Challenges continue for auto supply chain but pain points easing
Automotive supply chains have been exposed for long to Covid, lack of semiconductors & limited supply of raw materials
With around 30,000 individual parts, an average vehicle is the epitome of an efficient supply chain.. and any disruption to the chain leads to a cascading effect of lost production, revenue and dissatisfied customers.
Just-In-Time is a major method of auto production with right inventory management and product forecasting gaining prominence, leading to heavy reliance on effective modes of supply chains.
So, what are the key challenges for the auto supply chain?
3) Inventory management
4) Just-In-Time management
5) Digitisation & globalisation
"The automotive supply chain has gone through an epochal shift and so has the complex supply chains which remodelled their traditional approach with radically refashioning their linear chains to become more integrated," says Ruby Abidi, Director, Air Cargo, cargo-partner Logistics India. "The vulnerabilities in the supply chain were brought to the front which accelerated the digitisation, technology and visibility quotient. The Just-In-Time approach has been replaced to manage any disruption. The sourcing patterns have become more diverse to overcome geopolitical pressures. The journey of change has begun in earnest, and will help the industry to handle the disruptions more efficiently and with resilience."
A view backed by Athul B Birani, General Manager, KSH Logistics who says the automotive industry has, over the last few years, witnessed many challenges such as the availability of raw materials or spares in the market. "Managing the supply chain efficiently is now a big challenge. It is no surprise that big auto OEMs and suppliers are outsourcing their supply chain management functions to 3PL/contract logistics service providers. There is also a growing trend with small-medium enterprises towards the same decision. Automation and adoption of new technologies are on a rise. Today, large organisations are encouraging and supporting smaller organisations in faster adoption to have a robust supply chain."
Automotive supply chains have been exposed to a host of issues related to the Covid-19 pandemic, paucity of semiconductors and restricted supply of other raw materials on account of the Russia-Ukraine war, says a spokesperson of Danish carrier Maersk. "Getting parts and raw materials on time and in the desired quantity has been a major hurdle faced by OEMs while for auto part suppliers it has been equally hard to find reliable supply chain partners who could help them navigate the disrupted global supply chains and supply to their customers on time.
"Maersk introduced innovative products like end-to-end committed deliveries, warehousing facilities in major markets, specialised air freight and LCL services focussed on key markets as well a "Cars in Containers'' service to counter the issues being faced with RoRo services. As an example, we set up a warehouse for one of our multinational automotive OEM partners to allow them to store surplus raw material on account of low usage because of the semiconductor crisis. This allowed them to free up space at the manufacturing facility, save on cost and streamline operations."
All of the automotive manufacturers have gotten serious about battery-operated vehicles and are pushing for higher share of the market, says Fardeen Malbarwala, Director, Galaxy Freight Pvt. Ltd. "Moving batteries around the world brings in its own complexities and challenges as well as opportunities."
Visibility still a challenge for automakers?
"Supply chain management is becoming easier each day and has achieved a crucial role for all sectors of the supply chain by allowing different parties to work together more efficiently," says Birani. "At KSH, we are implementing new-generation tech tools for end-to-end management of the supply chain. With the help of these tools, customers get complete visibility and are able to address gaps across both demand and supply. Moreover, our Control Tower solutions provide customization that allows users to manage their entire business."
While automotive companies have made advances when it comes to improving digitisation and overall visibility of the supply chain, the Covid-19 pandemic and other issues challenged the existing setups quite a bit over the last two years, Maersk spokesperson added. "Now, automakers have realised more than ever the value of a strong partnership with global supply chain players vis-à-vis local transactional setups, and depend on the global scale and proven capabilities (both operational as well as digital) of large global logistics service providers. Maersk's global partners, for instance, were able to benefit from long-term contracts (providing price protection and higher reliability), end-to-end one-stop shop capabilities that touch every part of a supply chain as well as a suite of digital offerings that improved visibility and made our customers' supply chain more predictable."
Abidi of cargo-partner says the automotive industry has an elongated supply chain (20,000 parts in a typical vehicle). "Hence the visibility is challenging for automakers and we witnessed the disrupted supply chain due to the lack of transparency and staggered movements but the lessons learnt have been beneficial. A more connected, digital supply chain has been adopted by industry leaders. The global supply chain providers have enabled automation for all processes starting from planning, procurement, manufacturing and logistics. We at cargo-partner have enabled end-to-end visibility and transparency through SPOT, a tool which brings all involved parties together on one platform and enables seamless, process-driven purchasing. Connected and autonomous supply chains like robots, in warehouses, delivery drones and automated vehicles are either here or will be here."
