H-U-G-E Changes in the Auto Industry Supply Chain

 
Previously, we wrote about supply chain disruptions due to COVID-19. Due to these disruptions,  long-term practices will evolve. To learn more, this post looks at h-u-g-e changes in the auto Industry supply chain.

First, review these relevant posts:

• 2021 Tips for Supply Chain Management
• Handling Supply Chain Disruptions
• The Importance of Enhancing Inventory Management

 

Not Just in Time: H-U-G-E Changes in the Auto Industry Supply Chain

We begin with an overview of supply chain management, Then, we move on to just-in-time inventory management. And we conclude with the seismic changes coming to supply chain management. With the return of traditional planning.
 

Overview of Supply Chain Management

According to Evans and Berman, MKT 12e:

The intent of inventory management is to provide a continuous flow of goods and to  rnatch the quantity of goods kept in invento1y as closely as possible with customer demand. When production or consumption is seasonal or erratic, this can be particularly difficult. Supply chain .management has broad implications:·A manufacturer or service firm cannot afford to be out of a critical part that could halt its business. Yet inventory on hand should not be too large because the costs of storing raw materials, .parts, and/or finished products can be substantial. If models change yearly, as with autos, large inventories can adversely affect new-product sales or rentals. Excessive stock may also lead to stale goods, cause a firm to mark down prices, and tie up funds. 

 

Just-in-Time Inventory Management

For the last few decades, a lot of companies used either or both of two complementary concepts to improve their inventory manage1nent: a just-in-time inventory system and electronic data interchange. With a just-in-time (JIT) inventory system, a purchasing firm reduces the amount of inventory it keeps on hand by ordering more often and in lower quantity. This means better planning and data by the buyer. Collaborative computer systems. Geographically closer sellers. Improved buyer-seller relationships. And and better production and distribution facilities.

Yet, if the supply chain falter, problems may arise. As the following figure indicates. 

 

The Revival of Traditional Supply Chain of Management

Because of supply chain problems, many companies are returning to traditional practices. Thereby, backing away from JIT.

Consider these observations by Sean McLain, reporting for the Wall Street Journal:

Toyota  is stockpiling up to four months of some parts. Volkswagen is building six factories for its own batteries. And, in shades of Henry Ford, Tesla wants to lock up access to raw materials.

[As a result], the hyper-efficient auto supply chain symbolized by “just in time” is undergoing its biggest transformation in more than half a century. Accelerated by the troubles car makers suffered during the pandemic. After sudden swings in demand, freak weather, and a series of accidents, they are reassessing basic assumption that they could always get parts they needed when they needed.