The Fragile Automotive Supply Chain

Digital Supply Chain wrote a fantastic article on why supply chains have become so fragile and they included several automotive supply chain examples which clearly illustrate the dependency that most manufacturers have on their downstream suppliers and how those relationships affect the company’s ability to meet market demand and to grow profitably.

The article points to the fact that 75 percent of automotive parts are not designed or built by the car manufacturers but rather, by their downstream suppliers. Historically, auto makers ruled with an iron hand and had their suppliers in a difficult position because of the size of each contract. But what seems to be happening today is that the suppliers have a larger say in the process.

For example, Digital Supply Chain points to a forced shut down in Europe at Volkswagen which resulted from a supplier simply refusing to deliver key components.

This is why technology can’t solve every problem. Automotive ERP systems can help manufacturers know what they need to buy or to make to meet demand but inevitably, manufacturing is all about relationships and every participant in the supply chain must do their part and respect each other’s needs in the process. People buy from people they like and businesses are no different.

Further, technology relationships between customers and vendors are extremely complex and restrict manufacturers from switching suppliers on a whim and likewise, suppliers have a lot of work on their side to comply with the requirements of a new automotive customer. For example, every automotive supply chain relationship has its own unique requirements for quality reporting, electronic data interchange (EDI), shipping labels, and communication between the two business partners. This can be further complicated for complex products that are designed collaboratively between the two companies.

Similar supply chain problems are rampant among every part of the supply chain including the automotive aftermarket as automotive parts retailers have evolving requirements for their suppliers. Further, the Internet offers a challenge to the automotive aftermarket suppliers who must balance the opportunity to sell direct to the consumer against the value of selling through traditional wholesalers and retail channels.

We see technology moving – fast. And one thing’s for sure – the automotive supply chain will only increase in complexity by leveraging newer technologies such as ERP and business intelligence software. Companies on older platforms will not be able to keep up with these requirements – many of which will rely solely on the underlying business technology and data available in the company’s systems. And this is what we do here at e2b teknologies – we help automotive supply chains to select, implement, and integrate software to solve real world business and supply chain problems.