The automotive industry already has an efficient supply chain because of the innovations done by companies such as Toyota in terms of just-in-time inventory management. A car or a bike or any complex product would require about 10,000 components to come together to create the assembly or product. But these companies have innovated the supply chain in a way that minimized the inventory cost. The entire supply chain of the automotive--over a period of time—was designed around this concept. You have an automotive plant and around the automotive plant all the component suppliers who supply various components that directly reach the assembly line at the predetermined time. So, this was the starting point as far as the automotive industry is concerned. It can be improved by having a digital disruption in the supply chain: all the supply chains were running without any digital intervention and now with so many platforms, we share the inventory levels and supply time. We are able to track the location of the fleet, supply trucks, manufacturing processes across the value chain. Digital disruption has increased the visibility across the tiers. OEMs deal with Tier1 supplier and Tier1 suppliers deal with Tier2 supplier and Tier2 deal with Tier3 suppliers. We can call it a TierN network. So all this while, there was the visibility between Tier1 and the OEMs was very high. The digital disruption has increased the visibility across the TierN suppliers. So now the Tier2 and Tier3 supply status is also known to the tier1 supplier and the OEM; they are able to make decisions about their production; they are able to make decisions about the quantity to be produced. That I think is the biggest achievement or development as far as automotive is concerned.
I think the biggest challenge faced by the industry is business continuity.
If you go back to the year 2011 and 2012, there were some series of incidences which completely disrupted the supply chain. For example the Tohoku earthquake and Tsunami in Japan basically brought most of the supply chain to a standstill as it affected an area with most number of automotive suppliers and some of them were global suppliers. This resulted in production shortages and production cuts even in countries like the US and Turkey, because the components were actually coming from these small supplier located in Japan. Similarly, in the same year, Thailand had floods, basically most of the automakers and component plants were flooded resulting in disruption among supplies and they had to cut down on production and look for alternate vendors. Because of the business continuity challenge, most of the automakers and the Tier1 supplier have a greater visibility of the supply chain. One would know where suppliers are sourcing their components from and whether that business is safe and healthy or not.
Because of business continuity challenge, most of the automakers and the tier1 supplier have a greater visibility of the supply chain
The automotive supply chain is a global prospect and all the players deploy similar supply chain management strategies across the world. Of course there are certain local inefficiencies and needs to overcome local challenges. If you take countries like India or Indonesia, there are constraints for supply chain because of the infrastructure that was available. To take a component from place A to place B, the time required may vary dramatically. Let’s say, Japan or Germany it takes one hour and in third world countries it takes half a day. One has to adjust the supply chain parameters to match the local constraints. But if you look at what different countries are doing to deploy the supply chain, it is quite similar. There are some constraints because of the local infrastructure. If the local infrastructure is similar to the global infrastructure, we can expect the equal development of the supply chain across the world. Because of constraints such as lack of infrastructure, resources, good roads, and power shortages, can cause problems.
All the advanced technologies are playing a major role in the supply chain for automotive. First and foremost, most of the automotive players are investing in Industry 4.0 which means most of the production plants are getting smarter. They understand the inventory levels, development of processes and predict what kind of inventory and components are required. It accounts the shortages and that makes the supply chain efficient. Robotics was already in use for minor things like welding and paint job. But now robotics will also play a vital role in the supply chain in warehousing, transportation, sorting, and smaller activities. The connectivity technology plays an important role: most of the major components will carry RFID tags. Trucks will have a good telemetric system so that they can be tracked. All of these connectivity and visibility creation will happen because of strong digital technology. Artificial intelligence is also coming to the picture by which most of the decisions about the inventory, demand and supply chain delays will be taken automatically.