What's New In Automotive Supply Chains?

Although technology is an enabler, better business practices are resulting in better supply chains these days. Here's a look.

When asked “What’s new in automotive supply chains,” the Supply Chain Council Inc. (Pittsburgh, PA) and the Automotive Industries Action Group (AIAG; Southfield, MI) had much to tell. One spoke of managerial, rethinking strategy issues; the other spoke of technology standards. Both responses bode well for the future because they are indicative of incremental improvements in automotive supply chain management (SCM).

Rethinking the supply chain problems
Second-tier automotive suppliers seem to be doing “a lot of retrenching” as well as working on balancing a number of supply chain issues, according to Scott Stephens, the Supply Chain Council’s chief technology officer. Specifically, the first- and second-tier suppliers have alternately focused on inventory management and reduction, supply chain costs, and service levels. Focusing on individual issues, managing each separately, is not an optimal approach to SCM. As Scott points out, SCM is a multi-dimensional business problem. Improving service levels alone often skews inventory; managing inventories alone skews performance. A logistics perspective doesn’t necessarily lend itself to perform well as a supply chain perspective, and vice versa.

But, there’s hope. Nowadays, supply chain expertise overall is maturing. “We’re seeing a more deliberative process now by which these guys are attempting to balance their service levels, inventory, speed, and costs,” says Stephens.

Another trend is that, post-9/11, “supply chains are being built to be a bit more robust in accommodating disruptions.” In short, safety stock, stockpiles, and buffers are creeping back into supply chains, especially the supply chains that flow across international boundaries. “9/11 was the ultimate ‘exclamation point’ for some of these issues,” comments Stephens. If it wasn’t 9/11, he’s quick to add, then it would have been the longshoremen’s strike; that slowed, if not shut down, supply chains.

Suppliers are working on better matching their supply chain operations to sales and operations planning. They are recognizing that occasional stockouts will occur, or some problem in performance might occur in some unessential supply chains. But for the critical supply chains, there’s a certain amount of “biting the bullet,” claims Stephens: It’s more cost-effective to ensure high-performance levels if that means higher amounts of safety stock.

Probably the most interesting trend, points out Stephens, is that technology notwithstanding, a lot of the real work in improving service, inventory, and so on goes right back to the business model—not the technological model. Throwing as much information technology (IT) as you want at a particular problem doesn’t guarantee success. The Big Issues are still less about technological fixes and more about business orientation. From the Supply Chain Council’s perspective, jokes Stephens, “in some respects it’s immaterial whether you use IT or smoke signals or kettle drums.

“There’s nothing magical about this stuff. It’s just a question of having a disciplined approach to understanding and analyzing the business in a business context. Supply chain guys are notorious for improving their supply chains regardless of what their business environment is. Then you find out that they’ve improved their supply chains to the point where the supply chain no longer supports the business.” This means tradeoffs exist. Continues Stephens, “Companies have to find that happy middle ground where they can satisfy both their customers and their internal business requirements to be profitable.”

Yes: Profitability. A lot of suppliers, concludes Stephens, “are starting to understand that the only way you’ll continue to provide ‘blissful service’ to your customer is if you’re in business four years from now to provide that service.”

Reworking supply chain data exchange
In early 1999, the National Institute for Standards and Technology (NIST) estimated that about $1-billion annually is wasted in the automotive supply chain due to lack of interoperability. The AIAG conservatively estimates that the benefits of data exchange through interoperability across the automotive supply chain would save the industry $255-million by reducing premium freight and inventory carrying costs. In fact, freely exchanging data across the supply chain would reduce lead time, complexity, and costs on several fronts.

That’s the justification for the AIAG Inventory Visibility & Interoperability (IV&I) Project. In basic terms, this project is about sharing electronic data between trading partners. The deliverable is a “common document format” for the information that’s to be exchanged between trading partners. In a greater sense, the IV&I Project is about sharing information that supports specific and multiple business processes across several functional areas within an enterprise as well as across the supply chain itself. For example, a bills-of-material explosion drives an enterprise’s purchasing contracts with its suppliers and it flows into some sort of inventory system within the enterprise and potentially at suppliers’ sites. The inventory system, in turn, calculates requirements and generates delivery schedules. “There have to be business processes that understand and enable these collaborations between trading partners,” explains Pat Snack, executive-on-loan from General Motors Corporation, specifically GM’s order-to-delivery group. “If those business processes are well-defined, you can get some economy of scale by generating one, common format [for data] rather than having every trading partner establish a different set of documents for each business process that’s supported.”

Creating commonality is at the core of what automotive companies and the SCM “solution providers” (i.e., software vendors and trade exchanges) are clamoring about. These supply chain participants incur unnecessary costs maintaining multiple products that add no extra functionality to the job at hand, which is to access, view, exchange, and use data. For example, a Tier 2 supplier typically uses several supply chain visibility products when communicating with its multiple Tier 1 customers. Because these suppliers often can’t afford customizing every software product or integrating it to their back-end systems, the suppliers often buy multiple software products—just like individual suppliers investing in multiple computer-aided design products depending on the electronic design standards imposed by their customers. In addition to the cost incurred, the suppliers have to manually reenter data into each visibility product.

The IV&I Project will establish one set of data exchange standards for the supply chain and its users, including the vendors providing SCM software, the trade exchanges, and even those enterprises writing their own SCM software in-house. This standard eliminates all the additional costs in multiple (and redundant) software investments, including ongoing maintenance, change control, training, employee education, and the actual time to operate the various systems. The goal is to let trading partners use the visibility software product of their choice for all of their customers. This data exchange is more than just displaying a webpage on the Internet. “We are actually going to pass data that is machine readable, that can automatically be integrated into back-end systems, and that can be used without human intervention,” explains Snack.

The IV&I Project recognizes the needs of low-end suppliers. These suppliers typically only want to look at data on the web because it’s much easier for them, requires little capital investment, and their operations require little externally supplied data. In this case, the IV&I Project establishes a standard so that these suppliers can “rip and read” data as required.

To date, several software vendors have incorporated the IV&I format into their software, which is now being tested at NIST. This test bed, says Snack, will enable the IV&I teams to “debug and strengthen the solution set before releasing it for industry use.” Vendors (and internal software development groups) need not fear their product differentiation/competitive advantage will go away because of the IV&I standards. Software will still be differentiated by how the software vendor presents data to end users, provides data interoperability (particularly with back-end enterprise systems, such as enterprise resource planning), and responds to user needs (ease of use, cost, maintenance, revisions, and the like). “It comes down to the same old things: cost, quality, delivery, and service,” comments Snack.

AIAG members can get the IV&I business object documents free. Non-members will have to pay a fee; however, because the AIAG is using Open Application Group Inc. (OAGI) as its repository, AIAG documents are freely downloadable from openapplications.org.