Creating value for the Automotive industry

OEMs are the companies that build automobiles, motorcycles, buses and more. They source parts from their main global suppliers and assemble them closer to the markets of sale. Their supply chains are characterised as complex, global and with just-in-time or just-in-sequence delivery.

As inventory levels for cars can be extremely expensive, auto supply chains run in a hybrid, lean and agile way, minimising stock levels through just-in-time and just-in-sequence manufacturing and moving the decoupling point as close to the point of sale as possible.

The lean methodology is leveraged by using many common parts across the models, while agile is leveraged by adding customer-specific elements close to the point of sale – once the orders are received. OEMs also control finished vehicles. Although controlled by the OEMs, they have separate requirements like racks, transportation and so forth.

Component Manufacturers manufacture and supply components to the OEMs and are classified as either Tier 1 and Tier 2. Supply chains of Tier 1 manufacturers are usually closely interlinked with the OEMs and are either co-located or placed very close to the location of final assembly.

Proximity is key for this to be successful, and usually results in push-type supply chains. As these companies mainly focus on the production of components, we see the outsourcing of logistics services to 3PLs, etc.

Tire Suppliers manufacture components for the OEMs and have their own retail/distribution channels. They have a supply chain ranging from raw rubber in Indonesia to delivery of large mining tires in Australia. For OEMs, they supply tires for assembly of cars, resembling a just-in-time supply chain. On the retail side, they use networks of wholesalers and distributors for sale in the market. OEM and retail tires have a push-supply chain behaviour, where the tire manufacturers store stocks either in transit or in the destination markets. Mining tires, on the other hand, operate as a full-service aftermarket contract.

Aftermarket Suppliers make parts for the post-sale applications and operate supply chains closer to the retail establishments, where demand forecasts drive a push-supply chain to stock. They tend to stock a wide variety and purchase from multiple manufacturers, both OEM and non-OEMs, at a global level.