Modern supply chains in the automotive industry are inherently complex. Initiatives designed to reduce costs – single-sourcing, offshore purchasing, outsourcing, just-in-time delivery, lean manufacturing, and the centralisation of distribution and production – can also result in making the supply chain more fragile. In many cases, manufacturers’ profitability is reliant on just a hand-full of critical suppliers, leaving them more exposed to risk than ever before.
The full extent of this threat has come to the forefront in the last 18 months as a number of natural disasters and world events have had a direct and costly impact on supply chains. In 2010, the eruption of the Icelandic Eyjafjallajökull volcano affected many companies, with a number of major car manufacturers being forced to reduce production because of shortages of critical parts.
Fast forward 12 months, and the catastrophic set of events experienced in Japan earlier this year witnessed in their aftermath major supply issues for a number of major car manufacturers. According to Japanese investment bank Nomura, the automotive industry was hit hard, with Nissan, Renault, BMW, Daimler Peugeot, Fiat and Volkswagen all being affected.
Of course, those examples that reached the headlines were just the tip of the iceberg, with analysts putting the overall cost of the disaster to businesses at an estimated $300 billion.
Add to this tumultuous landscape the ongoing political volatility and turbulent commodity prices which show few signs of abating, and it’s easy to understand why risk management is rapidly moving up the automotive supply chain agenda.
Overall strategy
Historically, supply-chain directors have viewed risk management as something initiated in response to an unexpected event, or a plan which sits in a filing cabinet somewhere.
However they are now realising that to effectively manage risk, plans must be fully in place and form part of overall strategy. Active risk management is therefore as crucial to operating a supply chain as fuel is to an engine. Of course, it is impossible to know the exact nature and timing of when a disruption will take place, but it is possible to be prepared with the proper procedures in place to absorb the impact. The level of granularity needed to achieve such a strategy is impossible using traditional tools and tactics, as processes are dynamic and often span millions of other processes.
Comprehensive supply chain risk management involves mapping the entire supply chain and its dependencies, identifying, assessing and understanding the various threats and risks, pinpointing single points of failure and implementing strategies to remove or reduce these.
Through modelling the supply-chain and analysing all sources of risk, companies can determine where and when to buy, make, store, and move products through their networks.
In addition, simulation helps to evaluate different sourcing, production, transportation, and inventory strategies to keep pace with changes in the business environment such as the impact of supply disruption; single sourcing versus dual sourcing; alternate parts; etc. As a result, companies can employ their assets most effectively, reduce costs, lower inventory levels, and enhance customer service.
According to research, process simulation is a key driver in performance improvement as automotive manufacturers seek to capitalise on economic recovery. And while automotive manufacturers and their partners have always used process simulation in their plants to optimise production, in the face of pressure to shorten lead times and reduce costs, the potential of simulation in supporting the supply chain has yet to be fully exploited.
Boosting productivity
Simulation presents a low cost, low risk means of facilitating better decision-making, achieving efficiencies and boosting productivity in order to optimise supply chain performance, and help automotive manufacturers to build on their growth as markets remain tough.
In the wake of recent events, process simulation is pivotal in managing modern supply chains. Through analysing critical processes and planning for “what-if” scenarios, automotive manufacturers can genuinely reduce their exposure to risk and focus resources on capitalising on growth and driving profitability.
