Uncovering the true causes of automotive supply chain failure

New research provides insight into the real problems that threaten to bring the worlds automotive production lines to a halt

Research conducted by a specialist automotive logistics company reveals that the modern, lean automotive supply chain is driving an increase in the need for emergency delivery services. Delays in the manufacturing of components, often caused by material or component shortages further up the chain, are the number one reason that car makers and suppliers resort to emergency delivery services. Despite recent advances in IT system integration, order processing errors come second, accounting for nearly a quarter of all requests.

Evolution Time Critical was set up five years ago specifically to provide high speed delivery services for car makers and suppliers. Earlier this year, the company conducted a survey among its customers, identifying their reasons for using critical delivery services. Now Evolution Time Critical has analysed and published a summary of this data collected on global shipments in the last year.

The automotive supply chain is one of the most complex organisational structures in operation today. Decades of cost cutting efforts have reduced line-side inventory levels to days or even hours, while the drive to benefit from the emerging manufacturing capabilities of low labour cost countries means that components must travel ever further from source to their point of use. With costs of up to 1million an hour if late delivery causes a line stoppage, suppliers and OEMs will resort to any possible means to expedite the movement of components if delays occur.

By their very nature, requests for emergency delivery services are normally caused by unusual or unexpected situations. Evolution Time Criticals survey data reveals, however, that those hundreds of different issues can be grouped into five basic types.

Production delays. Quality problems, rework, equipment problems, delays in the supply of material or basic production line debugging during the introduction of new components can all result in parts coming off the line later than expected.

Human error. Cars are complex machines built from thousands of separate parts. It is possible for the wrong part to be requested, or for the right part to requested but the wrong one supplied, or for problems with data entry leading to the wrong part numbers, or the wrong number of the right parts arriving at the factory gate.

Transportation problems. Strike action, vehicle breakdowns, customs delays, bad weather or other delays can all result in the conventional supply chain failing to meet delivery schedules.

Unpredicted demand. Despite their best efforts to manage and predict demand, car and component makers can be caught out by the unexpected popularity of particular models or vehicle configurations, resulting in spikes in demand for specific components. In situations where multiple suppliers provide the same part, production problems at one supplier can lead to another being called upon at short notice to provide the missing components.

Planned high-speed delivery. In an emerging number of cases, car makers, particularly in premium sectors, are using high speed delivery as a core part of their supply chain, allowing them to offer customers a broad range of options without the overhead of keeping large inventories themselves.

Production delays were the most significant cause of emergency delivery requests among the surveyed customers, accounting for 28 percent of emergency shipments. Human error was the second major cause, leading to a quarter of shipments. Unpredicted demand came third, with around a fifth of requests, just ahead of transportation problems. Planned critical deliveries made up the final seven percent of the European shipments analysed.

 Avoidance of production delays is a fundamental motivation for any manufacturer in any sector. For suppliers in the car industry, where cost constraints, the principles of lean production and increasing part variety preclude the use of buffer stocks to overcome production glitches, there is all the more incentive to maximise production uptime.

Unexpected production problems are a fact of life, however, and when they do occur, the availability of critical delivery providers can be a compelling solution, allowing customer supply to continue uninterrupted during production glitches without incurring significant costs if lines are running smoothly.

In practice, we receive most delivery requests due to production delays during the prove-out and ramp-up phases of new model introductions, when inevitable problems need to be ironed out, says Brad Brennan, managing director of Evolution Time Critical. Once the line has matured, delays caused by those issues become much rarer.

Avoidance of human error, the second most important cause of emergency shipments, seems to offer car makers the biggest opportunity for improvement. It is always cheaper to move data than parts. Any way that errors in communication can be reduced is likely to deliver significant financial benefits, says Brennan.

Transportation problems are another area where it is difficult to develop a strategy that overcomes all types of potential failure. For some product groups it might make sense to use two different transportation solutions, so that a failure in one doesnt mean supply dries up altogether, says Brennan. But often transportation is so reliable that a critical delivery service is the logical answer when failures do occur. We often send couriers to pick a small number of critical parts from a stranded lorry and express ship them to our customer.

Unexpected demand is a complex issue for automotive OEMs to overcome. While levelling of demand is a basic tenet of the Toyota Production System, European carmakers must cope with large fluctuations in output caused by model year changes and new model introductions. The need to offer customers increasing numbers of options in far more fragmented model ranges also makes demand harder to predict. Better forecasting models and more flexible communication between car makers and suppliers can help to overcome some issues, but 100% accuracy is unlikely to be achievable without compromising the customers freedom of choice.

Car makers will never be perfectly accurate with their forecasting, says Brennan. There are always going to be unexpected peaks where real demand deviates from expectation. Obviously, making sure that the whole manufacturing supply chain is as flexible as possible makes it easier to accommodate surprises, but at a certain point it becomes cheaper to make use of a service like ours to get the right parts to the line in the shortest possible time.

A small number of car makers have taken this philosophy to its logical conclusion, making no attempt at all to predict demand levels for certain components. Instead, they wait for the customer to make their selection, then call off a part from the chosen supplier, using an express freight service to bring it to the line in time for build. We have one customer in the premium sector who offers customers a choice of 200 different configurations for a key component. Those components are sourced from any one of several suppliers world wide. Evolution Time Critical is now the standard transportation service provider for that part.