OEMs have long strived to create the most efficient supply chain possible. With the current volatility, this has become even more prevalent as businesses streamline costs to survive.
Historically, the strategies to increase automotive supply chain efficiency have focused on reducing the costs of manufacturing, procurement, distribution and transport. However, recently more emphasis has been given to considering all supply chain costs holistically and a new model is emerging in the form of tax efficiency.
Because the majority of automotive supply chains are international and countries offer widely divergent tax policies, it is more important to consider the tax implications of an organisation’s supply chain strategy. Many countries in east Asia will negotiate tax rates to encourage companies to establish plants there. With this in mind the associated tax implications can make a significant difference to profit margins, particularly accounting for the fact that taxes are often added to each layer of the manufacturing process.
An OEM must consider three steps to develop tax efficient supply chains. Firstly to identify activities that can be moved to a low-tax zone, including identifying factors that contribute to profit, such as manufacturing, and understanding the tax and legal requirements of different countries. Secondly, it must determine the impact of changing location on the entire supply chain. Finally, it must commit to combining IT and business processes.
Tax efficient planning may be overlooked in the supply chain. By incorporating tax efficiency into planning, supply chain executives can take into account varying global tax levels alongside other costs and constraints. This should not focus on cost alone, but rather maximise the after-tax profit of the network. This could reduce the typical international tax payments by up to 10%.