Recent years have seen unprecedented disruptions in automotive supply chains – from COVID-induced factory shutdowns to chip shortages to port congestions. These disruptions led to millions of dollars in lost revenues for automakers around the world.
For instance, the global chip shortage in 2021 alone led to a production loss of 7.7 million vehicles amounting to $210 billion in lost revenues, as per McKinsey estimates. With the industry struggling to meet surging post-pandemic demand, it‘s time for automotive manufacturers and suppliers to completely rethink their supply chain strategies.
In my decade as a data analytics consultant helping auto companies optimize their supply chain operations, I‘ve gained valuable insights into overcoming supply chain vulnerabilities.
Here I highlight the top 3 ways automotive industry leaders can optimize their supply chains in 2024 to build resilience for the future based on my experience.
1. Aggressively Adopt Digital Technologies
The automotive supply chain is extremely complex, with OEMs sourcing thousands of components from hundreds of Tier 1, Tier 2 and Tier 3 suppliers globally. This massive network generates huge amounts of data across the extended value chain.
However, auto manufacturers often struggle to harness this data to gain end-to-end visibility and responsive agility. By aggressively adopting digital technologies like IoT, blockchain, AI etc., automotive players can transform data into transparent and actionable insights.
A. Boost Visibility with IoT and Sensors
Leveraging IoT sensors and connectivity across the automotive supply chain provides real-time tracking of components and vehicles as they move through the ecosystem.
Companies can monitor the location and condition of parts, sub-assemblies and finished vehicles as they flow through upstream suppliers, during transportation, and at dealers. This granular visibility enables auto manufacturers to proactively identify and mitigate any potential delays or disruptions.
For instance, Daimler Trucks connected its entire truck fleet and digitized its spare parts supply chain. IoT sensors track each spare part from origin to dealership. This cut order-to-delivery time from 5+ days to under a day while improving supply reliability by over 12%.
B. Leverage AI-Driven Predictive Analytics
Today‘s data-rich automotive supply chains offer tremendous potential for predictive analytics powered by AI and machine learning algorithms. By analyzing supply chain data – order patterns, logistics metrics, channel inventories etc. – AI systems can uncover trends and anomalies.
This enables auto supply chain leaders to:
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Accurately forecast regional and segmented demand – AI evaluates micro and macroeconomic factors across different markets to predict future demand shifts.
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Anticipate supply shortages – AI tracks production capacities across supplier tiers to identify potential component shortfall risks in advance.
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Continuously optimize inventory – Replenishment levels across parts depots and dealer networks are dynamically adjusted based on demand forecasts.
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Coordinate production and logistics – AI helps align assembly with inbound parts supply and outbound vehicle shipments.
Toyota leverages AI to predict potential defects during manufacturing. This has helped reduce recall costs by 50% as per company reports.
C. Enable Real-Time Collaboration via Blockchain
Blockchain facilitates real-time collaboration between the multiple entities like OEMs, Tier 1/2/3 suppliers, logistics providers across automotive supply chains.
It provides a shared, decentralized ledger visible to all participants where relevant supply chain data like order statuses, shipment locations, inventories etc. is readily available to authorized parties. This brings unprecedented transparency across the ecosystem.
Blockchain also enables frictionless data sharing between disparate partner systems. Additionally, all data is encrypted and immutable which dramatically improves security.
Porsche is currently piloting blockchain solutions to enable real-time collaboration between its 1,500+ suppliers globally. The immutable ledger will also help verify components‘ authenticity throughout the supply chain.
2. Regionalize Supply Chains to Manage Risk
Over the past decades, automotive supply chains have become highly globalized, with OEMs offshoring production and sourcing components from suppliers scattered globally. However, excessive dependence on offshore supply also increases exposure to disruptions.
Supply chain leaders need to revaluate their offshore dependencies keeping in mind risks such as:
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Geopolitical tensions – e.g. the recent China-Taiwan spat led to semiconductor shortages.
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Port congestions and delays – e.g. recent challenges at LA/Long Beach ports severely affected automotive imports.
