Supply chain management encompasses multiple departments, business units, external partnerships and internal supply chain teams. In order to optimize a company's supply chain, the right people and right processes need to be in place.
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This is no small feat for any type of manufacturing company. Mitigating the risks involved in participating in a supply chain requires significant planning, sourcing strategies and logistics. Each of those efforts comes with its own challenges and considerations.
There are many ways that automotive OEM companies and manufacturers can optimize their supply chain management processes to increase operational efficiency, reduce costs, increase revenue and provide an excellent customer experience.
Here are five best practices to establish today in order to refine your supply chain management in the automotive industry.
1. Establish a Supply Chain Optimization Team
The newest technologies and an increasingly globalized market are driving forces in a changing manufacturing industry. However, skilled decision makers can still develop strategies and determine the success of their companies in this changing environment.
Currently, companies across the globe are facing a skilled labor shortage. As of early , there are around 11 million positions open in the manufacturing industry. According to a report from Deloitte Insights, manufacturers are finding it 36 percent more difficult to find talent today than in .
Some companies are taking the initiative to create relationships with universities, establish clear career trajectories and prioritize recruitment efforts.
For supply chain management teams, establishing a cross-business approach is an integral part of developing effective processes. In fact, creating a position that coordinates communication and activities across supply chain departments allows teams to see opportunities for collaboration, strengths and weaknesses and to establish standardized processes.
2. Diversify Supplier Relationships To Avoid Delays
Delays are among the most common disruptions in the supply chain. These disruptions can be caused by:
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A shortage of raw materials
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Import and export issues
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Natural disasters and weather-related issues
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Political and regulatory issues
Although these delays are difficult to predict, communication, strong alliances and a diversified supply chain are key tools for those working to mitigate the risks posed by delays. They can allow:
In another effort to anticipate delays, companies are using software solutions with predictive analytics to show inventory, see how fast it's moving and determine where it might be in the future.
3. Improve Forecasting
Inventory management succeeds in the narrow space between having too much product and not enough. Either extremes can be costly for companies:
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Too much product might mean sales are down or demand was miscalculated.
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Too little product might mean that sales are up and sales predictions were off.
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Both scenarios illustrate inaccurate demand forecasting, which can have significant negative effects on a company's bottom line. With accurate demand forecasting, companies can ensure they'll have the correct quantities for present and future needs by taking into account historical sales, forecasts and seasonality.
4. Optimize Inventory Management
Inventory management and forecasting are closely related disciplines. A crucial part of an efficient supply chain, inventory management assists a company in predicting demand, calculating inventory levels and visibility into inventory.
For successful inventory management, companies need to align the practice with supply chain objectives by determining where to adjust operations, fixing inventory-demand mismatches, lowering cost of ownership, accelerating order-to-pay cycle or shortening delivery times.
As they do with forecasting, companies need to use software that tracks inventory in real time and automatically reorders items based on demand criteria. With more data comes better planning and decision making.
5. Practice Risk Mitigation and Compliance
Risks are inherent in supply chains. As mentioned in a previous section, these risks can be man-made, political, environmental or caused by a lack of strong procurement strategies:
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Unknown risks, such as those caused by natural disasters or geopolitical events, are difficult to predict and control.
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Known risks, such as distribution limitations, supplier issues and demand fluctuations, can be measured and managed, making it easier to quantify and anticipate impact to the supply chain.
In any case, diversified solutions are the best way to mitigate the risks posed by both. Alternative suppliers, partners and facilities are necessary components of a risk mitigation strategy.
Some of these solutions do not apply to compliance risks. In order to manage supply chain compliance risks, risk management teams need access to the latest information regarding changes to laws and regulations and documentation processes.
Partner With One of the Globe's Top Automotive OEM Companies
Among car manufacturers and OEM suppliers, VPIC Group has provided more than just OEM automotive parts to our customers ' we've also served as consultants who can provide risk mitigation, diversified partnerships and the technology to optimize inventory management.
For a more comprehensive look into best practices for supply chain management, we recommend downloading our supply chain optimization guide.
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The internet is often asked what exactly is an OEM or Original Equipment Manufacturer. That's a tricky question because the definition of OEM has undergone a slight shift over the years. Its meaning could also change depending on context.
Traditionally, however, Original Equipment Manufacturer referred to a company that manufactured a product for another company, which then sold it onwards ' sometimes after adding value to it ' under its own brand. It is very common in retail, such as for electronics or beauty products.
Today, it is largely understood to be manufacturing to order in which a manufacturing specialist makes a product or component for another company that provides it with the product design and other specifications. The buying company may sell this product or component individually or assemble it with other components (adding value) to make a product that is sold under its own brand name.
Original Equipment Manufacturer is also called contract manufacturing or outsourced manufacturing.
Advantages of Original Equipment Manufactured
- Competitive pricing: Components are usually extremely cost-competitive because of the economies of scale. Large volumes, streamlined processes and efficient supply chains especially in low-cost regions such as China make OEM parts cheaper than if they had been manufactured by the buying company itself. When a good quality product is priced at a low or reasonable price, it leads to increased sales, revenue and profits.
- Access to experts leads to good quality: Several companies have been using the same manufacturing process for years. This makes them experts in that process. Take die casting. An experienced manufacturer will know the reasons for manufacturing defects such as low wall thickness and high die surface porosity and take steps to prevent these defects from cropping up. Companies that do not have the vast experience with Original Equipment Manufacturers have will make mistakes that can be costly. Trial and error costs money so why reinvent the wheel, right?
- Cut capital costs and protect yourself against fluctuations in operational costs: By outsourcing manufacturing, companies save on capital costs spent to acquire machinery and factory space. That's not all. They benefit with regard to operational expenses such as costs of raw materials, some of which can fluctuate over time, upsetting the best-planned budgets. While outsourcing to China, companies often lock in the per unit cost of the product for a fixed period after negotiations with their supplier. This protects them against any fluctuations in the price of inputs such as raw material or even currency. So a company will know, say, that 100 units of their product will cost them $100 for the next 10 months. This aids planning and budgeting and prevents any nasty price-related surprises from popping up (except in extreme situations, which are rare). If you ran your own manufacturing facility, these risks are all yours.
- Focus on product development, marketing and sales: Outsourcing manufacturing allows companies to invest more resources into research and development for new products or finding new markets and customers for their existing products.
Popular OEM industries
- Computer hardware and consumer electronics: Several companies in this industry use Original Equipment Manufacturers to make their products and components. Apple Inc has been using components by different manufacturers in its iPhones for years, for instance, with the majority of its devices being assembled by Foxconn. Similarly, Lenovo used to manufacture IBM personal computers before it bought IBM's PC business in and its x86 server business in .
- The automotive sector: Several car manufacturers worldwide use several parts made by OEMs while assembling their cars. These could include exhaust systems, plastic injection molded automotive parts and tyres and car electronics.
- Start-ups: OEMs are particularly suitable for start-ups or entrepreneurs. If you are an entrepreneur who has a great idea for a product, have done your research and development, and your market research says there is a clear demand for that product, getting an OEM to manufacture your product is the fastest and most efficient way to get it to the market. All you have to do is find an experienced manufacturer possibly with the help of a China sourcing agent, share a prototype, ask for a quote, sign an agreement with them and then wait for your shipment to reach your shores. Much easier than setting up a factory from scratch, right?
Sourcing Allies is a team of expert China sourcing agents that has helped western customers manufacture and source products from low-cost regions since .
For more on China sourcing visit our website or write to us at .
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