During the economic crisis, automotive manufacturers and suppliers had to fight for survival. Keeping inventory low, freeing up funds by releasing working capital and ordering inventory just in time has been critical to the continued success of many companies.
However, some companies have taken the lean philosophy too far and have stripped away strategic buffers which protect the supply chain from unforeseen events. We have observed this in recent months through extreme natural events, such as the volcanic ash cloud and Japanese earthquake and tsunami, which caused inventory to be unavailable.
Historically, the automotive industry in particular has had issues with forecasting, which led to instability in the market. In 2008, the market dropped significantly – many companies were taken unaware and are still suffering from the fallout. It therefore comes as no surprise that the research study we recently conducted showed that 83% of respondents advocated the importance of good forecasting tools in counter-measuring unpredictable markets.
Some companies have taken the lean philosophy too far and have stripped away strategic buffers which protect the supply chain from unforeseen events.
Numerous companies within the automotive industry have scaled down operations since 2008, resulting in fewer resources and an inability to meet unexpected upswings in demand. This was the case in 2010 when orders within the market suddenly picked up. A significant number of businesses lacked the appropriate planning tools and were again caught by surprise. This incurred costs for companies which had to rely on costly air freight to meet demand.
The automotive industry must look to improve its reaction time to unforeseen events, and develop more accurate requirement plans which conform to lean principles, as well as buffering the supply chain against risks and potential emergency situations. Inventory planning should also be optimised, and volatility risk in supply and demand variation must be considered as important factors when determining lean levels.
Automotive manufacturers can gain insight by basing inventory plans on data from historical forecasts and previous supplier performance. This can be used to work out optimal stock levels and the most advantageous moment to place orders, which can help automotive businesses manage their supply chain more effectively, by reacting quickly to changing circumstances.
The automotive industry – and markets in general – face an unpredictable period, so it is imperative that businesses are adequately prepared to manage resources efficiently, in order to save on cost.
A focus on supplier relations is also critical. In our research, eight out of ten companies identified supplier management as a weak spot, particularly in relation to replenishment lead times and adherence to delivery dates. Good demand forecasting solutions can help in this area, as these systems enable a planner to identify and rectify the problem areas or suppliers within the supply chain.
The automotive industry – and markets in general – face an unpredictable period, so it is imperative that businesses are adequately prepared to manage resources efficiently, in order to save on cost. Planning methods such as consignment stocking can also enable a business to operate with lower inventory levels and therefore lower amounts of tied-up capital.
Automotive manufacturers and suppliers must put plans into place which enable them to conform to lean principles, but also protect the business from potentially changing circumstances. The ability of companies to respond quickly and effectively can be the difference between those that survive long-term, and those that don’t.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Karsten Horn is director, international sales, Materials Management Division at INFORM
A full copy of the research study – ‘Materials Management after the Crisis – Evaluation and Outlook’ – is available upon request. The study, based on interviews of 117 decision makers in the industry, was conducted to pinpoint the key materials management problems of recent months. For further information, please contact Janine Olariu (firstname.lastname@example.org).
INFORM helps manufacturers and wholesalers reduce risk by enabling them to forecast demand more accurately, reduce inventory and improve cashflow. Its add*ONE software bolts on to an ERP solution, and acts as a “turbo boost” to optimise inventory planning and drive efficiency savings.
For further information, please visit www.inform-software.com.
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