Several years of supply chain disruptions, a semiconductor shortage and labor constraints have all forced automakers to rethink their inventory strategies. As a result, many of them are dealing with excessive safety stock stores, high demurrage fees and zero visibility into in-transit inventory.
Using visibility platforms, automakers can gain a clearer sense of where their parts and components are in the supply chain at any given point. This includes both in-stock and in-transit inventory, the latter of which is nearly impossible to track with traditional inventory management approaches.
“Traditionally, it has been very difficult to create a line of sight through an entire automotive supply chain for a variety of reasons, including a lack of trust and communication between stakeholders, reliance on poor volume forecasts and outmoded data management systems,” Deloitte’s Aref Khwaja writes in Industry Week. “The result is an unknown number of potentially disastrous threat vectors that remain buried until it’s too late to avoid them.”
Getting Away from Disconnected Systems & Spreadsheets
When automotive manufacturers use disconnected systems, sharing data across the enterprise is impossible, data quality is poor and the process is unscalable. And by the time any reports are created and shared, the opportunity to proactively solve problems has already passed.
This is where visibility comes in. By eliminating the data silos that are common in automotive logistics, visibility platforms give companies a clear view of all inventory positions and the power to take fast action on those insights.
Here are five more reasons why auto manufacturers need end-to-end supply chain visibility:
1. Get accurate lead times and less safety stock.
Automakers need dynamic lead times that go beyond estimated time of arrival (ETA) to also factor in expected transit times. For the organization that hasn’t updated its lead time expectations in 10 years or more, for example, there may be a significant difference between ETA and expected transit – a reality that may shut down entire production lines while everyone waits for the parts or supplies to arrive. By leveraging historical analytics in real-time conditions, manufacturers can adjust their purchasing cycles and reduce the need for excess safety stock.
2. Shift out of the “when in doubt, expedite” mindset.
This is a critical win in an uncertain market where all companies are trying to reduce both capital expenses and operating costs. For example, automotive companies spend a lot of money expediting air freight to keep their lines running, meet customer commitments and reduce stockouts. The problem with this “when in doubt, expedite” mindset is that it significantly increases overall transportation costs. When you have real-time visibility, accurate ETAs, high inventory accuracy and confidence in your lead times, there’s no need to resort to the most expensive mode of transportation – airfreight.
3. Account for in-transit inventory.
With so much of their working capital tied up in inventory, auto manufacturers have to strike the perfect balance between what they need and what they have in stock. The problem is that most auto manufacturers use inventory formulas that don’t consider in-transit inventory. With poor visibility into in-transit stock levels, it takes just one rail strike, ocean shipping delay or trucking company bankruptcy to disrupt the entire supply chain and create overstocks and stockouts. In these scenarios, it’s crucial for manufacturers to account for in-transit inventory and have a contingency plan in place to mitigate these and other risks.
4. Lower or eliminate detention and demurrage charges.
In the transportation world, that first freight quote doesn’t always reflect the final cost of moving goods from origin to destination. Demurrage is charged by the shipping line per day per container from the date of discharge until the full container is moved out of the port or terminal for unpacking. Detention is charged per day per container from that time until the empty container is returned to the shipping line’s nominated depot. Two “forgotten” containers sitting at a port for just one month may accrue upwards of $50,000 in demurrage fees – not to mention the inventory holding costs associated with letting those two containers sit unopened for a month. These costs can add up quickly. Using real-time data and visibility, auto manufacturers can make proactive decisions in the event of delays and to mitigate both demurrage and detention fees.
5. Free up capital for more important projects.
Inventory is expensive to procure, transport and stock. And when you don’t know where that inventory is in the supply chain, those costs can increase exponentially. Rather than tying capital up on stock that sits idle, automakers are using technology that provides clear visibility into shipments, orders and inventory on a single dashboard. In return, companies can improve inventory management, increase operational efficiency and save money. This frees up working capital and allows manufacturers to invest those resources in more important initiatives.
Future-Proof Your Supply Chain
Equipped with reliable, real-time transportation visibility, automakers can compete more effectively, withstand disruptions that are put in front of them and keep their customers happy. With all of their data easily accessible in a single location, these manufacturers can also improve their operational efficiencies, streamline their logistics activities and build more resilient, future-proofed supply chains.