As inventor of the lean production philosophy, the automotive industry adheres most strictly to the principles of just-in-time delivery and low inventories. At the same time, the development of global vehicle platforms and the use of modularization strategies to increase the commonality of components between product lines has extended some of those lean supply chains over great distances, exposing them to the risk of transportation disruptions. Meanwhile, as it responds to rapidly rising demands from fast-growing economies, the industry is increasingly adopting a nearshoring or “produce where you sell” strategy, establishing manufacturing facilities in or adjacent to key markets and encouraging suppliers to set up in proximity.
This approach helps to control transportation costs and risks, but has created new challenges for the sector, including increased exposure to natural disasters and the challenge of limited or fragile infrastructure, from transport links to power supplies. A global profile also requires the industry to comply with the diverse regulatory requirements of different markets and production locations, bringing with it the associated risks of non-compliance.
The regulatory environment faced by automakers is also an increasingly stringent one. Pressure from governments and consumers has increased the number of product recalls in recent years, with several major manufacturers facing high-profile recall events. A single missing component can stop a production line. At $10,000 to $100,000 per minute, the high cost of production line stoppages has contributed to the automotive sector’s willingness to invest in risk management strategies. But the industry’s focus on lean production, together with the recent memory of the pain that was caused by overcapacity in the 2008 recession, means that automakers favor supply chain agility and production flexibility over buffer stocks and redundant capacity.
As a result, automakers have pioneered the use of advanced risk management approaches, including detailed network risk analysis and increased flexibility inside assembly plants. To mitigate the impact of supply disruptions, the industry makes use of multimodal transportation solutions to balance speed and cost. Affected parts can be temporarily switched to a faster transport mode to keep assembly lines supplied until normal service is resumed.