The automotive industry is one of the biggest industries worldwide. According to KPMG’s Global Automotive Executive Survey 2015, the global auto industry had already reached sales of over 90 million units for just light vehicles. A number that is expected to rise steadily in the coming year, with sales in 2020 estimated to reach a staggering 111 million.
When you think that this does not include commercial vehicles like trucks, trailers and buses among others, the scale of the auto industry begins to attain clarity. In cars alone, the two biggest manufacturers sold nearly a combined 20 million units in 2015 alone, as per this article on Forbes.
The automotive industry is also one that relies heavily on supply chains and procurement. Think about it, thousands of parts and components go into making a car, motorcycle, truck, or tractor and no auto manufacturer has the capabilities to produce it all in-house.
From small components like rubber bushings and spark plugs to complicated devices like touchscreen infotainment systems and anti-lock braking systems, a huge variety of these components are sourced from third-party manufacturers. This is why procurement is an integral part of the automotive industry, as is supply chain management.
The impact of procurement on the auto industry
When there are problems with products or material received through procurement and the supply chain, the impact on automotive manufacturers can be catastrophic. This is embodied by one word that can cause a tremor of panic to run through even hardened veterans – recall.
A recall is when an auto company has to replace a faulty component on any of their products - products that if not replaced, can sometimes have dire consequences. For example, Japanese bike makers Yamaha announced a global recall recently, as RideApart reports, the recall affected over 11,000 vehicles. Here are the reported issues, both of which could lead to dangerous complications.
'The bike’s clutch pressure plate bearing may break due to an insufficient load rating, causing the clutch to not disengage and preventing the transmission from shifting properly. If that happens, a rider may not be easily able to stop the motorcycle, increasing the risk of a crash.
The second issue is related to the bike's oil pump. Due to the problem, oil pressure may not be properly regulated…the rear wheel could lock up, which, of course, dramatically increases the likelihood of a crash.'
FIAT Chrysler Automobiles announced a recall recently, this one affecting a massive 1.9 million units, as reported by CNN Money. The affected vehicles range across sub-brands including Dodge and Jeep. The errant parts are standard safety equipment with problems in the airbags and seat belt tighteners. This one has already resulted in both injuries and fatalities, something the FCA has acknowledged in a statement:
'The company is aware of three fatalities and five injuries that may potentially be related to this condition.'
In both cases, the faulty components can be traced back to sourced material. Procurement for auto manufacturers is not just about speed of delivery and cost, because clearly, things can go very wrong if the supplied material is faulty.
How automakers can improve supply chain and procurement
While situations like these cannot always be avoided, certain steps can be taken to improve procurement and supply chain management.
• Change focus from price to quality – Manufacturers have already realized that price cannot be the only consideration when looking for suppliers. Opting for the cheaper option can have undesirable results, to say the least.
• Establish relationships with suppliers – Many times, auto manufacturers deal with multiple suppliers for the same or similar products. This leads to inconsistencies and issues, something that can be eliminated through cooperation with suppliers and focusing on single-supplier structures for all the components.
• Use technology – Using supplier management software can streamline the whole procurement process. According to the providers of SMART by GEP Procurement Software, the benefits include greater supplier intelligence, improved supplier information and performance management, and even has a relationship management component.
• Learn from recalls – Examining the reasons behind a recall, either internal or that of a rival’s, can lead to clarity on potential issues. Based on the information steps can be taken to avoid suppliers who manufactured these parts, and improve overall product quality.