Unplanned assembly line stoppages can outweigh the advantages of manufacturing in cheaper production locations and there is now a trend for near-shoring in the automotive industry. But don’t assume that locality is the same as ready availability
The near- or re-shoring of vehicle manufacturers’ suppliers is more complicated and has more convoluted ramifications than it simply being a case of ‘closer is better’. The increasing awareness at senior management and director level of the importance of supply chain continuity is helping release its potential as a tool for optimising production costs, driving the adoption of a wide range of higher-risk strategies and the frequency at which these are reviewed.
The supply chain has previously been treated as a necessary resource – a requirement and a support for manufacturing programmes – that needs no maintenance until something goes wrong and becomes the responsibility of fraught logistics managers. However, today’s greater understanding and broader view of supply chain costs allows logistics operations to take the role of enabler for an industry seeking higher levels of quality, safety and production efficiency than ever before.
What is driving the near- or re-shoring of OEM suppliers is the realisation that, allied to a greater awareness of supply chain complexity, unplanned assembly line stoppages can be costly enough to counter any savings found in cheaper production locations, such as those with low cost labour. Mexico is a major winner in such a market: already a hub of production for vehicle manufacturers, but with the locality to supply the large US market, it is ideally placed to supply vehicle manufacturers employing a range of strategies.
However, such production strategies introduce their own logistics nuances. The redistribution of suppliers makes globalised production no less relevant given the global base of the automotive industry, which is adapting to strike a balance between supplier pull, physical production costs (such as tooling) and economies of scale. Far from being bad news for emergency logistics business, this expertise, and especially premium freight, is able to support the process of near- or re-shoring to ensure that a robust supply chain is not jeopardised. [sam_ad id=6 codes='true']
Just as awareness of the benefits of optimised supply chain operations increases, there is a danger that near-shoring can promote complacency through the assumption that locality is the same as ready availability. Logistically, most forms of globalised supply chain rely upon dependable practices and precise orders generated with long lead times and inflexible production processes. This relative lack of flexibility in available supply, dictated by lead times and advanced forecasting, is driven by production schedules and strategies rather than locality, so drawing suppliers to operate closer to the vehicle manufacturer helps bridge short-term issues, but does nothing to mitigate longer term supply problems.
For example, near-shoring may provide a more robust process by relying on shorter physical delivery times should reserve stocks be required in the event of component shortfall or quality failure, but the wider problem of model variance or the need for increasing quality requires fundamental changes in the way components are ordered, or the capability of suppliers to meet fluctuating demand.
The need to provide a broader capability that allows for greater fluctuation in demand is heightened by OEMs’ ability and willingness to change location and more frequent intervals: vehicle manufacturers need waste no time in utilising an alternative location if it provides a better short- to mid-term solution: get this crucial period wrong and long term gains will be marginalised.
It could be that near-shoring or globalised production are trends that tie-in with the increasingly bold production strategies that we have seen displayed by OEMs, driving an evolving automotive industry that allows for a more agile production footprint. Fleet footedness allows OEMs to increase the frequency at which they shift the supply base in a bid to optimise manufacturing efficiency: our own company has recently supported such a transition and enabled a major vehicle manufacturer to shift live production between manufacturing locations across a continent with no break in supply or risk to the logistics network.
Brad Brennan is managing director of emergency logistics provider, Evolution Time Critical