Just-in-Time - new Avataar
The Just-In-Time concept, when initially started, was a huge success to build lean inventories and save massive wastes and costs for automakers, says Abidi "but the recent disruptions of lockdowns, geopolitical tensions, and war did tempt organisations to move away from this efficient production system to Just-In-Case that maintains inventory at various locations to manage the business continuity. The Just-In-Time had a revamp where parts forecasted as critical could have smaller segments of JIT connected to the just-In-Case part thus providing a balance of continuity and savings. We have witnessed organisations revamping JIT and JIC models for a smooth supply chain."
After the Covid crisis, organisations went back to the drawing board to redraw their supply chains, says Birani. "As a result, companies have amended their Just-In-Time processes. Many organisations are now using multi-client facilities for their inventory management and JIT deliverables. It gives them a degree of flexibility and scalability that is hard to find elsewhere, plus it helps adjust JITs and buffers can be created with plug-and-play models."
It is safe to say now the challenges we faced during Covid are behind us, adds Malbarwala of Galaxy Freight. "During Covid, the Just-In-Time model was forced to use air freight mode and pay much higher costs. The suppliers, in turn, now seem to have higher stock at warehouses to fulfil the demand."
Is tech boost helping auto SCM?
The tremendous rise of technology has drastically improved supply time, says Birani of KSH. "With improving technology and gadgets, data is now at your fingertips, allowing organisations to make more informed decisions quickly. The availability of IoT (Internet of Things) data allows the operations team to evaluate insights, understand customer behaviour and make the right decisions much quicker. This helps in improving efficiency and productivity and also plugs the gap in areas of the supply chain."
It is not about the supply time but newer technologies bring higher visibility, and companies are able to plan and visualise their production better, adds Malbarwala.
Electric blues & solutions
As automakers electrify and computerise with the giant leap towards electric vehicles, semiconductor is the engine oil which fuels this automation in the industry, says Abidi of cargo-partner. "With the pandemic wreaking havoc on the supply, we seem to have endured the worst of the crisis but this is not the end of this challenge. There may be reduced demand due to high inflation and that may be the breather for the auto industry but with the era of electric and connected vehicles dawning, semiconductors will be required in larger numbers. Manufacturing is still not up to the level it should be.. so we may still be witnessing staggered supply. With incentive packages by the government to start a semiconductor manufacturing in India and new factories across the globe, there may be a silver lining to the cloud but till the time these plans fructify, there is still a semiconductor crisis lurking on the auto industry ecosystem and the automakers will still be vulnerable to the demands of this new 'oil'."
Semiconductor availability - the worst pain point for the auto industry over the last couple of years - is improving but is yet to get back to the pre-Covid levels, adds Birani.
Every country, including India, is now making significant investments in semiconductor factories, and the government is also trying to woo in foreign chipmakers, says Malbarwala. "From an automotive perspective, the suppliers are now better prepared to face the supply chain shortages and stock more at their warehouses."
Supply chain companies' role in reducing OEM costs
High input costs are a problem for everyone, whether you're an automaker or any other industry, says Birani. "KSH helps organisations reduce supply chain costs with networked multi-client warehousing for last-mile delivery. Our MCFs provide proven savings and tech-driven visibility to our customers and partners with investment-free vendor management inventory (VMI), and plug-and-play storage solution options that offer flexibility and scalability.
"Understanding of the components of a vehicle and best practices in storage and transportation by our experts and experts of OEM helps design optimised CKD kits that maximise the number of vehicles per container for both imports and exports. We also provide line feed capabilities to the OEM with electric vehicles, enabling sustainability, and the use of MCF helps JIT operations, thereby allowing factory space to be utilised for more productive use and higher throughput."
At Maersk, the ambition is to work with our customers, evaluate their pain points and design solutions that address those pain points, the spokesperson added. "Different companies have different challenges - for some, it could be costs, and through our integrated solutions, the idea is to bring down the inefficiencies in supply chains to the maximum extent possible. As an example, when our customer ships cargo with us end-to-end, we are able to have much greater control over the movement of the cargo through its journey. This eliminates delays, and in a lot of cases, that could save money. The visibility tools also help in a similar way where the transparency helps both our partners and us effectively plan for contingencies in time."
Abidi says an electrified future in the auto industry is intensifying, and this exponential growth is attracting a lot of interests in the business along with climate control measures. "This growth is irreversible and it is here to stay. An electric vehicle offers a clean and better way of transportation. EV will reduce the elongated supply chain with lesser parts and lean manufacturing. To tap into this potential, we have to overcome a lot of infrastructure challenges like charging stations, battery and chip local manufacturing, and need key stakeholders' collaboration with critical policy support."
It is a long way to mainstream EV adoption but with auto companies investing heavily, the change is just round the corner, concludes Abidi.