Lack of supply chain visibility can cost you

The Great East Japan Earthquake of 2011 wreaked havoc on the auto industry. The combined losses of Toyota, Honda and Nissan exceed $2.2 billion. This was because the supply chain broke down and took too long to get back into action. Experts believe this loss could have been reduced if supply chain visibility had been better.

We keep hearing horror stories of supply failures. One way to reduce the cost of disrupted supply is by getting a better view of the capability and capacity of the supplier. Similarly, the supplier would like a better view of the OEM and its plans. For both, improved visibility allows for reduced risk and better planning.

The Global Chief Supply Chain Officer Study of 2010, undertaken by IBM, found supply chain visibility as the primary challenge faced by the automotive industry. It was ranked higher than customer intimacy and cost containment (see the following graph).

Visibility goes beyond despatch details

It is well known that better visibility helps improve material flow. Supply chain visibility is commonly referred to as the ability to track parts, components and products from the supplier to the end user.

However, supply chain visibility needs to go much further. If the purpose is to support collaboration between any supplier and manufacturer, it can be improved by also sharing data on capacity availability, timing and schedules, raw material availability and other resources. This helps the two players to collaboratively plan and improve the overall performance of the supply chain.

‘Make in India’ will make new challenges

It is hoped that the Indian automotive industry will seize the ‘Make in India’ initiative and utilise potentially lower interest rates to set up export-oriented production hubs. An increase in exports will mean more customers who are further away and longer supply chains that are more prone to disruption. This will call for far greater supply chain visibility between the customer and the OEM.

An increased export base can also lead to an increase in sourcing from suppliers in other countries. This will mean the supply chain will lengthen on the supply side as well. So, the criticality of supply chain visibility will increase for OEMs, both on the customer side as well as the supplier side.

Suppliers & manufacturers can both win

Just as departments working more closely with each other can allow companies to deliver superior performance, so will suppliers and OEMs working together as a pair deliver superior results. The benefits come from synchronised planning, mutual adjustments and collaborative process improvements.

Suppliers will benefit from getting to know and adapt to the OEMs’ plans, both operational and new product launches. This will help lower capital costs and operational costs.

OEMs will benefit from greater supplier involvement, lower inventories and less disruption to production due to supply irregularities.

What is needed to make this work? Technology will help with the information flow. However, technology is necessary but not sufficient. To harness the power it offers, both OEMs and suppliers will need to change policy, process and skills. Only then can supply chain visibility contribute to improved margins and lowered capital requirement.