Lean and resilient: The new automotive supply chain hybrid

Supply chains need to be ever more resilient and agile to survive the ’butterfly effect’

Bonn

A new white paper commissioned by DHL makes the case for re-evaluation of the automotive industry’s approach to its supply chains and logistics, and encourages companies to ask themselves, ’What if?’ to avert a crisis tomorrow.

DToday’s supply chains must be ever more resilient and agile in order to survive the ’butterfly effect’ - where a small change at a localized point in the supply chain can result in much wider consequences for the business, such as loss of customers or brand reputation, and billions of dollars off their bottom line.

“Lean and resilient: the new automotive supply chain hybrid” is a report by Lisa Harrington, President of the lharrington group LLC, prepared in collaboration with DHL. Harrington is also Associate Director of the Supply Chain Management Center and lecturer of supply chain management at the Robert H. Smith School of Business, University of Maryland.
The white paper maps the evolution of the automotive industry

Expert interviews and analysis of past incidents reveal how companies risk critical damage to their business if they are not in a position to anticipate and respond to the increasing unpredictability and vulnerability of their supply chains in light of economic volatility, natural disasters and political unrest.

The white paper maps the evolution of the automotive industry and sets out the benefits of re-evaluating and revising its logistics operations; establishing new ’hybrid’ supply chains that are simultaneously lean and resilient - by adding in controlled redundancy and contingency options to improve resiliency and protect against failure.

Mike White, Senior Vice President, Global Automotive Sector, DHL Supply Chain, says, “The research highlights the commercial imperative of supply chain resilience. For the industry to survive and continue to develop into leaner and more resilient supply chains, global collaborative simulations must be developed and tested - prior to establishing the correct process and approach - before execution and delivery. ”
Tackle conditions of systemic volatility

In commenting on resiliency issue, Harrington says, “The goal is to build a resilient supply chain that can tackle conditions of systemic volatility - good and bad - ranging from the ordinary to the unimaginable. Those companies that embrace the ’new normal’ of continuous - and sometimes radical - supply chain volatility and risk, and put the processes and systems in place to better manage both, regularly outperform their competitors. Companies that ignore or lag behind in addressing supply chain volatility do so at the peril of their bottom lines and their shareholder confidence.”

Four major trends re-shaping the automotive sector and the risks associated with each are identified in the report:

1. Global Growth and Emerging Markets: Despite the drag-effect of the debt crisis in Europe, global automotive production is forecast to hit record levels, driven by emerging markets China and India.
2. Mega-plants and Multiple Platforms: Companies are shifting to producing multiple models or platforms in a single plant to gain flexibility, reduce costs and better utilize production assets. These improve capacity while reducing the need for plant expansion with strongest growth in China and Mexico.
3. Getting Closer to the Customer: OEMs are locating their new manufacturing plants and supplier base closer to their end markets and moving to a model of geographically regionalized production - manufacturing at or near the point of demand.
4. Relentless Cost Pressure: Logistics typically represent five to 10 percent of manufacturing revenues in automotive: a need for speed to meet the growing affluent consumer markets while having to drive down costs puts huge pressure on supply chains.