[asset_ref id=”91″]Like so many other industrial sectors, automotive is going through a period of rapid and dramatic change driven by the globalisation of trade – but it is also faced with significant overcapacity problems and ever-more demanding consumers who want more customisation and a better product at a reduced price. Like other mature European industries, too, the automotive sector is faced with ageing infrastructure and working practices that can make competition with emerging economies increasingly challenging.
For most producers the rapid response to low-cost competition has increasingly been to migrate production and sourcing wherever possible to those markets. Instead of yesterday’s model of components suppliers surrounding a major car production plant like so many satellites, today’s car producers are sourcing whatever they can from countries like Poland, Slovakia, Turkey, South Africa and – of course – China. In the US suppliers are drifting south, first to Mexico but now increasingly to the growing economies in South America. Instead of neighbouring suppliers having the capability to rush urgentcomponents to the production line at an hour’s notice, there is a four, six or eight week lead time to contend with.
A challenging equation
While this increases the complexities of production planning, it also makes balancing the cost vs transit time vs reliability equation even more challenging. And it also places greater demands on supply chain visibility and real-time responsiveness. To save costs most components are sent by sea. In theory it is possible to switch supplies at short notice to air freight, but once the goods are on the high seas there is very little anyone can do to speed up delivery. At this stage if a production problem appears imminent, then it is usually a matter of rapidly sourcing new components and air-freighting them to the plant to keep the production line running.
At the same time consumer demand for more customisation and choice is pushing up inventory: instead of the standard one-size-fits-all chrome bumper of yesteryear you now have them colour matched to the vehicle with options like fog lamp, wipers or parking sensors. It would be impossible to keep all the thousands of permutations available in the warehouse all of the time, so they have to be configured rapidly in response to orders.
Instead of that old plant-with-satellites model we’re seeing a three tier production model emerging. The basic components are produced at low cost in remote locations. These are then stored and assembled as required at a late configuration centre geographically close to the main assembly plant. Here the car is finally completed to meet individual customer demands.
These two key trends – remote production of components and the need for late configuration – mean that automotive producers are increasingly dependent on reliable supply chain partners. They require logistics providers who can give that vital visibility so that if a particular component is urgently needed then the systems are in place to pinpoint precisely where it is in the pipeline: in transit from factory to container port, on the high seas, two days away from receiving port or wherever. Without that visibility production planners have no idea whether to rush through an order for new supplies or to risk the line grinding to a halt.
Equally, given the cost pressures facing most manufacturers, automotive companies have little wish to invest in operating their own late configuration centres and would much rather outsource these to value-added service providers.
At DHL Exel Supply Chain, we run these sorts of centres for a number of players: from Jaguar at Castle Bromwich or Audi at Neckarsulm, to Volkswagen’s SEAT plant in Martorelles near Barcelona. Late configuration may sound like a straightforward solution, but given the need for maintaining minimum stocks and providing rapid response deliveries it puts significant demand on IT systems. It is more than just a basic supply model – it requires intimate links with the automotive manufacturer’s own IT systems to ensure that not only are the right components configured to match precise customer orders, but that they are delivered directly to the right production line at the right time. At SEAT, for example, DHL Exel Supply Chain staff take the relevant items directly to the assembly line at exactly the right time to ensure rapid and efficient operations.
This level of co-operation changes the relationship between manufacturer and logistics service provider with the need for greater trust and partnership – as well as greater systems integration. Automotive manufacturers are also themselves global players and they need consistent service levels and choices on a worldwide basis. The ‘local logistics hero’ may be reliable at localised distribution but in today’s global economy global players need partners who can meet their needs in whichever market they choose to enter.
Those demanding consumers are also affecting the end of the production line – finished vehicle delivery. People today expect goods and services to be delivered whenever and wherever they want them, yet for most customers buying a new car is still something that takes weeks or even months to complete. Buyers may be told to expect delivery in three or four weeks but even half-way through that process dealers can rarely be more precise about the day or even week when the vehicle will arrive.
An opportunity for improvement
The technology already exists to track and trace an individual order from placement, through the production line, to final delivery and it should be quite possible for dealers to tell buyers that their car is currently having its bumper fitted or has just left the assembly plant en route for final destination. This is an area where the industry has massive opportunity to improve information provision and customer service levels: those who get it right will certainly increase customer loyalty and possible market share.
Demanding consumers are also not confined to traditional Western markets – those in emerging economies can be just as challenging. Russia, for example, is a key market for many top marques yet Russia’s domestic logistics service providers often fall short of what is accepted as standard in the West. Selling a top of the range car requires toplevel service to go with it and that means automotive companies must partner with a global supply chain player to provide the sort of service levels which its customers expect.
This whole area of finished car delivery is ripe for major change: the delivery and configuration of components is now extremely sophisticated and developed on just-intime principles, but visit any dock area and the stockpile of finished cars waiting for delivery is all too apparent. It is a major contradiction for the industry: customers want personalised cars and a build-to-order model but – perhaps because traditional production methods and working practices make it hard for suppliers to close down production, albeit temporarily – we have these huge stockpiles of standardised models.
The European industry will have to tackle this issue if it is not going to be overtaken by new producers in emerging economies who do not have this historic baggage to contend with. What will be needed is more flexible and agile production planning to really match demand to supply as well as greater flexibility in production processes and output. We’re already seeing the major players rationalise their production plants – and in some cases move to lower cost economies in Eastern Europe – but any benefits will be lost if they simply carry on with current working practices and attitudes.
Move to China or India and you have quite a different culture combined with a history of trade and entrepreneurship – and none of the legacy baggage affecting Western Europe. Obviously workers’ rights must be protected: they need to be paid fair wages and provided with good working conditions – sadly not always the case.
Even so, we’re already seeing companies like the Tata Group from India entering European markets and they certainly won’t be the last new automotive player to emerge. If these newcomers can offer efficient delivery, high quality products, and flexible customisation then they could represent a major competitive threat to Western suppliers.
Clearly, it is a time of rapid and dramatic change in the automotive sector and one that is leading to deeper trading partnerships with providers capable of playing on this new global stage.
Mark Seager is managing director for the automotive and industrial sector at DHL Exel Supply Chain, EMEA. He may be contacted at firstname.lastname@example.org