SUPPLY CHAIN VISIBILITY
ALSC GLOBAL 2021
is a wonderful
and challenging thing
The ongoing disruption caused by the Covid pandemic has put the spotlight on the hidden world of supply chain and logistics organisation. At the same time, crisis management demands greater visibility within the supply chain itself. Marcus Williams reports from this year’s ALSC Global conference
At this year’s Automotive Logistics and Supply Chain Global Live conference, which was back in Detroit, Michigan, executives from the leading carmakers based in North America discussed how crisis management has realigned the logistics and supply chain function within their organisations, and put it front and centre.
“There is more visibility in the supply chain of our business now than there has been in years,” said George Grahovac, department lead for supply chain and delivery at Honda Development and Manufacturing of America “It is a wonderful thing and a challenging thing at the same time.”
That focus on gaining greater transparency of the supply chain has been prompted by the multifaceted disruption caused by the Covid pandemic, including container misalignment and port congestion, and the shortage of semiconductors.
It is only with hindsight that greater OEM visibility of the supply chain through to the tier N level could have limited the damage that the semiconductor shortage has done to vehicle production globally. Car manufacturers were caught flatfooted by the sudden shortage and had no knowledge of the semiconductor supply chain or its available capacity. That situation was further exacerbated by the impact of the Covid spike in Malaysia this year. The country is responsible for 13% of chip manufacture but had to shut down a lot of production.
Brandon Mason, lead analyst for global market intelligence at Eaton, pointed to a statement made by the Wong Siew Hai, president of the Malaysia Semiconductor Industry Association: “Predicting based on data I’m seeing, the situation should improve but we still cannot fulfil demand. In January the automotive industry realised they wanted to get back to the capacity but the semiconductor fabrication plants didn’t have the capacity for them.”
That situation is not expected to improve until 2022 and the impact on vehicle production is significant. Market analyst IHS reports that the current global vehicle production shortfall stands at 8.2m units, with North America out in front accounting for 2.2m of that number and US vehicle inventory was at an historic low of 24 days in October this year. The EMEA and APAC regions are each accounting to around 2m units by comparison. According to IHS forecasts, the global deficit in production is likely to hit 10.5m by the end of the year. LMC Automotive, another market analyst, forecasts the impact to be nearer 9.2m.
Added to this there have been other impacts that have disrupted the North American supply chain in 2021, including the ongoing driver shortage and the impact of extreme weather events, such as the winter storms which shut semiconductor production in Texas in the first quarter of the year.
This multifaceted disruption is going to continue into next year and it is something the industry is going to have to weather out, according to Mason.
“The increased price pressures and the lack of capacity, those things don’t get fixed overnight,” he said. “That is going to be the new normal and we are going to have to deal with it. Immediately, that means higher sustained prices for everybody, which will ultimately be passed onto the consumer and they just need to be ready for it.”
However, the extent of the disruption is also why those with responsibility for supply chain and logistics operations planning are now meeting with executive management on a more regular basis than previously, to get a consistently clear picture of exactly what is going on.
“We don’t have a crystal ball and that is why we effectively have a sales and operations planning adjustment meeting on a weekly basis right now,” said Grahovac.
Honda reorganised its business in North America earlier this year and is now operating as Honda Development and Manufacturing of America. While Grahovac admits that crisis management may have slowed down work on making the new organisation more efficient, the benefits of having a common approach in the newly realigned business is helping deal with the challenges the company is facing.
“It has been good to have everyone under one roof, with common business plans and working toward common processes and, eventually, systems,” said Grahovac. “It is a breath of fresh air and we are positioned well for moving forward with future challenges.”
Over at Nissan North America there is a lot more interaction between supply chain management, and sales and marketing teams, when it comes to production planning and sales forecasting, according to Chris Styles, vice-president of supply chain management.
“My counterparts sit in the sales and marketing function but they are in the day-to-day discussions about what we are doing from a supply chain standpoint ie what we are doing in the plants, what we are building and then what we need to do to fulfil the demand that they are seeing.”
Styles explained further that Nissan established a Logistics Systems and Strategy team about three or four years ago to focus on what technology tools and other capabilities its supply chain team would need for the medium term. Previously those responsibilities were divided between operations.
“We separated it and formed a team, and we have continued growing that team,” said Styles. Sales and operations planning is part of it and we are seeing the benefits of that now. And we are getting our voices heard much faster with our executives. They are understanding what we need and it makes a big difference.”
Reinventing the new normal
Meanwhile, Volkswagen Group of America (VWGoA) has the advantage of already having oversight of each of its brand’s functions and being able to coordinate each of their logistics requirements, such as service parts logistics, service workshops and technology, and customer relationship management.
