What’s next in the evolution of automotive supply chains?

Automotive supply chains are uniquely complex, and becoming more so all the time. What operational challenges can manufacturers expect in the coming years, and how should they respond to them? Let’s take a look:

Geographical dispersion and trade uncertainty

The average car contains approximately 20,000 parts, sourced from hundreds of supplier facilities. Moreover, trade agreements such as the North American Free Trade Agreement (NAFTA) mean that these sites are often spread across multiple countries, so as to comply with complicated rules about what percentage of a vehicle must be manufactured in a specific region to be exempted from tariffs.

For example, many automobiles sold in the U.S. market contain numerous components made in Mexico, despite the availability of potentially less expensive labor elsewhere. It’s not just upfront costs that merit careful consideration when designing supply chains; manufacturers also have to think about transportation logistics, overflowing inventories and sudden recalls, any of which can put immense pressure on sprawling production operations.

The extensive transportation infrastructure and high education levels near many automotive manufacturing parks in Mexico – as well as the reduced distance and logistical complexity compared to shipping via boat from China – has made the country ideal for American and Canadian automotive companies. However, uncertainty about the renegotiation of NAFTA could put a damper on future investment in growth areas like electric vehicle research.

The advent of connected and autonomous vehicles

Few technologies in recent memory have received the immense hype afforded autonomous vehicles (AVs). If successfully deployed, AVs could reshape the daily commutes of millions worldwide and, hopefully, reduce accidents attributable to human error.

Although there’s still considerable design and testing work necessary before AVs are ready for at-scale deployment in the real world, their development in the coming years will create additional complications for automakers. More specifically, software will become increasingly important to the overall driving experience and a differentiator between competing models.

While short of full-fledged AVs, many of today’s vehicles qualify as connected cars, i.e. they have some form of built-in internet connectivity, supporting advanced software applications. Infotainment systems, driver assistance and in-car Wi-Fi are just a few prominent examples. BI Intelligence has estimated connected cars will account for more than 80 percent of all automobile shipments by 2021.

Producing more connected and ultimately autonomous cars entails bringing software developers into the supply chain. Writing for TechCrunch, Applico CEO Alex Moazed compared the coming effects of software on supply chain management (SCM) to the sea change in mobile phones after the original iPhone launched in 2007.


Producing electric vehicle batteries

Electric cars are appealing alternatives to ones with internal combustion engines (ICEs), not only for their eco-friendliness but also because they have fewer moving parts. According to Supply Chain Dive, an electric drivetrain contains only 50-60 components, compared to thousands for an ICE vehicle.

At the same time, these batteries introduce unique risks into automotive supply chains. They are heavy and prone to catching on fire under certain conditions, two issues amplified by globe-spanning supply chains. Bringing battery production as close as possible to manufacturing sites is ideal, but challenging. The top lithium-producing countries – including Australia, Chile and Argentina – are far from the major supply chains in North America, East Asia and Europe.

Ultimately, reducing the amount of sea transportation for lithium batteries is likely the best approach to streamlining the electric vehicle supply chain. If batteries are manufactured in the same country or at least on the same continent as the finishing facilities, they can probably be shipped with less risk since there would be almost no chance of coming into contact with salt water.

Integrating with the Internet of Things

The Internet of Things (IoT) is most closely associated with non-conventional devices (e.g., home appliances) capable of connecting to IP networks. For automakers, the IoT is something much different.

For starters, it can be the backbone of a new approach to tracking and logistics in SCM. Radio-frequency identification (RFID) tags could accelerate the loading and unloading processes and even be integrated into workers’ gloves, so that they would know whether they were reaching out for the right components during assembly.

Technologies such as RFID, GPS and blockchain could also improve visibility into where specific components and whether they are understocked or overstocked. Having excess inventory on hand is costly, but so is facing a shortage when a just-in-time supply chain is disrupted. IoT innovations could help keep things in balance.

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Chi Park

Chi Park | Key Contributor

Chi W. Park has over 9 years of experience in supply chain and operations management, focused on implementing Oracle Applications and improving manufacturing planning and scheduling processes. Expertise includes a broad range of areas including advanced planning and scheduling systems, forecasting, materials management, production operations control, finite scheduling, order management and purchasing. He has also served in the U.S. Army for 6 years as an Active Duty commissioned officer in the Armor Branch and was twice deployed to Iraq.