Inside Supply Management Magazine
The Case for an Agile Approach in Automotive Supply Chains
By William Crane, CPSM
The automotive market is undergoing a rare redesign of the end-to-end value chain, and companies from original equipment manufacturers (OEMs) to suppliers must reinvent themselves to thrive in the future. Supply management leaders at automotive Tier-1 suppliers are caught in the middle of a daunting multifrontal reshuffling — including the very definition of a vehicle. This evolution is (1) being fueled by new technologies like electric propulsion and autonomous driving and (2) accelerating with such business-model innovations as ride sharing and last-mile delivery.
While management decisions affect the success and existence of businesses, there are opportunities for companies that embrace change. These dynamic times represent a rare chance for them to rewrite their story in the global automotive hierarchy — and for supply management professionals to reshape their roles. By adopting an agile supply chain management approach, supply management leaders — who are poised to shift the profession’s perception from cost czar to partnership forger — can navigate their companies through this period of change.
More than 90 automotive suppliers filed for Chapter 11 bankruptcy in 2008-09. These companies faced a plethora of headwinds, but many were historical bellwethers of just-in-time and lean manufacturing. These firms had seasoned executives, talented teams and cutting-edge technologies.
So, what happened? The Great Recession lowered vehicle-production volume, thus impacting these organizations’ operations, which were (1) lean but high volume-dependent, (2) had high fixed costs and (3) were inflexible. The downturn, although painful, was a warning that the automotive industry’s historic way of doing business was outdated.
As the U.S. approaches an 11th consecutive year of economic expansion, however, prior recession lessons of urgency are fading. Since new, disruptive technologies take years to mature, it can be difficult for organizations to prioritize and make tough adjustments to supply chain operations now to set themselves up to thrive in the future. With advanced systems like electric axles, for example, it takes time for technologies to mature, costs to drop and adoption to spread. The net result is a conflicting equation: These innovative products make up a small portion of the automotive industry’s profits and volumes today but will represent much of its future.
To complicate matters, traditional Tier-1 automotive suppliers face ballooned product portfolios as they strive to serve the needs of their traditional OEM customers, many of which are continuing to bring internal combustion, hybrid and electric-propulsion systems to market simultaneously.
The impacts to suppliers are (1) expanded capital needs to fuel growing R&D efforts, (2) greater people-resource demands supporting more launches and (3) lower-volume programs creating gross-margin pressure. To ensure the future, the need to support traditional product supply chains must be balanced with the acceleration of new products.
Thus, when faced with these new challenges, organizations can’t apply conventional methodologies to supply chain work and expect the same results. An updated tool kit that includes agile supply chain management is needed to navigate through this messy transition and thrive in the new mobility landscape.
Agile isn’t your father’s supply chain. As with other methodologies like just in time, Six Sigma and lean, agile is a mindset and not a destination. Agile doesn’t replace these methodologies, it simply adds a concept that hasn’t historically been needed in the automotive industry.
Agile supply chain can be distilled into a four-“S” model of success. Agile supply chains embody these characteristics that afford companies a competitive advantage: shared, speed, scalable and sustainable.
Shared. The role of the supply management professionals should be to seamlessly broker information by proactively seeking ways to solve commercial challenges. The ability for all team members to easily self-service, access, receive and share data in real time across functions is imperative to ensure better and quicker organization decision-making.
To enable this shared vision, supply management organizations must deconstruct their traditional setup of subfunctions like purchasing, supplier quality, production control and logistics — and adapt into a consolidated team. Lightweight collaborative supply chain cloud software tools can help these teams create, view, edit and assign tasks, thus engraining newer agile ways of working. Further, these tools provide a blend of standardized processes for identifying, managing and executing work as well as a higher level of flexibility.
Speed. Speed can come in various formats in an agile supply chain. To go fast — and make sound decisions — organizations must have excellent command of their data by using real-time software dashboards with the right information.
Common tactics for gaining speed are leveraging application-programming interfaces (APIs) to pull and push data from different systems to save team members time downloading and uploading data. Further, larger Tier-1 suppliers can greatly benefit from fostering an ecosystem of smaller suppliers that can quickly execute supply needs. Even the duration and frequency of meetings can improve: If a team holds weekly meetings that last an hour or more, cutting them to 30 minutes could provide a productivity boost.
Scalable. An agile supply chain is comprised of low to no fixed costs and high variable costs, and in extreme cases, it is 100 percent on demand. A traditional automotive Tier-1 supplier has a high fixed-cost supply chain in people, software and physical assets.
To realize an agile supply chain that can quickly (1) scale as demand increases and (2) retract as the economy softens, companies often partner with managed-services firms to enable a scalable extended enterprise. For example, many Tier-1 suppliers turn down programs below 50,000 annual production units because their high fixed-cost structures price them out. To thrive in the new mobility environment, partnering can be critical to deploying lower-cost offerings that are profitable at lower volumes.
Sustainable. Part of the industry-shift challenge is the development of new value streams that supply management professionals need to support. An agile supply chain requires practitioners to take an active role in creating sustainable new business models.
“Supply management professionals’ skill sets in designing complex value-stream maps uniquely position them to craft these new business models to help OEMs visualize new ways of doing business,” says Stuart Hart, professor and co-director of the Sustainable Entrepreneurship MBA program at the University of Vermont in Burlington, Vermont, and founder of Enterprise for a Sustainable World.
Organizations need to move beyond the product-life cycle focus of prototype to production to broaden the value-add horizon by developing closed-loop supply chains that benefit all stakeholders. To ensure ongoing sustainable business models, organizations need to think more like startups and strive to constantly experiment with new suppliers, materials and technologies.
Act to Shape Your Future
To thrive in the new mobility environment, organizations can’t wait for the “perfect time” to reshape themselves. In fact, it’s in good times, when the economy is humming, that they must act boldly.
As program-development times continue to be compressed, there is a growing need for nimbler, scalable, more on-demand agile supply chains that can navigate through current and future technology, product volumes and economic shifts.
William Crane, CPSM, is founder and CEO of IndustryStar, an Ann Arbor, Michigan-based on-demand services and software technology company that partners with leaders to reduce the cost, time and risk of bringing new products to market.