Tier suppliers are realising they need a more strategic focus on supply chain management and logistics cost control as the economic downturn exposes inefficient supply routes and sourcing patterns. The problem is hitting those that have expanded global production in recent years but have not pursued a global or even regional strategy for logistics.
“Our supply chain is a product of our history – we’ve ended up with it, rather than engineered it,” Henrik Kaar, an 11-year veteran of tier supplier, Autoliv, told Automotive Logistics in Stockholm this week. He has experience in logistics but today is Director of Corporate Communication. “As a company we’ve had very little focus [on supply chain management], and it’s always been managed on a local level, plant by plant, rather than even on a regional level.”
Building close to OEMs, but with unwieldy supply chains
It may sound surprising that the world’s largest supplier of safety systems, with 80 global production sites, has not thought strategically about its supply chain management. The result is a supply chain that can be unwieldy and inefficient. Autoliv, primarily a tier one supplier, at times functions as a tier two as well, delivering side airbags to seats manufacturers, while retractors for seatbelts directly to the OEM, for example. Parts might originate in a high cost country like the UK, be shipped to Turkey or Romania for manufacturing, only to be sent back to an OEM in Poland or Germany for final assembly.
This inefficiency is partly because OEM demands for suppliers to move closer to car plants pushes logistics cost and responsibility down the supply chain rather than eliminating them, although Kaar admits OEMs are typically better than suppliers at managing logistics. But aside from effective milk runs run by Toyota in Turkey and Czech Republic, he sees little evidence carmakers are making real efforts to consolidate supplier flows and improve total supply chain costs.
Origin-based supply networks
Autoliv has nevertheless recognised a need to reduce suppliers and streamline its own supply chain. The company has set a goal of both making its products lighter by using less material, as well as consolidating 90% of its purchasing to strategic suppliers; it also wants to purchase 50% from low cost countries by 2010, including increased sourcing in China for Japanese production, and Eastern Europe for European production. But the company believes logistics cost are set to rise in the long run, and is also striving to increase “near” sourcing close to production in both high and low cost countries to cut cost.
Such plans to streamline supply chains echo those of other tier suppliers who are suddenly more focused on improving logistics processes following years when sales and production growth was top of the agenda. Several weeks ago, at the Automotive Logistics Europe conference, Hubert-Paul Mas, European Supply Director from Inergy Automotive, also revealed a supply chain that looked unnecessarily far flung – the company is now moving towards “origin-based networks,” which will cut logistics costs through more local and consolidated sourcing.
Autoliv, which purchases and manages logistics inhouse and does not use 3PLs, also plans to develop a more regional logistics strategy, recently appointing managers with responsibility for all of Europe and North America. That could mean a trend toward using more regional, European providers rather than local transport companies as it does currently, which could mean a larger potential for consolidating loads among suppliers. But Kaar admits that this evolution will depend on cost. “As long as a Turkish provider is cheaper in Turkey than ‘European wide’ providers, it will be difficult to change,” he said.