The economic crisis of recent years has forced businesses in the automotive industry to follow a lean philosophy in order to survive. The adoption of lean principles such as just in time (JIT) has led to huge reductions in inventory as firms try to release working capital.
However, for many automotive organizations, this philosophy has been taken too far. As a consequence strategic buffers have been stripped away, leaving supply chains dangerously exposed. Take for example the devastating effects of the tsunami which tore huge holes in automotive supply chains. With little in the form of safety stocks, businesses suffered as suppliers struggled to rebuild crumbled production lines.
Historically, the automotive industry in particular has had issues with forecasting. In 2008 the market dropped significantly – many were left unprepared and are still suffering from the fallout. Furthermore, in 2010 orders unexpectedly picked up and a significant number of businesses were once again caught by surprise. As a result many businesses had little choice but to rely on costly air freight to satisfy demand. It comes, then, as no surprise that the research study[1] we recently conducted showed that 83 per cent of respondents advocated the importance of good forecasting tools in counter measuring unpredictable markets.
To improve reaction times to unforeseen events, automotive businesses must have in place systems which add visibility to the supply chain. However, to achieve optimal stock levels these systems must conform to lean philosophies whilst also offering supply chains protection from the unexpected.
By basing inventory plans on data from historical forecasts and previous supplier performance, automotive manufactures can gain extensive insight. From this, optimal stock levels can be calculated along with the most advantageous moment to place orders. As a result the businesses can then manage their supply chain more effectively and react quicker to changing circumstances.
The automotive industry is just one of many industries that face an unpredictable period, so it’s imperative that all businesses are adequately prepared to manage resources efficiently in order to save on cost. The ability of companies to respond quickly and effectively can be the difference between those that survive long-term and those that don’t
[1] INFORM research study
A full copy of the research study – ‘Materials Management after the Crisis – Evaluation and Outlook’ – is available upon request. The study, based on interviews of 117 decision makers in the industry, was conducted to pinpoint the key materials management problems of recent months.
