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OEMs tap supply chain partners to help manage the complexities of production.

There was a time when the manufacture of cars was a fairly routine and straightforward process. Parts were sourced locally, with many of them coming from the carmaker itself. Factories were devoted to particular models, produced on a sequenced assembly line that was conceptualized by Henry Ford in the early 20th century.

Not anymore. Today, the auto-mobility supply chain is among the most complex and difficult to manage in the world. The globalization of production, coupled with manufacturers’ ceaseless search for new markets, has created new challenges in terms of efficiency, visibility, quality, and product variety.

Perhaps the biggest influence on modern-day auto supply chains was the global recession of 2007-2008. The crisis caused a credit crunch that ate into sales and forced original equipment manufacturers (OEMs) to revamp their operations for maximum efficiency. What’s more, the ensuing wave of plant closures reduced production capacity and made it tough to satisfy demand when the economy began to recover.

With production and sales expanding globally, car manufacturers could not simply return to their old methods. They started running several models of cars on the same production line. And they increased their reliance on common vehicle platforms – drivetrains and under chassis – that could support multiple models at differing price points.

It was a good idea, but it necessitated a whole new level of command and control by the OEMs and their armies of suppliers. Under the new discipline of “inbound to manufacturing” (I2M), every one of the tens of thousands of parts that make up a typical vehicle had to be tightly coordinated and sequenced, arriving at the precise moment they were needed for production. The old “just-in-time” method of feeding parts to the assembly line looked primitive by comparison.

Same Volume, More Variety

In today’s auto-mobility industry, the variations in design and add-on features are virtually infinite. As a result, “OEMs and their suppliers are holding broadly the same amount of inventory as a few years ago, but there’s a wider variety of parts,” says Martin Dougherty, Senior Director of Business Development in the UK Auto-Mobility Division of DHL. In a modern 4x4, for example, the wiring system alone yields thousands of options, he notes.

Even so, the items that go into a car must be made available to the line within a matter of hours. And suppliers have to be ready to adjust that flow in the event of a switchover from one model to another, or the removal of a problematic vehicle from the line.

It’s more than any one entity can manage on its own. So supply chain partners outside the OEM’s walls have begun taking on greater responsibility, not just for manufacturing parts and components, but for managing their journey to the line as well.

A key element of the new strategy is the establishment of a sequencing center off-site. The location can be close to the OEM’s plant, possibly in a “supplier park” that’s adjacent to final production. Or it can be many miles away. Regardless of distance, the support operation must be run by an expert in the management of inventory, as well as the logistics of transporting it to destination.

Third-Party Logistics Service Provider

Many OEMs are finding that a partner in the form of a third-party logistics service provider (3PL) can provide both the support facilities and process management capabilities that complex manufacturing operations are seeking. Those facilities can be dedicated or multiuser, the latter option offering the economies of access to shared services. Either way, their job is to support the moment-to-moment needs of the production line, bringing together parts and components from multiple suppliers.

At a DHL sequencing center in the UK, the 3PL receives draft build plans from the OEM 12 to 14 hours in advance. “That allows us to have early visibility of the orders that are anticipated,” says Dougherty. The information is then fed into DHL’s warehouse management system, which accesses the items that are required for the build and readies them for shipment.

The two-way exchange of status information is key to minimizing line stoppages. If an operator on the line encounters a damaged component, threatening a pause in production, DHL will know about it and can respond with a “hot part,” often rushing it to the plant by private vehicle. Status updates also help to minimize stoppages caused by any number of supply chain disruptions, whether natural disasters, port congestion, or supplier failures.

Meanwhile, the OEM is transmitting regular updates on production activity, so that DHL knows whether the line is moving as scheduled. This “traffic light” system allows the 3PL to speed up or slow down the flow of parts as needed.

Meeting Customers’ Expectations

A skilled 3PL can help the OEM to achieve the delicate balance of inventory and speed that marks an efficient production line. With all of its complexities, moreover, auto-mobility supply chain management today is a constant tug-of-war between controlling costs and satisfying the customer.

That calculation can prove especially critical during a vehicle launch, Dougherty says. In DHL’s recent experience with one UK OEM, sales of new models greatly exceeded the manufacturer’s expectations. Through its partnership with the 3PL, the OEM was able to adjust inventory levels to meet the unexpected demand.

A 3PL of global scope can help OEMs to penetrate new markets, especially those in emerging economies. The days of making cars in a single country and distributing them worldwide are gone, says Dougherty. Increasingly, manufacturing is following consumption, as carmakers seek to draw closer to the buyer. “With the trend of production following consumption, DHL’s strength is in taking our existing experience and expertise from mature markets into new and emerging markets,” says Michael Martin, Vice President of Strategic Development for Global Auto-Mobility.

In the end, it’s all about satisfying the consumer’s desire for quality and novelty, while maintaining precision and efficiency throughout the entire production line. Increasingly, it’s up to the OEM’s supply chain partners – with a particular focus on I2M – to make that happen.

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