Editor’s note: good problems to have01 October 2014 | Christopher Ludwig
If they could choose, most managers would probably prefer having more demand for a product than supply. It may stress plants, and increase delivery times, but growing sales and profits usually speak louder to top management than dealer complaints over delivery.
However, if not managed properly, having more cars than customers can inflict long-term damage to a company. Pushing vehicles too quickly through plants and terminals increases the chance for damage and errors. It’s one thing for a customer to wait months; it’s quite another to wait that long and get the wrong vehicle, or one with a poorly fitted spoiler.
A sustained supply shortage can also encourage bad behaviour. If a dealer is consistently unhappy with his allocation, he may tend toward overstocking: order 30 cars, for example, and hope for 20. Extra orders are pumped into the system, capacity is allocated, and the result could be excess inventory of colours or engine types in less demand.
Such challenges will sound familiar to Kia Motors Europe and Subaru of America, both of which have outsold their respective markets for years amid limited supply. They also share some similar approaches, including a measure of built-to-order production and prioritising sold orders.
In other ways, the two are very different. Kia, spread across nearly 30 sales subsidiaries in Europe, has just started to build elements of a central supply chain function. Carlos Lahoz and his team have tightened forecasting and order precision across each country, and are studying where Kia might centralise stock across markets. Its in-house logistics arm, Glovis Europe, is also gaining more operational oversight of some areas so that it might better combine logistics with Hyundai.
At Subaru of America, a central planning approach is already in place. Head of sales planning and logistics Gerald Lee believes the OEM will best handle growth with consistent scheduling through ports and yards. He is determined to spread volume as evenly as possible across the month rather than squeezing 60% out in the last few days. This helps dealers sell from pipelines and have more confidence in estimated delivery dates, while allowing logistics providers to use stable workforces and plan truck fleets in advance.
It is an approach that goes against the grain of an industry addicted to monthly and quarterly pushes, and yet Subaru has kept to it and still grown at an annual rate of 20% over the past two years. Such discipline is not easy. However, I don’t expect pity from logistics managers with headaches like planning contingencies for import bans, or cutting service because of low volume. Some problems may just be better than others.