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Adapting to a changing automotive supply chain

The past several years have brought significant changes to the automotive industry. The global recession and the rapid growth of China and emerging eco...

Freddie Pierce
|Jan 10|magazine10 min read

The past several years have brought significant changes to the automotive industry. The global recession and the rapid growth of China and emerging economies have created a ‘New Normal.’

This new environment has leveled the playing field and created new opportunities for automakers to differentiate themselves through improved supply chain management. Automakers are faced with a unique opportunity to improve revenue while reducing costs and improving asset throughput.

To take advantage of this ‘New Normal’ environment, JDA Software Group, “The Supply Chain Company,” recommends focusing on strategies in the following areas:

-- Synchronize Option Content with Parts -- A critical challenge in supply chain management in the automotive industry is the synchronization of sales and marketing requirements and forecasts with parts flowing in from suppliers. This challenge calls for demand management on the front end of the supply chain to be seamlessly linked to material requirements on the back end of the supply chain. This requires an integrated demand management platform that brings together volume and option forecasting, configuration management, and constraint management across short-term and long-term planning horizons.

-- Link the Supply Chain to New Product Programs to Manage Total Enterprise Cost -- Another key challenge is the ability to manage total enterprise cost, which means managing costs across product (research and development), operations (supply chain), and sales and marketing. In essence, constraint management needs to be driven further upstream into the product development decision-making process.

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-- Manage Capacities and Materials Across the Global Network -- Automotive companies need a global view of demand in a common format to make decisions on capacity management, sourcing and profitable allocation of vehicle and option content. This view must also be rationalized with the financial plan of the company to understand where gaps are and how they are going to be addressed. The key requirement is to have a continuous consolidated global view of demand and supply at multiple levels of the product hierarchy. This view should be available in a decision-making environment that shows gaps between demand and supply, the impact of the gaps and process playbooks to resolve the gaps.

-- Optimize Prices, Channel Inventories and the Order-to-Delivery Process -- The automotive industry is one in which customers expect more content for less money, and regulators expect more safety, lower emissions and higher fuel economy. All of these have a significant impact on supply chain operations. With the competitive environment of the past decade making pricing a significant challenge, companies tried to deploy analytics-driven incentive programs, only to be overridden by the latest and lowest actions by competitors. This destroyed pricing and capacity management discipline within the industry. There is an opportunity today for automotive companies to implement retail category management and pricing optimization best practices and to link these capabilities to the order-to-delivery process. Furthermore, there is a great opportunity for companies to reinvent their order-to-delivery processes and make lead time and flexibility a competitive advantage.

“In the New Normal, most automotive companies are starting with similar operational efficiency profiles. The basis of competition has moved away from operational efficiency in a given functional area to the operational efficiency of the overall value chain,"” said Kelly Thomas, senior vice president, manufacturing, JDA. “Over the next several years, automakers face unique opportunities to break from the pack and differentiate themselves.”

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Edited by Kevin Scarpati