How COVID-19 is Transforming Automotive and Industrial Supply Chains
Blue Yonder is committed to helping its customers face the unexpected. To provide insights into the COVID-19 coronavirus pandemic and its impact on supply chains around the world, we are delivering a blog series to help anyone looking for support and advice. Our experts, who have spent years in the supply chain industry, share their insights.
The COVID-19 outbreak has been a humanitarian crisis that has gravely affected the global economy and is posing unprecedented challenges for supply chain business leaders. It is increasingly becoming a challenge to represent and evaluate the impact because by the time a response is formulated, the situation has changed, and the scale, speed, and impact of issues have unexpectedly intensified. Automotive and industrial manufacturing plants are being shuttered around the world, which has affected not just the OEMs but also their Tier 1, Tier 2, and Tier 3 suppliers.
Although it may be difficult to predict the exact consequences of COVID-19 and how to handle the immediate impact, supply chain organizations have to plan for post-COVID-19. Daimler has already reopened its factory in China and has said the vast majority of its dealerships have reopened. As of April 10, 99.7% of car dealerships in China had reopened, up from 28.3% on Feb. 101. The world’s biggest automaker by sales, Volkswagen has also started production in its European factories in April2.
The after-market segment is seeing an upswing because of increased shipments of food, infrastructure materials, medical supplies and goods during the coronavirus outbreak. For e.g., PACCAR parts had a record-setting Q1 as it is working to provide fleets with necessary equipment as they respond to the pandemic demands3. No one knows the likely duration of the COVID-19 pandemic, the full impact that the pandemic will have nor the speed of recovery for automotive and industrial manufacturing, but organizations need to be ready to start thinking and taking actions by running different scenarios and building resiliency in their supply chains.
What Can Organizations Do Now? Recommended Strategies
Supply Chain Resilience
Visibility is the key to help predict current and future effects of COVID-19. By taking real-time data feeds from the Centers for Disease Control and Prevention (CDC) on the exposure spread and mapping it to an organization’s suppliers, manufacturing and distribution sites, customers can proactively identify issues deep in their global supply chain across Tier 1, Tier 2 and Tier 3 suppliers that are most affected by disruptions. Visibility includes the ability to track inventory of finished goods and raw material in relation to COVID-19 activity, understanding the customer’s demand and its relation to COVID-19 impacts globally, and the ability to drill into each region and get related impacts. By leveraging machine learning (ML)-based prescriptive analytics and recommendations, customers can resolve the exceptions by looking at different scenarios and its impact on customer service levels, revenue and margin of different decisions
Supply Chain Risk Mitigation
The current share of indigenous to imported sourcing for the OEMs is approximately 40:60. After the recent geopolitical events such as Brexit, U.S.-China trade relationship, tariffs, renegotiation of the North American Free Trade, and the most recent COVID-19 pandemic, organizations are increasingly looking at building supply chain resiliency. Developing supply chain resiliency includes revisiting the supply chain network design and reconfiguring global and regional supply chain flows, sourcing critical components from local suppliers and conducting trade-offs according to needs, cost, service, and risk scenario analysis are all viable options. Organizations should look into building agility and speed into their supply chain by creating finite, decentralized, agile ‘mini-operating models,’ with flexible supplier contracts and relationships with manufacturing closer to the point of purchase. Companies should also explore strategies to “buy where you make and make where you sell.”
Amidst such uncertainty, it is critical that companies take a comprehensive approach and develop a range of scenarios and robust contingency plans to navigate through these turbulent times. Access to agile and accurate scenario modeling to understand cash flow, profit and loss, and balance sheet impact has never been more important. Understanding how different demand and supply risk scenarios impact your business is crucial for planning and executing business in even the most stable times. Managing the gap between the current plan and the annual operating plan based on different economic recovery outlooks is key. Increasingly enabled by AI and automation, supply chain managers can run scenarios and help prescribe rather than just predict—with humans providing contextual understanding to augment the final decision.
In the current demand-constrained environment for the automotive and industrial segments where demand has fallen off a cliff, organizations need to build a plan to prioritize and protect their most valuable segments and customers based on margin, revenue, strategic importance, contractual obligations, etc. They also need to understand high margin and high opportunity cost products for prioritization in case of labor constraints or material shortages.
Organizations need to explore deployment of technologies e.g., Transportation Management System, Warehouse Management System, Robotics, Autonomous Materials Movement to decrease worker density throughout their operations. As finite labor in the warehouses is stretched because of constrained resources, organizations need to look into improving throughput with a lower headcount. Automation will be key to drive throughput acceleration and labor resiliency.
Organizations that will emerge the strongest post-COVID-19 will be the ones that can that see the current emergency as an opportunity to overhaul their supply chains and enable the strategies listed – Supply Chain Visibility, Supply Chain Resilience for Risk Mitigation, Scenario Planning, Segmentation, and Automation. Although the future is uncertain and tomorrow’s disruption is already brewing, chance favors the prepared.