Here’s how automotive OEM’s & suppliers can reduce the supply chain issues

The automotive sector might witness supply reform by early to mid-2022. Here are four critical business abilities that automotive enterprises should acknowledge and execute to manage supply chain issues in the future.

A customer looks at a car at a Maruti Suzuki dealership (Image for representational purposes only)

The positive enthusiasm created by the Diwali festivities brought in some relief to the automakers, despite the semiconductors shortage that the country has been facing. The long-term evolutionary story is strong, but short-term volatility is creating an environment of uncertainty. Most global OEMs view India as an important market of the future, and as a result, competition is increasing. In this light, the automotive supply chain has a big and vital role to play in this development.

The shortage of global microchip/semiconductors has been in news lately with its production being impacted by Covid-19 and global transportation woes, which has further created a ripple effect in the production of automotive products across this sector. Furthermore, auto dealers are struggling with a whole range of problems including material or goods unavailability, sudden cost rise, and a remarkable shortage of workers. The automotive sector is likely to see the automotive supply reform by early to mid-2022, and while the OEM (Original Equipment Manufacturers) try to recommence or ramp up their assembly plants, they may face a variety of other supply problems that could stall or slow the process of recovery.

Supply chain firms within the automotive supplier sector contribute to manufacturing qualities in many ways, including quality, cost, and delivery to their OEM and subsystem customer base. A competitive supply chain capability not only encourages the timely delivery of component equipment but also the performance of inbound supply to secure the shipment of quality finished materials at a competitive price while delivering to the point margins for the manufacturers.

Manav Kapur, Executive Director, Steelbird International

Nowadays, in order to fulfill these goals, regular development in the entire supply chain has become the base supply ability, needed by most automotive OEMs. Planning around feeble replenishment and logistics must be expanded to accomplish execution goals, many of which still need to be done. Performing these ideas requires manufacturers to fully advance the capability of today’s original network-based supply chain systems and actions.

Here are 4 critical business abilities that automotive enterprises should acknowledge and execute to manage supply chain issues in the future.

Establish an ongoing supplier risk management firm: Many industry-leading OEMs have centralized five to ten committed global supplier risk management assets for purchasing and supply chain. Their target revolves around combining greater visibility into the financial and geopolitical risks with supplier execution metrics to enable good sourcing results. These capabilities are also being expanded by the application of tools such as Artificial Intelligence and machine learning with an aim to identify supplier risks on a real-time basis.

Reform multi-tier visibility to identify “bottleneck” suppliers: Multi-tier supply-chain mapping can bring transparency to each supplier tier within a united network. If OEM’s are able to profitably map sub-tier relationships, they are able to find problems and work with the influenced stakeholders proactively.  

Recalibrate supplier association: Some OEMs are sharing both short and long-term forecasts with suppliers to assist them to model their capability and recognize constraints way early. More importantly, they are trying to assure that the entire supply chain for a given set of goods is operating off the same organized demand signals. In return, they get visibility into important operational metrics such as cycle times, shifts, capacities, and lead times. The intent is to try and stabilize any demand variability and good action supply requirements.

Establish a committed crisis response capability: In case of a supply crisis, OEMs can expand cross-functional teams (CFTs) to identify potential effects and plan mitigation steps. CFT’s have specialists from various disciplines including planning, engineering, purchasing, legal, supplier risk management, and supply chain management. Some OEMs have created “war rooms” where the CFT, led by the supplier risk management function, coordinates the organization’s crisis response. CFT’s also conduct frequent supplier visits to find issues at the ground level. This team can also give financial liquidity and manufacturing guidance to help bolster supplier operations.

There is a fundamental need for restructuring the relationships between OEM’s and suppliers in the entire automotive supply chain management because this relationship over the years has seen a barrage of impact due to political, climatic, and health disruptions. The accountability lies with both the OEMs and the suppliers to become proactive about addressing the supply chain issues and building bridges of cooperation via consistent and broad-based interactions.

Author: Manav Kapur, Executive Director, Steelbird International

Disclaimer: The views and opinions expressed in this article are solely those of the original author. These views and opinions do not represent those of The Indian Express Group or its employees.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express Telegram Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.