Achieving Greater Visibility and Cost Control Accuracy in the Automotive Supply Chain
Written By: Drew Dalziel, Director at Allitix and Eric Jennings, Anaplan Automotive Account Executive
Automotive just-in-time (JIT) manufacturing demands synchronization of every aspect of the supply chain to ensure timely delivery of vehicles to the market. With its multifaceted tiered approach to parts manufacturing, automotive supply chain leaders must be laser-focused on minimizing costs, optimizing manufacturing and distribution, and ensuring parts get to the right organizations at the right time. Any delays in the supply chain process can lead to cost escalation in the millions by way of overtime, expedited air freight, or line-down charges from the customer. These costs can significantly impact price points and profit margins -- so it is vital to have full visibility of expenses, on both a fixed and variable basis. Combine that with the macro-economic factors having significant impacts on the demand and supply of parts -- and you have a perfect storm of challenges encircling these supply chain leaders.
Despite these challenges, Allitix and Anaplan together provide clarity into some top issues and can get right to the heart of closing these gaps.
Challenge: Lack of True Visibility into Parts Routing Caused by Delays
The average vehicle has around 2000 individual parts -- either manufactured in house or sourced from a third-party provider. Inventory shortages up the chain, revenue loss by the suppliers/manufacturers -- as well as cost hikes -- are all reasons the supplier network collaborates to streamline parts manufacturing and distribution.
All data, planning and people must work off a single source of the truth to minimize delays and downtime.
Solution: Improve Automotive Parts Visibility, Inventory Management and Routing Through the Supply Chain
• Integrate all suppliers and parts manufacturers onto a common automotive supply and inventory planning platform. Increased visibility for a central view of parts will provide a true supply plan and any expected delays or outages.
• Aggregate information from suppliers of purchased components and in-house manufacturing to roll up to an overall BOM to gain visibility to support customer orders.
• IoT and QR codes on parts allow suppliers and manufacturers to know where parts are at any point in the supply chain. You can easily feed this data into your planning to understand real time inventory positions and costs, creating a more accurate forecast.
• Use predictive and prescriptive analytics and AI modeling to understand the likely future demand for automotive parts and vehicles based on consumer demands, external risks and other factors.
Challenge: High Fixed and Variable Costs Impacts Profitability for Automotive Manufacturers
Automotive manufacturers have high fixed and variable costs throughout the supply chain.
Costs include:
• Investments in Capital Assets
• Workforce salaries, pensions, benefits, special skillsets, unionization
• Commodities costs for buying steel, aluminum, rubber, fabrics, and other raw materials
• Transportation and logistics costs
• Purchasing and contracts
These costs can significantly impact price points and profit margins -- so it is vital to gain visibility of expenses, on both a fixed and variable basis.
Solution: Strive for Greater Visibility and Accurate Cost Controls Throughout the Supply Chain
• Run financial models and analytics considering the total fixed and variable costs associated with building specific vehicles.
• Anaplan has the ability to consider the existing workforce within your organization and plan for upcoming projects to ensure proper support and prevent employee burnout.
• Maintain and track contracted pricing for AAF (alloy adjustment) agreements and productivity agreements made with the customer on a program / part-by-part basis.
• Use predictive analytics to understand how automotive costs will change depending on internal and external factors.
• Tracking costs in a mature planning platform and with the ability to allocate those costs down giving you visibility into what areas are profitable and those that aren’t.
Challenge: Impact of External Factors Significantly Disrupts the Automotive Supply Chain
COVID has had a significant impact on several industry supply chains and exposed real gaps in visibility into demand and supply. Not having flexibility to adjust on the fly can significantly alter the costs to produce, carry and import/export parts. Having a system which enables supply chain executives to have foresight and flexible planning, allows them to truly understand impacts to supply chain and plan accordingly.
Solution: Risk mitigation through proper Connected Planning
Although every automobile manufacturer will manage risks differently, there are several principles supply chain managers can follow to mitigate negative consequences:
• Anaplan’s ability to support supplier collaboration and workflow enables insight into the supply-base to identify risks for ongoing production as well as new product introduction.
• Anaplan’s native “what-if” scenario modeling capabilities allow the use of real-time data to model multiple scenarios to mitigate risk and put in place contingency plans.
• Analyze the automobile marketplace to understand exactly how consumer demands are changing. Build these findings into your overall plans to understand the downstream impacts across the business
Other Risks in the Automotive Supply Chain
The above challenges are only a few affecting the Global Automotive Manufacturing and Supplier network today, there are many areas you can improve including:
• Accurate inventory control of raw materials, parts, and finished vehicles
o Do we have a good handle on our Excess and Obsolete inventory? How much is this costing us?
o How to manage to just in time expectations in delivery?
o How do we reduce your carry costs by a significant amount with better planning?
• Aligning production cycles with demand
o What is affecting global demand?
o How do we prepare our supply chain to manage to change in demand?
o Are we aligned properly within the supply network to manage this change?
• Ensuring that all purchasing for new demand is made with great confidence
o What happens if we buy too much or too little?
o How do we manage if our demand is off or the manufacturer’s demand is off?
o How much will a recall, shutdown or other macroeconomic factor impact us?
• Forecasting future requirements based on a constantly changing marketplace
o Do we have the right system/s in place to manage our planning and forecasting?
o Are aligned across the business on our planning processes to ensure greater accuracy with forecasts?
o Is management confident with the decisions they make?
Contact: Drew Dalziel ddalziel@allitix.com Eric Jennings eric.jennings@anaplan.com