“Being a group function we are in a unique situation to see how each brand does different things company-wide,” said Anu Goel, executive vice-president for group after sales and services. “We lead a new initiative called Reinventing for the New Normal. That is to identify areas and processes, efficiencies and synergies, company-wide in the new business environment.”
The disruption is also requiring the OEMs to be more flexible in their planning and faster at getting new systems in place, something that is made easier by the greater transparency afforded by closer coordination and regular communication.
“We don’t know when we will be back to normal or what normal will look like, but we all know that we have been very flexible through this period and we have to make sure that we continue to do that,” said Steve Brown, vice-president of parts supply chain planning at Toyota North America. That goes for supply chain, logistics and parts ordering, according to Brown.
Over at GM, Andrea Budzynski, manager of global logistics engineering and planning, described how the company was working on better foresight of disruption in a new normal that was defined by constant changes in the network and continual supply chain risk.
Budzynski pointed to the lack of visibility in regional production during the pandemic. With facilities closing at different times with little or no notice, logistics planners were left looking for their parts in in the supply chain and trying to figure out what was going to be required, and when. GM is still working to assess the impact of delays on the wider network and how to predict disruption earlier.
“We are dealing with capacity and slow-down issues,” she said. “ We are trying to figure out how we can get those early warning triggers so we know we need to change something in our network quickly, and we can move our freight and keep production going.”
Budzynski explained that the company had now created dashboards that showed the health of the network, exactly the early warning trigger system required to figure out which parts were going to be affected first and how to put in a contingency supply.
“We are tracking every single KPI we can that will give us that trigger,” she said.
Data-driven decision making
Achieving greater supply chain visibility on a company-wide basis and using it to be more flexible depends on the use of new IT tools like this and they are being adopted at a much faster rate since the Covid pandemic hit.
Decisions now need to be data-driven and OEMs need to make the right investments in new technology. According to Budzynski investing in IT was not initially calculated in terms of ROI but on how imperative it was to get the data necessary to be able to make decisions quickly.
“What we are seeing is that we can make decisions at 20 days [out] when we used to do it at 10 days,” she said. “That gives us a lot more time to come up with better solutions and really focus on what we need to do. We see paybacks in months, if that.”
Nissan is also investing where it sees a the best payback, according to Chris Styles, who pointed to the important area of inventory optimisation.
“We are trying to prioritise where we are investing to get the biggest bang for our buck and make the biggest impact, especially given what we are dealing with now,” he said.
Over at Toyota, Steve Brown said there had been a greater use of big data, especially on the service parts side of the business.
“Manufacturing has been on a journey for several years to fully visualise the supply chain, so we are continuing to execute and work on that side of it,” he said. “Covid has changed some of our priorities. It has made us focus in on what are our priorities from an IT perspective.”
At Honda, meanwhile, there is a move to ditch legacy systems and connect different functions within the company using data tools, thereby gaining a more comprehensive picture of the whole supply chain process.
“In some cases we are rethinking our ERP system completely,” said Grahovac. “We are finding that from design to operation, to sales, how much disconnectedness there is and we are learning from it. What the continued crisis has done is made us learn more from diving into the data.”
Grahovac went on to say that lessons could have been learned better from the Fukushima earthquake, which revealed that there was not enough visibility into the lower tiers, something that has come to prominence again in the semiconductor shortage. However, he said that the company was learning from the latest disruption and using it as an opportunity to enrich the data informing it Enterprise Solutions strategy moving forward.
Again, the reorganisation of the business into Honda Development and Manufacturing America has enabled closer cooperation on the company’s campaign to improve data quality and governance.
“Now we are under one organisation and we have the ability to execute data quality and performance a bit better,” he said.
Supply chain and logistics is now a headline topic of discussion around the world and its significance, not only at a company level but cross industry, has become clear. The hope is that this revelation will help to attract a new generation of industry professionals who will also be attracted to the advanced digital tools being used in the business. That way, the automotive supply chain will be ready with the talent as well as the tools when the next major challenge comes along.
The increased price pressures and the lack of capacity, those things don’t get fixed overnight. That is going to be the new normal and we are going to have to deal with it
Brandon Mason, Eaton
We don’t have a crystal ball and that is why we effectively have a sales and operations planning adjustment meeting on a weekly basis right now
George Grahovac, Honda Development and Manufacturing of America
We are getting our voices heard much faster with our executives. They are understanding what we need and it makes a big difference
Chris Styles, Nissan North America
We don’t know when we will be back to normal or what normal will look like, but we all know that we have been very flexible through this period and we have to make sure that we continue to do that
Steve Brown, Toyota Motor North America
What we are seeing … is that we can make decisions at 20 days when we used to do it in 10 days. That gives us a lot more time to come up with better solutions and really focus on what we need to do. We see paybacks in months
Andrea Budzynski, GM