An average vehicle needs approximately 30,000 individual components. Only a few brands manufacture most of the parts in-house. Other than that, most automobile manufacturers depend on suppliers for the components. Handling and tracking a large number of parts from different suppliers across the globe is quite tricky.
As a result, the automotive supply chain is arguably the most complex supply chain in the world. Managing the automotive supply chain has become more challenging with changing situations in terms of the manufacturing process, high consumer demands, or newer trends.
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Top 4 Automotive Supply Chain Challenges and Solutions
Challenge 1: Supply Chain Visibility
As most manufacturers collect automotive parts from different suppliers, managing the components’ visibility and tracking them in real-time is the biggest challenge. If just one component isn’t in the right place, the entire manufacturing process can be delayed, or the production line can come to a standstill, in worst cases.
Organizational structure is one of the most significant hindrances to visibility. Automotive manufacturers follow a tight schedule that needs to be met by suppliers, and everything should be streamlined to avoid the risk of a shortage of components in the inventory, hence delaying the manufacturing process.
Optimizing visibility is the key to dealing with this challenge. Consider these solutions to build an intelligent supply chain.
- Having a common platform for all suppliers to manage the supply chain can significantly increase visibility. It will help automotive manufacturers pinpoint any issue in the whole supply chain.
- Using RFID tags in every step of the supply chain is crucial to track components in real-time and manage the inventory more efficiently.
Challenge 2: Cost Containment
Cutting costs at every level of the supply chain is another big challenge. A large sum goes after buying raw materials for manufacturing components. Other than that, utility cost is also high, which impacts revenue. From staff salaries to R&D costs, from compliance costs to logistics, everything is stacked together to handle for a manufacturer.
Implementing a variable cost structure in line with the revenue is the most challenging part. Though outsourcing can be an excellent way to cut costs, most manufacturers only outsource transportation which doesn’t impact cost containment much.
With the development in instrumentation and increased technology usage, an innovative supply chain can do better in cost containment.
- Testing different financial models will give valuable insights that might help cost containment.
- Managing inventory correctly can reduce costs drastically. For example, it is way better to have a streamlined flow of components to just where needed than having a large stock of parts sitting idle for days.
- Auditing expenses regularly might help to keep the cost at the optimum level. Both internal and external audits are highly crucial in this process.
- Using AI to analyze supply chain data can be beneficial to find the ideal location of warehouses to minimize costs.
Challenge 3: Risk Management
The automotive supply chain is almost always threatened by many external factors, including political changes, environmental changes, trade deals among countries, etc.
Newer trends also disrupt the supply chain. With a large number of parts being on the move at any given time, there are high risks of delay or damage. Procurement consulting firms struggle to mitigate these risks in almost every case.
But the biggest concern is the incompetency of identifying these risks early enough to mitigate them in time. This can lead the supply chain to severe threats. Sudden changes in the buying trend also require a massive change in the supply chain.
All of these factors should be identified as early as possible and categorized based on the impact.
To deal with extensive risk management, collecting real-time supply chain data is crucial. You can take the following actions to resolve the threats.
- Analyze supply chain data with AI to identify risks and prioritize them under certain conditions. Focus on significant risks first and try to make an automated system that can resolve low-risk threats on its own.
- Always have risk management plans and alternative plans ready. For example, have a plan for backup manufacturers.
- Take advantage of changed situations. Be ahead of time to turn threats into potentials. You can see a change in the buying trend in the extensive analysis and take early steps to alter the direction of the manufacturing process to minimize risks.
Challenge 4: Changing Customer Demand
With increasing customer demand for the latest technologies and features in automobiles, it has become more challenging to keep pace with the market than ever. Also, customers are now more collaborative with automotive manufacturers to express their demands and suggest innovations.
Having the proper insight of customers and dealing with them effectively is a critical challenge for manufacturers.
There is no alternative to being closer to customers and having their insights. The more information you get about a customer, the more you know how to customize things to reach a particular customer base.
- Collect information about how customers use their vehicles. This can be done by collaborating with customers through several mediums.
- Leaving space for customization is a great way to offer alternative options to the customers.
- Collect instrument information through intelligent devices to analyze performance and threats. This will help you warn customers to refrain from certain operational behaviors to reduce the frequency of after sales service.
Automotive Supply Chain Challenges in 2022
The automotive supply chain is the second largest in the world after the electronics industry. This single information is enough to understand how challenging the automotive supply chain can be. Managing those challenges efficiently and quickly enough can result in a more stable manufacturing process, hence more stable revenue.
Now that you know the top 4 automotive supply chain challenges and solutions, you can take steps to identify those challenges and resolve issues before they hit your supply chain.