The Road to Success

Automotive manufacturers must deploy the right supply chain strategies to increase output to meet higher volume demands

Scot Sharland Aiag 10762260

Automotive manufacturers and suppliers are in dire need of the tools, education and assets necessary for them to deal with the changing shift of higher volume management. Like many businesses impacted, the automotive industry had its own economic setbacks during the recession. Downsizing, production slowdown, and lost logistics capacity and talent were but a few of the eliminated resources—all of which could not be simply replaced when demand presented itself once again. But a bounce-back in consumer demand, the continuous licensing of new drivers, available credit and the lower cost of money all point toward an existent automotive rebound—and those dealers and manufacturers still in the game need to implement the right processes and skilled staff; and utilize the best training to meet the rise in their manufacturing output.

Industry collapse

While a number of events added to the automotive collapse—including profit loss due to increased fuel prices and lower consumer demand—none could have served as much of its precursor as General Motors’ and Chrysler’s 2009 filings for Chapter 11 bankruptcy. And other crises followed suit, with Toyota Motor Corp. announcing production cuts due to the 2011 Fukushima plant explosion. As a result of downsizing, production plants closed their doors and the modes used to transport parts, raw materials and finished vehicles were either eliminated or re-addressed for other use. Labor cutbacks affected highly-skilled workers and technicians and those less skilled. That lost talent meant a time-consuming process to increase manufacturing output.

Yet, most important was the fact that no amount of economic forecasting could have predicted the impact such events had on the lower-tier suppliers that did not go Chapter 11 but proceeded to file Chapter 7 and ultimately went away—a difficult capacity to put back in place. The automotive manufacturers and suppliers who experienced those losses, but survived, had to manage a less-than-robust process to address where their bottom line was, and establish short-term goals to build their business back up. This had to be done incrementally versus what they would do once consumer demand would pick up again post recession.

The current state

As the automotive industry worked its way out of the recession, one of its confounding variables included addressing the question: “Is there enough capacity in lower-tier suppliers—the ones that did survive—to persevere and diversify? Or are they a bit gun-shy to jump back in and commit to capacity with both feet, given the fact that some have indeed diversified?”

Today, there are significant opportunities to look at expanding capacity. But constraints in the system still exist. Concerns include protecting intellectual property; rising costs in other countries, such as China; and procuring raw materials. Plus, it costs more to move those parts and products when, in some cases, there is a limited capacity to do so via ship, rail or truck with a struggle to get more attractive shipping rates. Automotive suppliers and manufacturers are faced with all these challenges in addition to meeting production demand. They also have to manage a significant change in the projected life expectancy of a vehicle – down to three-to-four years in the current model cycle compared to seven-to-eight years just a decade ago.

To overcome such challenges, the automotive industry has to make a stronger push to coordinate and collaborate efforts with respect to managing the finite resources—and it starts with current, real-time information. To have a decent inventory of product to offer to customers is a very delicate balance. By working together and applying common processes and tools with all the key stakeholders, including the folks who are moving the vehicles to the dealerships, it allows for a great opportunity for all involved to succeed.

Tooling is another major pinch point, but it is not something that can quickly be replenished in the supply chain. The skilled laborers required to operate the machinery also are in short supply, especially since many apprenticeship programs have been offshored, and those programs can’t be reconstituted fast enough. Today’s automotive manufacturing environment is highly automated and the workers needed to operate the machinery and troubleshoot and fix breakdowns must have a high level of education and training.

Automotive initiatives

It’s evident that production output must meet a great consumer demand. Several companies are initiating strategies to keep pace with such industry challenges. Ford Motor Co. recently rolled out its One Manufacturing production system to drive improved efficiencies, increase capacity utilization and push lowest total production cost.

AIAG’s partnership with ProMexico is yet another initiative to provide quality training for automotive suppliers within Mexico. Through the program, we offered week-long training earlier this year in Mexican manufacturing hubs to improve both business processes and quality performance of lower-tier suppliers. The training also was designed to help these companies move forward on their informational and educational journey to be better prepared to produce quality products.

In addition to talent, other industry actions that the automotive supply chain must address in the short term include:

  • Manufacturing Capacity—The industry needs to extract maximum value with existing capacity. Companies will have to get creative to determine ways of squeezing additional output from the factories and tooling currently in place.
  • Logistics—Companies in the industry need to collaborate on logistics and create efficiency in throughput by sharing loads and bundling demand. Half-empty trucks carrying loads from only one facility or company to an end destination is inefficient. The industry should find ways of ensuring every truck to a single destination is full by making multiple pick-ups and stops along the way.


The end result

As the automotive industry continues to rebound, it is important to focus on the acceleration, redevelopment and reconstitution of lower-tier suppliers to provide them with the tools, the know-how and the know-who as cost effectively as possible. Small companies do two things: they employ most of the people; and they tend to drive innovation. Performance shortfalls will continue to occur but there is a tremendous realization that the collaborations are at an outfit premium—we either all win or we all lose. If the “big boys” don’t survive and the lower-tier suppliers don’t survive—we all have issues.

Companies in this article