As the automotive industry shifts from a traditional local business model to a global one, OEMs and suppliers are among those experiencing the most disruption.
Major automotive players are in various stages of transformation from a localized “buy/make/sell” model to a global “buy/move/make/move/sell anywhere” model. This transition is being undertaken in order to achieve greater scale and cost efficiencies while capitalizing on rapidly expanding markets such as China and India. Companies must maintain or enhance supply chain flexibility and customer responsiveness despite these major shifts in the automotive industry.
As a result of globalization, more and more supply chains originate in low-cost countries, primarily in Asia and Eastern Europe, while largely continuing to terminate in North America and Western Europe. As a result, traditional organizational structures and business practices are being challenged.
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Featured Case Study |
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Reducing Lead Times at Dana Corporation
Multiple legacy systems from numerous acquisitions left Dana Corporation with a slow, fragmented procurement process. Embarking on a value chain management initiative using i2 solutions, Dana has achieved forward visibility into its value chain, and is reacting to time-to-market with exceptional speed.
Success Story: Reducing Lead Times at Dana Corporation
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Key challenges faced by automotive companies include:
- Transforming from local to global organizations and processes: Most automotive companies are organized by region with little-to-no interdependency among regions. As a result of globalization, these companies are likely to move to a primarily functional or process-oriented organization that spans regions, time zones, languages, and cultures. As different markets begin to share platforms, parts, and capacity supply, companies will have to develop new processes to quickly aggregate and disaggregate their demand, balance it against global supply, and perform intelligent allocation of constrained supplies to the “right” demand. Sales and operations planning processes will require increased attention since events and decisions in one part of the organization will now have a truly global impact.
- Total landed cost sourcing: When does it make business sense to source from a low-cost country? In a local model, companies typically make parts sourcing decisions based primarily on part-piece-cost and traditional supplier score-carding. With the shift to a global model, companies cannot base their sourcing decisions solely on traditional metrics. They will have to consider additional supply chain factors such as inbound lead times and associated variability, supply chain risk, protection of supply, and logistics costs, as well as risk and inventory costs. Failure to do so could result in increased costs, limited supply chain flexibility, and decreased customer responsiveness.
- Transportation focus: In the current model, transportation is a low percentage of overall costs (compared to parts and labor). Most companies do not consider transportation a core competency and outsource it to third- or fourth-party-logistics companies (3PLs or 4PLs). These companies perform the design, planning, and execution of the logistics networks, providing a turnkey service to their customers based on contracted SLAs. Globalization will increase both inbound and outbound transportation (“move”) activity. As a result, transportation costs will increase, especially as a percentage of overall costs. This will cause automotive companies to rethink their approach to transportation. Many (if not most) will take want to own the design, planning, and control of their logistics network while leaving execution with the outsourced service providers.
- Supplier collaboration, visibility and event management: In today’s local mode, automotive companies have developed people-based processes to gain visibility into significant events. While people will always be integral to any business process, a systematized approach is necessary to be effective, given the diverse time zones, languages, and cultural business environments of the global automotive industry. In order to respond to customer queries such as “Where is my order?” companies will require scaleable, repeatable, and globally consistent processes and systems to track orders, inventory, in-transits, and other information across global facilities, suppliers, transportation networks, and disparate information systems.
i2 solutions can help automotive companies make a smooth transition to global supply chain processes. With more than 15 years of experience working with leading automotive companies, i2 has developed solutions that cover the three major business process areas of global order-to-delivery (OTD), supply chain design, and total landed cost and design-to-source solutions. These process areas and solutions also span the four key capability areas of visibility, planning, collaboration, and control. i2 automotive solutions are being used in the production environments of five of the top six automotive companies in the world.
i2 solutions for the automotive industry can enable best practices including:
- Closed-loop (based on plan-do-check-act model) supply chain design, planning, and execution processes
- Total landed cost sourcing
- Global demand and supply capacity management
- International supply chain visibility and event management
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