Advicory Service

Automotive industry: successfully mastering supply chain risk

Transport Control International GmbH
2022-05-16 14:56:00 / Comments 0

Supply chains in the automotive industry are complex, widely ramified and harbour many risks: If, for example, a partner in the chain fails - as is now the case during the coronavirus pandemic - a domino effect sets in and production comes to a sudden standstill at many car manufacturers and suppliers. A CEO of a German automotive group recently confirmed just how complex the supply chain in the automotive industry is: the company sources 140 billion parts per year from 17,000 suppliers who produce in 130 plants in 24 countries. During transport, each component crosses a national border an average of four times before it can be used in car production. It is easy to imagine that failures in the supply chain and transport damage can have a significant impact on business and lead to huge losses in sales. Industrial insurers can see just how big these effects can be every year from the global loss trends in fire insurance. There is a tendency towards increasing fire damage in the automotive industry

For supply chain managers working in the automotive industry, it is a simple calculation: The more complex the structure of the supply chain, the more diverse the interdependencies with sub-suppliers and the more detailed the process structure, the more important the issue of transparency in the supply chain becomes: digitalisation has a significant role to play here. However, the first step is to analyse and determine how transparency should be created in the first place and for which area within the supply chain.

When it comes to transparency, it is therefore important to look both at your own company and the associated supply chain as well as at the subcontractors and suppliers involved. Ultimately, the aim must be to use transparency to ensure an efficient and effective supply chain that can react quickly to problems within the transport routes and cooperation with suppliers.

Bringing transparency to supply chain risks

Many automotive companies often rethink their supply chains too late and only recognise risks when supply chains fail or delivery dates are repeatedly delayed due to transport damage. They suddenly identify risks that they had never thought of before - for example, when a significant part of the supply chain breaks down because it is dependent on a single supplier. Or because transport damage always occurs at a certain supplier or carrier and important car components are delivered damaged for production and delay production.

However, it is only when companies know their risks that they can define their own risk handling instructions. At the end of a risk analysis, the management has various decision-making options: It can take a calculated share of the risk and recognise it on its own balance sheet. However, it can also rethink work processes as part of a prevention strategy and use technical aids, such as digitalisation, to optimise warehousing and supply chains, for example to bridge supply chain breaks and minimise delivery delays caused by transport damage.

Determine digitisation potential

For many, digitisation has become a popular buzzword. But what is the right way for an automotive group to really benefit from digitalisation?

In the end, digital potential must be identified in the company in order to collect data in the group and in the automotive supply chain with all associated suppliers. This is the only way to achieve transparency in the processes, recognise problems and react to disruptions in the supply chain.

This is made possible by the availability of the relevant data in real time. The company then has an optimised process structure and supply chain that is informed in real time and can be adapted very quickly in the event of problems. This can be illustrated very well using the example of transport damage in the supply chain.

Real-time data loggers create transparency

Transport damage accounts for a large proportion of supply chains in the automotive industry and often leads to serious production delays. With a real-time data logger attached to car parts to register shocks, temperature changes, inclinations or humidity that occur during transport, damage can be minimised. During shipping, car components are often temporarily stored, loaded onto other means of transport and transported across various national borders before they reach the factory for final assembly. This results in many opportunities for the car parts to be damaged. Real-time monitors, which provide alerts during transport if certain limits are exceeded or undercut, enable automotive companies to intervene and prevent imminent damage to car components.

Real-time data loggers ensure transparency in the supply chain and safer handling and transport of car parts and components. This also has a significant impact on the damage balance: Results vary, but the damage rate drops by up to 50 per cent or more when real-time data loggers are used in the transport of car components.

The digitalisation of the supply chain in the automotive industry has a key role to play. By using real-time data loggers, for example, automotive companies can obtain a detailed overview of their own supply chain, suppliers, their current performance and the environmental conditions during transport at any time, enabling them to significantly minimise transport damage and the resulting production delays. Read our free white paper "Developing a risk management programme" to find out how automotive manufacturers can prevent supply chain delays and minimise transport damage by establishing risk management systems.