Automotive for Logistics: A Symbiotic Deal
The automotive industry has not only contributed in a significant way to the industrial revolution, but it has also pioneered concepts and practices that have informed and shaped logistics.
It has often been carmakers who have brought epochal innovations to manufacturing, which in turn have transformed logistics, transforming it into a potent competitive force. Consider Ford Model T, launched in 1908 by America’s Ford Motor Company. It was a car of many firsts. It was the world’s first car that the masses could afford, its manufacturing was vertically integrated, and perhaps most remarkably, it was produced by the world’s first moving assembly line for cars.
The transformational impact of Ford Motor’s assembly-line technique on manufacturing and supply chain can be gauged from the fact that it brought down the manufacturing time of a car by about a factor of 10. The vastly reduced production time encouraged carmakers like General Motors to move toward a system of decentralized manufacturing. This was an important paradigm shift that further opened the world of manufacturing to a greater number of small and medium businesses that specialized in making parts and machine tools.
Supplier Ecosystems
Similar innovations in automotive engineering, design, and manufacturing have led to the formation of a large supplier ecosystem that makes available a vast number of car parts. By some estimates, more than 30,000 parts go into the making of a modern ICE (Internal Combustion Engine) powered car. The manufacturing of these components, in turn, require sourcing raw material like steel, rubber, and plastic from local and international supplier network. In other words, the automotive industry’s manufacturing requirements and practices are in good measure responsible for the sustenance of large supplier ecosystems globally and in India.
Lean Supply Chain
The Toyota Production System (TPS) is credited with introducing the concepts of jidoka (intelligent automation), kaizen, and Just-In-Time (JIT) production – techniques that have not only revolutionized auto manufacturing but also changed the world of supply chain and logistics for the better, contributing to eliminations of waste, and huge improvements in fill rates and turnaround times.
The seminal Massachusetts Institute of Technology research paper, The Machine That Changed the World, published in 1990 recognized TPS as the production system that paved the way for lean production. The concept of lean and its principles have found applications in transportation and warehousing processes, making them significantly more cost-efficient and responsive. The Council of Supply Chain Management Professionals (CSCMP) defines Lean as a “business management philosophy that considers the expenditure of resources for any goal other than the creation of value for the end customer to be wasteful, and thus a target for elimination.”
A McKinsey study found that manufacturing companies made significant improvements to service quality and maintenance operations through lean techniques by eliminating waste, and rigidity in their systems, reducing costs by up to 50% in the process. The consulting firm posited that the application of the same lean techniques in warehouse operations or transportation could have a dramatic effect. Pharma companies, for instance, could save 20-50% in warehousing and up to 40% in transportation as a result of the application of lean.
Extended Enterprise
The philosophy of ‘Extended Enterprise’ was introduced by the American automotive company to define the guiding principles behind its longstanding relationship with suppliers An IndustryWeek article highlighted the definition of Extended Enterprise as coined originally by the company as one extending business relationships with “…suppliers and supplier tiers in order to reduce cycle time, to minimize system cost and to improve the quality of the goods or services provided by the suppliers.”
Practitioners of supply chain management and their supplier-partners have benefitted immensely and have followed the extended enterprise approach to engage all the stakeholders along their supply chains, from sourcing to aftermarket services to reverse logistics.
Aftersales and Reverse Logistics
Automotive companies are known to manage a countrywide network of dealerships which are often integrated with service centers, car workshops, and part replenishment centers. Leading carmakers such as Maruti and Tata Motors are hailed for their aftermarket and reverse logistics networks that ensure top quality service for their customers and ensure consumer loyalty and satisfaction.
Change Incoming
The automotive industry has pioneered a considerable number of modern innovations and management concepts that have transformed supply chain and logistics processes. Companies across industrial sectors from healthcare and pharma to core engineering, have adopted many of its strategies. The automotive industry today stands at the cusp of another big change – the rise of vehicles powered by renewables. Automotive industry leaders need to look deeper into how the industry can better adopt to the transition with the help of their celebrated pioneering spirit.
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