How Automotive Companies Are Transforming Their Supply Chains, Part 2
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.
In this Part 2 blog post, we will continue to explore how automotive manufacturers are carrying out effective supply chain initiatives and their innovative solutions. In the Part 1 blog post last week, we addressed key imperatives and attained benefits.
Working Towards Digital Supply Chain
Terence: There are a lot of areas that automotive manufacturers and suppliers can take on to improve performance and digitalize their supply chains. What are the key initiatives and capabilities required to address today’s business challenges?
Salim:Our automotive customers are increasingly looking at how to counter inflation but at the same time how to enable supply chain resiliency. In the short term, the focus is on improving the ability to minimize the impact of supply chain disruptions by “illuminating” the end-to-end supply chain network. This is the exact word that used by Kelly Bysouth, the chief supply chain officer at International Automotive Components (IAC).
What Kelly meant by that is we can’t just have visibility from the OEMs to the Tier 1 suppliers, but we have to go beyond to Tier 2 suppliers and the semiconductor chip suppliers like NXP and Infineon, and all the way down to the IAC plants and PDC dealers. The visibility will include not just the short-term purchase order or ASN-level visibility, but also the tactical kind of forecast collaboration with the suppliers. And tighter longer-term capacity collaboration with the suppliers is needed as well.
One of the large automotive Tier 1 customers that makes wiring harnesses, connectors and electrical distribution systems partnered with Blue Yonder to gain end-to-end visibility during the COVID-19 pandemic because their factories in Latin America and Mexico were starting and stopping. They really needed that end-to-end visibility to minimize those disruptions in the short-term.
Terence: What about in the medium-term?
Salim:The way to enable supply chain resiliency in the medium-term is through better scenario planning:
- Different demand realization scenarios based on the demand mix changes that are happening,
- Different supply disruption scenarios, from the chip shortage to the Ukraine crisis, which resulted in the palladium and nickel shortages, and
- Scenarios of the next shortage or black swan event are already brewing.
Through these what-if scenarios, we can now proactively come up with risk mitigation plans to see what the impact is going to be on my cash flow and PNL, so we can come up with the right strategies. Recently, a GVP at Renault spoke about this; when they partnered with Blue Yonder, they were able to run various scenarios every week in mere minutes – something that used to take them several weeks to run previously!
Strategic Considerations and Key Success Factor
Terence: What are our automotive customers changing and improving in the strategic horizon?
Salim: Because resilience is not about just carrying boatloads of inventory, we advise these companies to design their network and stage inventory at the right places in the network to minimize working capital and cash flow. Based on the disruptive events that we are seeing – from tariffs, NAFTA, Brexit, COVID-19, etc. – organizations are increasingly looking to redesign their network, reconfigure their global and regional supply chain flows, and source critical components from local suppliers as opposed to just purely relying on an offshoring-based model. These companies are also increasingly looking at nearshoring and multi-shoring.
At a high level, we discuss three initiatives with these companies to enable resiliency. First is enabling resiliency in the short term by eliminating the network. The second is around proactive demand realization and supply disruption scenario planning. And the third is the strategic horizon revisiting of the network and coming up with a balance of onshore, offshore and multi-shoring.
Terence: Earlier, we discussed the benefits that some of the customers like Mercedes-Benz USA, Mitsubishi, Renault, Mahindra Mahindra, and Polaris and Tier 1 suppliers like Michelin and Cummins-Meritor achieved. Before they attained these benefits, what were the keys to overcoming barriers in their digital supply chain implementation?
Salim:It’s important to note that it takes more than just enabling technology to be successful. To go through business transformation successfully, I believe change management is the first key success factor. Having executive management support and enterprise-wide communication on why the company is embarking on this initiative of transforming processes, people, and metrics is really key.
The second success factor is to avoid just automating the existing processes. If the organization is used to doing certain things in Excel, just automating the same process will not be sufficient. We would advise and help come up with the best practice to simplify, improve, and standardize how to best advance their planning and scheduling capabilities. While Excel is a great data analysis and rendering tool, it leads to manual siloed processes, which is really not sustainable in today’s connected, synchronized world. We want to get to know in real-time for example:
- If there is a supply disruption, what OEM demand will be impacted.
- If there is a demand mix change, what additional material or capacity we will need.
Terence: Are these supply chain transformations going full speed from the onset?
Salim: Companies need to take a walk, run and sprint approach – this is the third success factor. Companies should not jump from a level-one maturity to a level-five maturity right off the bat or they will fail at their transformation efforts. Companies need a supply chain platform that can help them advance through those stages of maturity.
The last success factor is data. Please do not underestimate the importance of master data. Companies should start with what business outcomes they would like to drive towards, whether they would like to reduce premium freight, reduce inventory on the Tier 1 side, or improve service levels while reducing inventory on the aftermarket side.
By starting with the business outcomes, they can explore the use cases and the data needed to enable their transformation. Data in many cases is the big pole in the tent. Having clean data based on the desired business outcomes and use cases is really key.
Above all else, having a culture of trust and transparency within the organization will be key. It is not business against IT, but really business, IT and partners like Blue Yonder working together to make the transformation successful.
Looking Towards the Future
Terence: As you are discussing the future business and supply chain roadmap with automotive customers, we heard that you have developed a crystal ball. What do you see as the biggest leverage for digital and machine learning (ML) technologies in the supply chain?
Salim: Similar to cars where we have seen in the evolution of automation within vehicles, the automotive supply chain will go through an autonomous journey! (In case you are curious, for vehicles level-one was cruise control, level-two was kind of hands off, then level-three is eyes off, and level-four is mind off)!
The digital and ML technologies evolution for supply chain will be:
- Level-one is about having that end-to-end visibility: finding out where a specific item is; where is the inventory; where are the assets in the supply chain, factories, and warehouses; etc.
- Level-two is starting to leverage predictive analytics: Can I predict where a challenge or disruption is going to occur? Whether it’s a late truck because of traffic congestion or a shipment getting delayed because of weather or port congestion, or demand sensing right from a weather or social event. If a particular shipment is delayed, is it going to cause a stock-out or a low stock situation?
- Level-three is leveraging prescriptive analytics: cognitive capabilities cannot just advise us that there will likely be a low stock or a stock-out situation, but also prescribe resolution options and recommend what should we do about the situation. Do I need to expedite a purchase order (PO) or do I need to look at an alternate mode of transportation to help alleviate that particular business impact?
- Level-four would be like the autonomous supply chain, where the supply chain becomes self-learning: our enabling technologies can learn from past actions. Within certain guardrails based on past situations, actions, outcomes, scoring of these outcomes, the efficacy of the outcomes can drive those decisions for supply chain operations.
Terence: What else can help our customers drive transformational improvements and success?
Salim: Technology has come a long way. Now it is possible to deploy these capabilities in a matter of weeks, not months or years. What makes this possible is the Blue Yonder Industry Cloud for Automotive and Industry suppliers, aftermarket, and OEMs, as well as the included pre-configured role-based workflows, industry templates, analytics, and integrations. We really look forward to helping customers successfully complete their supply chain transformational journey.
More Insights to Come
In an upcoming Part 3 article, we will get more insights from Salim and another expert, James Peck, about logistics trends in the automotive industry.