Automotive Sector

Industry Productivity and Competitiveness via Logistics and SCM

As the Automotive sector’s competition becomes more global, innovation is moving from a firm-to-firm level to a supply chain versus supply chain perspective. In order to compete against low cost countries (such as China), Canadian firms from the Automotive sector must develop supply chain agility in a JIT and mass customization mode.

The lean JIT process was developed initially by the Automotive sector engineer Taiichi Ohno. The model consists of monitoring and controlling the production system to eliminate all sources of waste, in particular those related to inventory level. Production is expected to equal demand at all stages of the process.

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Lean Manufacturing and the integration of JIT components is thus more mature in the NA Automotive supply chain than in other sectors of the economy. There are (in average terms) 85 percent more NA Automotive manufacturers that have implemented Lean initiative for more than 4 years compared to the NA Manufacturing average². On the other hand, supplier lean strategy, a key logistics and SCM concept, is still at early development stages in the Automotive sector and in Manufacturing in general.

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The integration of internal and supply chain lean initiatives is directly linked to supply chain agility. Supply chain agility is an operational strategy focused on inducing velocity and flexibility in JIT in the supply chain. Agile JIT supply chains responds to market pressures that revolutionize the way goods and services are produced and delivered:

• Customers are driving the demand and product/service levels by requesting, at the same time, complex customized products and lower prices, thus creating price/margin pressures.
  
  
• Competition between firms is not solely based on price/cost anymore but on the ability to bring and close product/service lines and the ability to recover rapidly from supply chain disruptions and supply/demand imbalances.
  
  
• Competition within global supply chains is creating numerous logistics and SCM critical factors such as:

• Managing a distributed operating environment with supply chain partners around the globe.
  
  
• Outsourcing and off-shoring production and services into low cost countries.
  
  
• Integrating a new international dynamic business model.

Logistics and SCM are key components in the JIT Automotive sector. The two most preferred KPI measured by North American (NA) respondents from that sector are logistics and SCM JIT related (on-time delivery and inventory turns) while traditional production measures, such as Manufacturing cycle time and cost per unit, are far behind².

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Measurement of logistics and SCM KPI is an essential part of the agile supply chain concept. It is estimated that 37 percent of North American firms (in general) that have put in place logistics and SCM KPI corporate wide measurement achieved a decrease of at least 15 percent in shipment delays compared to only 7 percent of firms that do not measure those KPI consistently. NA firms that measure logistics and SCM KPI also outperformed their industry counterparts on document issues (a key component of Smart Border solutions in JIT), by a ratio of 3.5 times⁵.

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In order to take advantage of logistics and SCM KPI measurement, supply chain managers must also factor their sector specific focus into their strategy. As an example, the Automotive sector focuses on JIT and continuous flow of product and information under Lean principles. Retail and Consumer product goods (CPG) sectors concentrate on total delivered cost and in-store stock-outs ratios. The Pharmaceutical sector is pushing for item level traceability and supply chain visibility for governmental requirements and product recall issues, while the Aerospace sector emphasizes total supply chain quality ratios such as Six Sigma processes and standards.

Import content also has a major impact on sector logistics and SCM indicators. A high level of imported inbound goods makes the supply chain management more complex, especially if the imported content is from low cost countries such as China, versus JIT related countries such as the U.S.³.

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In order for firms to achieve the benefits of their respective logistics and SCM business drivers, the adoption of logistics and SCM technology across supply chains is a key component for developing efficient collaboration networks.

It is estimated that NA Small and Medium Sized Enterprises (SMEs) that will deploy logistics and SCM collaboration applications will enjoy a 5 to 25 percent decrease in logistics costs and a 15 to 40 percent increase in quality and time-to-market over competitors that fail to make these investments through 2010⁴.

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The adoption of technology and best practices initiatives is usually a success in the Automotive sector, as displayed in the previous figure. Lean Logistics strategies that were implemented in NA actually met or exceeded expectations in more than 65 percent of the cases and the percentage of initiatives that failed was minimal².