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An overview of the complex supply chain in the automotive industry

Under the hood of the automotive supply chain

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The typical car is made from an average of 30,000 parts including everything from small nuts and bolts to the engine and transmission. Due to this, modern supply chain disruptions can wreak havoc on an automotive industry that often relies on a traditional “just-in-time” (JIT) supply-chain model.

Automotive organizations can adapt to today's challenging market by adopting sustainable practices and streamlining operations with supply chain management (SCM) solutions. A modern SCM platform can increase visibility and efficiency, decrease risk and bring products to market faster. Read on to discover how to thrive in today's dynamic automotive landscape with cloud-based digital transformation solutions. 

car manufacturing

Driving the economy: The automotive supply chain's trillion-dollar engine

The automotive supply chain is a vast, intricate global network of manufacturers, suppliers, and service providers that work together to bring vehicles to the market. Think of it as a giant, well-coordinated machine, with millions of moving parts that must work together perfectly to produce the finished product. 

This highly interconnected system extends across the globe, involving various stakeholders at each step of the process. It is a complex and vital industry within the global economy—one that employs millions of people and generates trillions of dollars in annual revenue.  

The automotive industry employs over 8 million people worldwide and generated revenues of $2.8 trillion US in 2021, according to studies by Statista.

Nuts and bolts: How an automotive supply chain works

Here's a typical example of how the automotive supply chain works: 

Step 1

It starts with the raw materials suppliers – such as companies involved in mining and processing steel and aluminum – that transport these materials to component suppliers. 

Step 2

These component suppliers craft parts like engines and transmissions, then send them to assembly plants, where cars are assembled.  

Step 3

Once assembled, cars are shipped to car dealerships, where they are sold to customers. But hold on, the automotive supply chain doesn't end there.  

Step 4

What if these customers want to add cool gadgets to their cars? Or replace worn-out parts after many long road trips? There is a large aftermarket industry that has you covered, providing parts and accessories for cars after they have been sold.  

Step 5

Lastly, when cars reach the end of their life cycle, the automotive supply chain comes full circle, as they are recycled or disposed of in a sustainable manner. 

The tiered effect: A collaborative supply chain effort

Creating a car is a team effort. The original equipment manufacturer (OEM) designs and puts together the vehicle, but it is not a solo act. It depends on a network of suppliers to provide the components and systems. In many cases, larger suppliers are involved in product design and development and even assembly for certain niche vehicles.

These suppliers are categorized into different levels known as tiers.

Tier 1 automotive suppliers

They supply major components such as engines, transmissions, and advanced systems to the OEM.

Tier 2 automotive suppliers

These companies manufacture smaller parts that are incorporated into the Tier 1 components, including items like nuts, bolts, and sensors.

Tier 3 automotive suppliers

They provide basic components or raw materials like steel and plastic, which serve as the foundational building blocks for Tier 2 components. 

 

To summarize, the OEM relies on major parts and systems from Tier 1 suppliers, who, in turn, use parts from Tier 2 suppliers, whose components originate from basic sources provided by Tier 3 suppliers. Each tier plays a crucial role in the creation of a high-quality vehicle.

The automotive supply chain is a complex network of companies and processes that must work together to produce a finished vehicle. If any part of the system breaks down, or if there is any disruption, it can have a ripple effect on the entire industry.

Driven to the brink: Supply chain challenges in the automotive industry

Here’s a look at the main supply chain issues the industry is facing today. These challenges have a significant impact on the automotive industry, leading to production delays, higher costs, and vehicle shortages.

Four tips for maintaining a sustainable automotive supply chain

The automotive industry is now at a crossroads. On the one hand, it faces increasing pressure to reduce its environmental footprint and embrace sustainability. On the other hand, it grapples with challenges such as the shift to electrified vehicles and the semiconductor chip shortage, as well as economic uncertainty and high cost of capital. 

So what goes into building a sustainable supply chain? Here are four tips:

1. Optimize inventory through AI-driven forecasting tools

Products are readily available when and where needed, resulting in reduced waste and enhanced efficiency.

2. Improve supply chain visibility and enhance risk management by employing AI and data analytics

AI facilitates real-time tracking of materials and products, enabling early disruption detection such as supplier defaults or transportation hitches, and providing insights for contingency plans.

3. Streamline everyday tasks with Robotic Process Automation (RPA)

By automating activities like order and invoice processing, employees can focus on more strategic endeavors, like product development and innovation.

4. Prioritize collaboration and encourage transparency to address common challenges

Cross-functional teams can implement collaborative software and platforms, to foster open communication and establish shared goals across all supply chain partners.

Five benefits of an automotive supply chain management system

Managing the supply chain is a vital aspect of the automotive industry. It involves the coordination of all activities related to the production, distribution, and delivery of automotive parts and vehicles. To make this complex process run smoothly, the industry relies on cutting-edge software and smart management strategies. Supply chain management software systems can assist automotive organizations in automating and optimizing various functions within the supply chain, resulting in more efficient operations.

Here are five benefits of implementing supply chain management solutions in the automotive industry: 

Gaining end-to-end supply chain visibility with Infor

Simply put, supply chain visibility is like having a map that shows you all the steps and parts of making a car, from getting the raw materials to when the customer drives it home. It is the ability to see every stage of the car-making process—where everything is located, what is happening with it, and when it is expected to arrive. This is essential in today’s global automotive supply chain, which is complex, interconnected, and constantly evolving.

Infor CloudSuite Automotive and Infor automotive supply chain management solutions provide end-to-end visibility into the entire supply chain, enabling automakers to identify and mitigate risks, improve efficiency, and enhance customer satisfaction.

Our solutions also help automotive organizations:

1. Simplify supply chain management and provide details such as part pricing, compliance with environmental regulations, and freight costs in an easy-to-use interface.

2. Optimize assembly lines and help automakers plan for alternative packaging and prioritize shipments, allowing them to produce more in less time and meet increasingly complicated customer demands with reduced errors.

3. Provide insights and financial visibility to help automakers make better decisions that will maximize margins.

 Automotive MD

Infor Automotive

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