The automotive supply chain is one of the most complex in the world. Each vehicle is made of tens of thousands of parts, which are procured from thousands of suppliers, and each part is manufactured from a number of raw materials. With the incorporation of digital technology, which has experienced shortage issues of its own, automotive supply chain issues are more and more common.
While the processes and steps are vast in this supply chain, the primary areas of difficulties for automotive manufacturers and suppliers can be categorized into four main areas:
- Oversight of parts procured from a large number of suppliers
- Global impact and new consumer demands
- Poor visibility of fluctuating supply chain costs
- Low-quality manufacturing
These issues demand practical solutions to minimize costs, optimize manufacturing and distribution, and ensure components arrive in the next step of the supply chain with high lead time.
In this article, we explore these four challenges faced by the automobile supply chain and provide solutions to minimize their impact.
1. Oversight of Procured Parts
As we have stated, the average vehicle is made of tens of thousands of individual parts. While some automotive manufacturers produce these components in-house, nearly every automotive manufacturer outsources some portion of their component production.
With so many moving parts, a delay in one section of the supply chain can create significant interruption to the production process and delivery of the final product. This leads to inventory shortages and revenue loss for the automotive company, as well as harmed relationships between manufacturer and supplier.
To mediate this issue, manufacturers can either:
- Invest resources into supply chain management teams to diversify suppliers, ensuring that parts are streamlined in the case of interruptions from primary suppliers; or
- Invest in a long-term supplier partnership that grants certain benefits that aren’t available in simple transactional partnerships, such as prioritizing projects or discounted services.
2. Global Impact and Consumer Demands
The automotive industry, like other sectors of manufacturing, functions in a global environment of international raw material procurement and manufacturing facilities. Because of this, the automotive industry is subject to political, economic, environmental and marketplace factors such as:
- Retaliatory tariffs, while providing positive impacts from import protection, can create rising import costs.
- Natural disasters can disrupt significant parts of the supply chain.
- Shifting consumer demands toward electric vehicles for fuel efficiency and environmental impact can disrupt traditional buying trends.
Although these impacts are inevitable, automotive supply chain managers can partially mediate these issues through analysis of the automobile marketplace, risk identification and prioritization, and contingency and risk mitigation plan implementation.
3. Poor Visibility on Fluctuating Costs
Fluctuating costs in the automotive industry — throughout the supply chain — are frequent and can change rapidly. This is evident in the effects of the pandemic on the automotive supply chain, where automobile sales dropped by 47% at the start of 2020, only to revive in the first quarter of 2021, which greatly affected supply costs.
Automotive manufacturers have both high fixed and variable costs in the supply chain, including:
- Machinery, automation and production line investments
- Energy and utility costs to run machinery
- High salaries for staff with technical skills and union involvement
- Benefits packages for employees, including retirement and pension provisions
- Investment in research, development and innovation
- Raw material costs for purchasing aluminum, steel, plastics and other raw materials
- Third-party costs for outsourced suppliers, manufacturers and logistics teams
These costs can significantly impact price points and profit margins, so it’s vital to get visibility into expenses, on both a fixed and variable basis. While these costs can impact profit margins, solutions can be available by producing robust contracts and agreements, running financial models and predictive analytics to understand cost change, and auditing pricing and costs on a regular basis.
4. Low-Quality Manufacturing
The history of automobile recalls is significant and often caused by a lack of oversight and auditing in the manufacturing process. Not only does this damage brand name and revenue, but the low quality and performance can be dangerous to drivers.
Dealing with low-quality manufacturing can be resolved through:
- Frequent internal quality management checks and audits on processes and components
- Scheduled external audits of suppliers and manufacturers to ensure adherence to quality standards
- Batch testing and tracking implementation to identify potentially faulty parts
Solve Automotive Supply Chain Issues With VPIC Group
VPIC Group is the solid, dependable manufacturer you can trust to help mitigate automotive supply chain issues. There are many reasons we make a great partner, but especially because of our risk mitigation plans, knowledge of market trends and fluctuating costs patterns, raw material suppliers and high-quality precision component manufacturing.
When you’re ready to begin the outsourcing process, take a look at our outsourcing checklist to help you along the way.