Behind the world’s shimmering cars: The supply chain struggle

Behind the world's shimmering cars: The supply chain struggle

Futuristic limousines and eye-popping concept cars dominated the recently concluded IAA Frankfurt Motor Show in Frankfurt am Main. The press, however, were preoccupied with just two things: Harald Krueger, CEO of BMW, who collapsed on stage during his keynote presentation and Martin Winterkorn, CEO of VW, who bowed to mounting pressure over an emissions scandal in the US and resigned as VW boss.

Pushing aside the scandals and the glitz and glamour of the show in Frankfurt, the underlying issue remains the same: To meet consumers’ increasing appetite for choice, manufacturers churn out an ever-increasing range of models, features and options. This, in turn, has turned the supply chain into a competitive weapon to either support sales growth or protect margins through efficiencies. For the majority of OEMs, the foundations of their processes and systems that manage these complexities are creaking.

What changed in the last 30 years?

In the past, consumers’ expectations were decoupled from the car production process. Cars were built according to the prevalent ‘build-to-forecast’ approach. Production was planned based on forecasts created with statistical data including past take rates and information received from dealers. The sales model also supported this approach as dealers preferred giving rebates and discounts so that they could sell cars immediately even though these did not match consumer desires.

Predicting market trends is not as easy these days as it was 30 years ago. Some segments such as the middle-class non-premium compact cars are shrinking while other segments including premium cars, SUVs and, mini vans are growing. And this differs in each country. Demand from BRIC markets continues to fuel growth for luxury brands while at the other end of the market, OEMs fight continuous battles for volume, market share and margin.

With intensified global competition as well as rapidly changing trends, many OEMs have decided to focus on a ‘build-to-order’ approach where consumers can configure their cars before production starts. This means that car manufacturers continue to extend their product portfolio to offer consumers a wide range of choice.

Bigger challenges ahead

This choice creates capacity challenges whether at assembly plants, powertrain operations or Tier 1 and Tier 2 suppliers. In fact, the whole network is impacted as dealers may end up with the wrong mix of vehicle (right model, wrong features) and supply chain inefficiences grow in an industry proud of its heritage in lean manufacturing and supply chain excellence.

From order to delivery, the cycle time is an average of three months, out of which only around 60 hours are used for production. The rest of the time is needed for parts and cars to flow around the globe. Globalization has an impact on both the customer and the supplier. Customers order products around the globe and your suppliers and factories are widespread globally too. OEMs struggle because of multiple challenges: Visibility, demand planning, agile program and capacity planning, silo mentality within the organization, supply chain complexity (bills of materials, supply chain network interdependencies) and many more.

Although OEMs have been trying to decrease the planning effort required by using, for example, shared ‘platforms’ across different car models, the rise of body styles, engine types, colors, features and options, continue to grow and make their world even more complex. In addition, planning without visibility on different levels and granularities is making life difficult for planning teams throughout the process.

What can car manufacturers do?

Supply chain complexity, in all its aspects, should be seen as a challenge to manage and potentially exploit, not as a problem to be eliminated. Organizations that understand and embrace their industry-specific complexities can harness the opportunities they bring, resulting in higher profits and competitive advantage.

Quintiq supply chain planning and optimization solutions are designed to handle these complexities. Whether your challenges relate to improving volume forecasts, planning the mix of key features and options or aligning your program plans to your production scheduling processes, we have a solution for you through a single platform for integrated business planning.

Meet us at the 32nd International Supply Chain Conference this October 28-30 and have your planning complexity concerns addressed by our supply chain and optimization experts.

Adding some fun into the game

Experience our car manufacturing game, Speedy Car Factory, at the 32nd International Supply Chain Conference and stand a chance to win an Apple Watch Sport. We promise a good challenge for all attendees and lots of fun. Drop by booth P13 in room Potsdam II – we look forward to meeting you!