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Lack of supplier visibility and control – OEMs have limited influence over offshore suppliers‘ operations.
Regionalizing supply chains can mitigate these risks and boost flexibility to fluctuate demand.
A. Nearshore Suppliers
Rather than manufacturing parts or sourcing from distant low-cost countries, OEMs should nearshore their supply bases closer to their assembly plants.
Though initially more expensive, nearshoring provides:
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Faster transportation – Supply lead times are lower without relying on long overseas routes. This quickens response to changes.
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Greater supply flexibility – OEMs can switch orders faster between regional suppliers if any shortage crops up.
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Improved supplier relationships – Face-to-face engagement helps jointly plan better and resolve issues faster.
BMW has expanded manufacturing with US-based suppliers to support its South Carolina plant. About 70% of components for its X vehicles are nearshored, reducing lead times by over 50%.
B. Develop Localized Supply Networks
Automotive OEMs need to foster comprehensive local supply ecosystems around their regional production hubs. This involves:
- Identifying capable local manufacturers who can be developed into suppliers.
- Investing to help local suppliers scale up capacities and capabilities.
- Partnering with technical institutions to build specialized talent pools.
Localized supply chains increase self-sufficiency against global disruptions. They also benefit local economies.
For instance, Hyundai-Kia is developing an Indonesian supply ecosystem around its new $1.5 billion production facility. The company plans to source nearly 50% of its components locally by 2030.
3. Implement Advanced Manufacturing Technologies
Automotive OEMs and suppliers face immense pressures to produce diverse vehicle configurations at optimal costs. To succeed, manufacturers need to aggressively adopt the latest smart factory solutions.
A. Leverage Predictive Maintenance
Unexpected downtime due to machine failures can severely impact output rates in automotive plants. With thousands of assets spread globally, manual maintenance has limitations.
Using IIoT sensors and predictive algorithms, potential equipment faults can be identified early. This allows preventative maintenance before failures occur.
Sensors collect real-time data like vibrations and temperatures from machinery. Self-learning predictive models forecast failure probabilities and Remaining Useful Life based on data patterns.
This enables just-in-time maintenance instead of either over-maintaining or incurring catastrophic failures. Automotive players using predictive maintenance have reduced downtime by over 12% while cutting maintenance expenses by 8-12%.
B. Deploy Advanced Industrial Robotics
Automotive assembly lines involve numerous repetitive processes in harsh environments. Industrial robots like collaborative robots, AGVs, and exoskeletons can relieve workers of dull, dangerous and dirty tasks.
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Collaborative robots work alongside humans on the line to assist in material handling or inspection. They are flexible and safe to be deployed with workers.
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Exoskeletons worn by workers provide extra strength and support to reduce fatigue and workplace injuries. This improves productivity in physically strenuous roles.
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AGVs enable autonomous transportation of materials and sub-assemblies around the plant based on programmed routes. This eliminates unnecessary handling by workers.
Besides improving productivity and safety, advanced robotics provides a hedge against rising labor costs and aging workforces.
C. Leverage 3D Printing for Tooling and Parts
3D printing technology allows on-demand printing of custom jigs, tooling and even end-use parts based on digital CAD models. This brings tremendous flexibility on the shopfloor.
Rather than waiting months for specialized tools or molds, automotive manufacturers can quickly print tailored jigs and assembly fixtures. New car models can be tested faster by 3D printing test parts for evaluation.
Mercedes Benz uses 3D printing to customize investment casts for new all-aluminum engines. This accelerates testing and validation. 3D printing‘s application will continue rising across automotive manufacturing.
Key Takeaways
To handle escalating complexity and inevitable supply chain shocks, automotive organizations need to:
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Adopt digital technologies like IoT, blockchain and AI for end-to-end visibility and agility.
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Regionalize supply networks via nearshoring and boosting local capabilities.
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Implement predictive maintenance, 3D printing and other smart factory technologies.
With the right strategies, automotive supply chains can gain resilience along with responsiveness to fluctuating market dynamics. The industry‘s future will depend on how quickly they can transform supply chain operations.