Supplier risk management, supplier qualification, supplier development or supplier performance management—supplier data is central to success. However, that supplier data is often scattered across disparate systems and, as a result, companies are often overwhelmed with supplier information management. With a global supplier intelligence system, companies are better able to define and analyse the nature of their relationships with suppliers; proactively evaluate suppliers and rationalise the supply base; identify and mitigate supplier risks; and drive supplier development and innovation. Having access to accurate and consistent information on suppliers, categories, organisations and regions across a company’s global operations; a 360-degree view into supplier intelligence—one can actually intercept or mitigate an event, rather than simply react. Navneet Shrivastava, Head of Supply Chain at Jay Bharat Maruti discusses with Upamanyu Borah that this level of insight allows a manufacturer to get ahead of things like supplier risk—helping them go a long way towards mitigating that risk by combing supplier intelligence with predictive analytics and risk modelling.
What do you think is on most of the domestic automotive OEM’s mind at the moment, further propelled by the pandemic disaster?
Indian automotive OEMs have to operate in a unique environment considering the already complex automobile supply chain. Therefore, the need to continually study supply chain practices in the sector from a contemporary, practitioner’s viewpoint in order to identify key factors of differentiation has always been felt and would ultimately provide competitive advantage. Over the years, OEMs have sought to understand the ever evolving market status, complexities and challenges facing the sector. They have been continously examining and pracitising trends such as visibility and innovation, collaboration across supply networks, and strong leadership roles impacting supply chain effectiveness. Strategies for overcoming dramatic uncertainty that the pandemic disaster has presented is also under the risk management and supply chain framework for further study and analysis so as to thrive in the post-pandemic era.
However, while OEMs may now be concentrating on the core to keep the lights on, the failure to investigate other opportunities could hurt them long term. One guiding principle—a strong decision-making cadence—will help.
Who is driving more innovation in the automotive supply chain today, OEMs or tier I, II suppliers?
I think it is primarily tier suppliers. Part of the reason is that tier suppliers’ margins are being squeezed as are primarily being required to develop the hybrid and electric powertrains for the OEMs. It’s not entirely tier suppliers of course, and there are many examples of OEMs leading innovation – for example, being involved in EV battery module design and pack assembly.
With 65-70 per cent of the value of vehicles brought in by suppliers, collectively the suppliers do own more. However, OEM’s control and direction over this is quite significant. If you look at some products, OEMs will even control the tier II and III suppliers to a tier I under ‘directed supply’ arrangements.
Regardless of who pushes more innovation on a given product, it is worth pointing out the obvious—OEM and tier suppliers have a highly symbiotic and co-dependent set of relationships. And as we move deeper into new technology, whether electrification or autonomous vehicles, the collaboration is only increasing.
What is the most important topic surrounding OEMs and suppliers as far as technology is concerned in streamlining the automotive supply chain’s dynamics?
Most OEMs no longer compete solely as autonomous corporations. They also compete as participants in integrated supply chains. This revolution, which is changing the ways products are designed, produced, and delivered, has the potential to alter the manufacturing landscape as dramatically as the industrial revolution or the advent of mass production. This is all due to the changing nature of supply chains and efforts to optimise their performance.
As OEMs and suppliers navigate through the current phase of recovery crisis, they may gain an advantage by reimagining their organisational structures and operations. Five moves can help them during this process: radically focussing on digital channels, shifting to recurring revenue streams, optimising asset deployment, embracing zero-based budgeting, and building a resilient supply chain.
In the past, OEMs typically drove down the cost of purchased materials through aggressive negotiations, imposing terms and conditions that minimised supplier profitability and often left suppliers in a weakened condition. More recently, OEMs have begun to adopt a strategic partnership approach, which recognises that increased, sustainable benefits can accrue from long-term relationships between participants in the supply chain (a win-win situation).
When the market is slowing or even halting – where should automotive OEMs look for opportunities?
Despite tightening cash flow, OEMs and tier suppliers as well as new entrants should continue to invest heavily in connectivity, autonomy, shared mobility and electrification (CASE) technologies, which are set to make tomorrow’s vehicles radically different from todays.
There are a myriad of opportunities for manufacturers who embrace the changes in the market. Due to imminent emission regulations, most OEMs are already investing heavily in electrification, with some using the opportunity to completely rebrand themselves. The relative simplicity of EV powertrains also provides opportunities for OEMs as well as new entrants and startups. Global vehicle manufacturers are also seizing the potential of newer product categories, such as small SUVs and crossovers, which generally have higher margins. Furthermore, a new category is predicted of shared, autonomous and electric vehicles (SAEV) where the technologies are inextricably linked.
