How Automotive Companies Are Transforming Their Supply Chains, Part 1
In a series of blog articles, the Product/Solutions Marketing team explores new business challenges and innovation solutions to change the game and manage disruptions. The following are the insights gained from my discussion with Salim Shaikh, who leads Blue Yonder’s Automotive Industry Strategy, during a recent Blue Yonder Live and webinars that we prepared for jointly.
Terence: From collaboration to planning to control towers and logistics, automotive companies and suppliers are digitalizing processes and systems at a historic pace to improve competitiveness, profitability, and customer-centricity. In your engagement with customers, what are the most important opportunities and imperatives?
Salim:From a macro standpoint, we are seeing that the industry is going through a significant upheaval. I have not seen that in the past 25 years being in the automotive industry. This is because the cars of today are nothing short of being data centers on wheels or software-defined vehicles with new sensors. The trend towards more Electric Vehicles (EVs) and connected and autonomous vehicles increases complexities even further.
From an industry standpoint, in a phenomenon I would call industry morphing, automotive, high tech, and consumer electronics are gravitating together. On the one hand, we are seeing an increase in complexity because of the emergence of EVs and the different product mix which requires the ability to support all these different platforms. Given 100% of the new vehicles will be connected, almost 50% of the passenger vehicles sold will be autonomous soon.
Terence: There is an increase in product complexity on the demand side. What does this mean for the supply side?
Salim:What we are seeing on the supply side is complexity with increased volatility and uncertainty. As we have observed in the last two years, the magnitude and the frequency of supply chain disruptions are on the rise. This industry is seeing a double whammy with demand and supply issues.
And with inflation on the rise, it is now top of mind for many executives. When I listen to the earnings calls from the OEMs, as well as from Tier 1 suppliers, like Magna Lear, American Axle, and others, I observed that Tier 1 suppliers are again getting squeezed between higher commodity costs because of inflation and they have not been able to raise prices. The OEMs and Tier 1 suppliers are trying to counter inflation as well as enable supply chain resiliency.
Terence: Are automotive companies doing something about these disruptions?
Salim: The automotive supply chain has many different parts. We are fortunate to have worked with our customers across all subsegments within the automotive industry, including:
- OEMs like Mercedes-Benz, Ford, Toyota, Renault, Polaris, to name a few.
- Tier 1 suppliers like Continental, Bridgestone, Michelin, Yamazaki, Adient, etc.
- High tech and semiconductor companies, such as Infineon, Analog Device, and Micron.
These customers have done great things to solve business supply chain challenges.
Terence: What are the key business imperatives over the next few years companies need to implement/consider to overcome the above challenges?
Salim: Supply chain has become more of a boardroom topic or board level agenda as opposed to a shop floor discussion. In fact, 70% of the CEOs believe that supply chain is really critical to their business success. What is top of mind for them is what the impact is going to be after a disruption and can their operations ship the products to their customers on time. For CFOs, it is more about what the impact is going to be on their margins: will they be able to meet budgets that have been committed to Wall Street.
For Chief Supply Chain Officers, the problems in simplified terms, include:
- Which suppliers are impacted and what are the options? Can we get the supplies from an alternate source?
- Can we expedite? Can we use premium freight? Do we need to carry excess inventory?
- What is our exposure to our customers if this disruption happens?
These topics are top of mind for C-level executives as we speak with them. They are increasingly looking to enable supply chain resiliency in the short-, mid- and long-term through proactive risk mitigation strategies. In the longer term and then in the mid-term, they are thinking about how they perform more scenario planning across demand and supply. And then in the tactical short-term horizon, how they get better visibility so that if a shipment is delayed, the sooner they know, the more options they have to look at as alternate sources or to expedite freight. This can prevent assembly lines from stopping or getting hit with severe chargebacks and penalties.
Effective Supply Chain Initiatives and Benefits
Terence: Before we go into the supply chain initiatives that companies took on or are taking on, can you explore the degree of success and benefits first?
Salim: We are fortunate that we have the largest market share in automotive as part of the latest ARC Advisory report in supply chain planning. Automotive OEMs such as Mercedes-Benz, Renault, and Polaris and Tier 1 suppliers like Michelin and Cummins-Meritor are able to move from siloed, disconnected supply chains to now more connected, synchronized, agile, and responsive supply chains through successful digital transformations.
Through their partnership with us, they have been able to realize significant benefits. Adient, for example, a Tier 1 customer who manufactures one third of the world’s automotive seats, was able to reduce their premium freight by 75%, improve plant productivity by 30%, and reduce inventory by 10% as well. The same with Mercedes-Benz USA. They have been able to improve their forecast accuracy in the aftermarket side, reduce inventory, and reduce premium freight. As a result, they improved fill rates and service levels as well.
Mahindra Mahindra is another good example. They have been able to increase forecast accuracy on the aftermarket side by more than 20%, improve their revenue growth and improve fill rate by more than 10%, and at the same time reducing their inventory levels as well.
Depending upon whether the companies are OEMs or Tier 1 suppliers, or aftermarket, we have seen different but really tangible benefits, in terms of both strategic and quantitative business outcomes. Through their partnership with Blue Yonder in their digital transformation journeys, not only are they improving their supply chain performance with enabling technology, but they are also modifying their metrics, KPIs, and governance.
More Insights to Come
In an upcoming Part 2 article, we will get more insights from Salim about effective supply chain initiatives and innovative solutions such as Integrated Demand and Supply Chain in the Blue Yonder Manufacturing Industry Cloud for Automotive and Industrial Suppliers, and more!