through effective contingency.
This increase in understanding, says Brennan, also allows for further development of logistics strategies in line with industry needs. Vehicle sales are increasing globally but the demand is not evenly distributed. This has led to announcements by major vehicle manufacturers of major new plants in China and Mexico, and also intensification of production at existing locations, including the adoption of three-shift, 24-hour production. “This places a direct strain on the supply chain as suppliers contend with potentially prohibitive lead times, dwindling buffer stocks and the sheer physical transport capacity required to meet the increased demand generated by the manufacturing process.”
Brennan believes the challenge is compounded by the fact that supply chain activity has already become more complex because of the need to react to other recent production trends. Fluctuating supply requirements or diversifying model variance, for example, place added pressure on supply chain links – especially if OEM fixed forecasts become inconsistent and are at odds with the Tier 1 or 2 schedules that often work to longer lead times.
As greater risk is accepted in pursuit of optimal production efficiency, the margin for error is reduced and potential issues are inevitable. With effective contingency, supply chain haemorrhage can be countered and impact reduced. “Emergency logistics and premium freight is increasingly recognised as being the solution to provide this buffer, reducing both the likelihood of complete supply chain failure and the potential damage if the worst does happen,” concludes Brennan.
