Automotive Supply Chains: the Coming Revolution
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Automotive supply chains are facing a massive revolution that will see driverless cars, shrinking production volumes and highly customised products shaping the sector.
While these developments are seemingly unconnected, they do have one thing in common—all of them will require greater agility in the supply chain.
Autonomous vehicles are within sight, with the technology involved improving extremely rapidly. Tests of Waymo driverless vehicles (run by Google) showed a 20% decrease in disengagements in 2016. (Disengagements are occasions when a driver has to take over the controls of an autonomous vehicle). This means that those driverless vehicles are improving significantly.
Once driverless vehicles become the norm, consumers may be less interested in the physical performance of their vehicles. The main product differentiation will instead be about the software and experience inside the car.
To capitalise on this transformation, manufacturers will need to apply the same principle that Apple and Google did in the smartphone sector—by providing an open platform that software developers can use as the basis for innovation.
This will require greater visibility across the supply chain and greater connectivity amongst the component manufacturers providing ‘intelligent parts’ that create the overall driving experience. As driverless cars become more of a reality, the impact on automotive supply chains will be even greater, requiring an increase in data sharing on a peer-to-peer basis between component manufacturers whose products will need to integrate in the intelligent vehicle.
Read more about the role of autonomous vehicles in intelligent supply chains.
Varying production volumes
Another driver of the need for agility are changes in production volumes. In the UK, production rose by more than 70% between 2009 and 2016 (in fact, 2016 marked a 17-year high for the industry). Production across North America has also risen strongly over the same period.
But recent economic history indicates that this bull run can’t last forever. At some point, production facilities will need to deal with a contraction, particularly as some manufacturers may already have excess capacity after seven or eight years of growth and investment.
For UK-based manufacturers, Brexit may also require a catalogue of agile responses to impending changes—some of which are currently still unknown. For instance, many vehicles produced in the UK are either exported to the EU or use a high proportion of EU-sourced components. There is the potential for extra costs and delays in the supply chain depending what happens with tariffs, customs clearance and rules-of-origin requirements.
These scenarios require manufacturers to seek greater coordination across their supply chains, in particular where components are being delivered directly to the line in a dynamic fulfillment process. Building in flexibility and agility will be a critical step for supply chains to deal with this variance in production patterns and the introduction of unexpected consequences from external factors such as Brexit.
Customisation is another example of the need for agility and a significant trend in its own right. A large proportion of new vehicles are prepared to a customer’s specific orders, with specific options and customisation chosen.The Mini plant in Oxford, for instance, reports that the production sequence is fixed just six days before assembly. Until that point, customers can make changes and choose options. Customisation will mean that automotive producers will require supply chains that deliver flexibility in terms of component flow, IT systems and assembly.
The use of secure electronic data interchange in order to handle the necessary sequencing means that dealers can specify a customer’s exact specifications and requirements, these can be scheduled and sequenced, and the dealer is able to give the customer a realistic due date before that customer has given up and gone elsewhere.
The economically efficient manufacture of highly customised products—right down to a batch size of just a single unit—has been made much more viable by the advent of 3D printing. This technology is already in use in some automotive supply chains. Plastic parts have been printed for several years, and, earlier this year, Mercedes-Benz trucks announced that it had printed its first metal components.
The potential benefits are huge: reducing the need to hold inventory of little-used items, minimising wastage, and creating the opportunity to build customer loyalty through quickly-available individualised product and service offerings.
All this points to fundamental changes to the way enterprises approach supply chain management. In particular, those businesses with the best chance of thriving in the face of developing technology and market pressures are those who take steps towards future-proofing their operations now.
Adaptation is the name of the game. By understanding and emphasising the importance of flexible systems, enterprises will be better equipped to support fluctuating demand, customised product manufacture, responsive order fulfilment, and the robust inventory management essential for ensuring the right products are always available to the customer.
Richard has spent 25 years working for Unipart to optimise supply chains, with international corporate experience across the full spectrum of supply chain management functions. As the Automotive Director, Richard is particularly interested in lean culture, tools and techniques, developing partnerships and delivering operational excellence to a broad range of clients within the automotive sector.