I believe, players should think even more broadly beyond the traditional revenue generation of manufacturing and vehicle ownership, to new revenue streams such as subscription services. OEMs should transition, as have many, to a data-driven world where valued-added services and exploiting big data produced by connected cars become part of the bigger business model.
What are the challenges a firm faces when managing a global supply network for creating value through innovations?
For more than two decades, companies have been pushing the boundaries on globalisation of the supply base. For years, of course, the main driver was ‘low cost country sourcing’ and pushing down costs. Today, however, companies are just as likely to be building out their global supply base to ensure close proximity to critical emerging markets—or as a part of a strategic risk mitigation program. Globalisation of the supply base runs in parallel with another trend—the growing reliance of companies on suppliers and service providers.
Today, on average, 50 per cent of the value (and costs) of a company’s products or services are in the hands of outside suppliers. The number varies depending on industry and other factors, but point is clear, as companies focus on their core competencies and increasingly outsource, their operations and performance become more dependent upon these very suppliers and service providers.
With a more complex role, organisations are confronting a whole new generation of challenges, some of which are:
- Managing disperse global teams, while ensuring common standards and processes
- Expanding sourcing into new and more complex categories
- Ensuring supplier compliance to corporate and regulatory standards across jurisdictions
- Developing suppliers and encouraging innovation, particularly in emerging markets
- Ensuring supply security and avoiding supply disruptions
- Getting visibility into, and mitigating, supplier risks
Having the supplier intelligence needed to make informed choices about suppliers and their role in the organisation makes managing a global supply base lot easier—which can have a profound impact on the success of the business. That explains why companies are increasingly investing in Supplier Lifecycle Management or Supplier Information Management (SIM).
In an increasingly global automotive industry, what should a company’s supply chain consider when minimising costs, optimising manufacturing and distribution, and ensuring that parts and products reach organisations at the right time?
Some of the main steps automobile manufacturers can take to manage the automotive supply chain and minimise any kind of internal and external impact.
#1: Optimise parts Visibility, Inventory Management, and Routing through the supply chain
This is a complex area to get under control, but supply chain managers have a few options:
- Integrate all suppliers and parts manufacturers onto a common automotive order and supply chain platform. This increases visibility for a central view of parts and allows for the early identification of delays or other issues.
- Track exactly where automotive parts are at all times using IoT and similar technology. These devices can show the location of parts and products and when they are due to arrive.
- Streamline the flow of parts between automobile suppliers, manufacturers and other third parties. This allows everyone in the automotive supply chain to be prepared to receive and process parts quickly.
- Use predictive and prescriptive analytics and AI modeling to understand the likely future demand for automotive parts and vehicles based on consumer demands, external risks and other factors.
#2: Introduce effective Risk Management for the most likely and impactful potential issues
Although every automobile manufacturer will manage risks differently, there are several principles supply chain managers can follow to mitigate negative consequences:
- Conduct an extensive risk identification and prioritisation exercise to seek out all of the potential issues that could hit the automotive supply chain. Prioritise these risks by the impact they could have, the likelihood of them happening and the ease with which they can be mitigated or resolved.
- Get contingency and risk mitigation plans in place with key vehicle parts suppliers and manufacturers. This could include backup manufacturing, alternative logistics providers or even relocating some operations to different countries to take advantage of tariffs or trade deals.
- Analyse the automobile marketplace to understand exactly how consumer demands are changing. Build these findings into overall strategy and understand exactly how these findings filter down into the supply chain.
#3: Insist on Deep Visibility and accurate Cost Controls throughout the supply chain
Fortunately, with the right agreements, modeling, optimisation and analytics, it’s possible to accurately understand and control supply and manufacturing costs:
- Get robust contracts and agreements in place with all internal and external automotive parties that accurately define costs, provide expense controls and require reporting on meeting those targets.
- Run financial modeling and analytics that takes into account the total fixed and variable costs associated with building specific vehicles.
- Use predictive analytics to understand how automotive costs will change depending on internal and external factors.
- Audit pricing and costs on a regular basis to ensure everything is aligned with modelling, agreements and expected cost controls.
#4: Introduce stringent Quality Reporting and Visibility for suppliers and manufacturers
This is an issue with automotive supply chain visibility, and one can introduce various processes to deal with the problem:
- Agreeing with suppliers and manufacturers that they will conduct internal quality management checks and audits on critical parts and manufacturing processes.
- Arranging independent, external audits of suppliers and manufacturers to ensure adherence to quality standards.
Implementing rigorous batch control and tracking to identify the source of potentially faulty parts.
