"I love the expression: supply chain design,” a prominent logistics executive in China told me recently. This enthusiasm reflects a trend in the country’s latest wave of factory expansion. Rising production costs and historically inefficient logistics have prompted carmakers to pay closer attention to the shape of supply chains when planning plants and launching new models (read more here). A number are building large supplier parks and inviting tier suppliers to produce components or sequence modules close to the line.
China is not the only place with this emphasis on design. In another of many US examples, Volkswagen will double the size of a logistics centre at its Tennessee plant, allowing it to close two off-site sequencing centres.
While ‘localisation’ is now a major part of supply chain design everywhere from the US to the UK, China, and Southeast Asia, the process cannot simply be about proximity to vehicle assembly points. If all carmakers forced vendors to move house, tier suppliers would lose manufacturing scale and the supply chain would suffer even more fragmentation. Logistics infrastructure must sometimes be ‘local for global’. At its South Carolina plant, for instance, BMW has built a warehouse for small parts mostly sourced in Asia, in which an automated storage and line-feed process has helped remove inventory from the assembly line and reduce handling costs. [sam_ad id=6 codes='true']
Supply chain design must also include the sub-tiers. Material and logistics contracting terms often discourage this, but in India Sudam Maitra, Maruti Suzuki’s top executive for purchasing (which Maruti appropriately refers to as ‘supply chain’) is one executive who is passionate about working with suppliers. He is currently running supplier programmes on improving their logistics competencies, as well as doing shared currency hedging and bundled raw materials purchasing.
Part of Maruti Suzuki’s localisation strategy has included an in-house supplier consultancy, the Maruti Centre of Excellence (MACE), which works in supplier factories to reduce manufacturing defects, increase just-in-time deliveries and improve a host of other capabilities. A decade into its existence, MACE is now doing more to improve inbound deliveries from Maruti’s tier two suppliers. It’s an approach that serves the supply base as much as it does the carmaker, and is a good way to ensure supply chain design is not a zero-sum exercise