A recent study into the supply chain and logistics industry in South Africa, Supply Chain Intelligence Report (SCIR) 2009, has however indicated that the majority of companies in the automotive industry in South Africa not only operate with low levels of collaboration, but are also not sensitive or reactive to the changing market. Given the current state of the automotive industry, these are not behaviours they can readily afford.
SCIR 2009 incorporated the Complexity Masters theorem, developed and published by Deloitte in 2003. The theorem holds that companies with complex value chains and the capability to properly manage those complex value chains are 73% more profitable than their peers.
Once the SCIR 2009 survey was completed individual sectors were analysed, including the automotive industry. The results proved to be quite surprising.
When asked to rate satisfaction levels for the availability of information around a number of supply chain functions, respondents from the automotive industry expressed a high level of dissatisfaction around the information available for:
This stood in stark contrast to the responses of the Complexity Masters who were satisfied with:
The reasons behind the high levels of dissatisfaction became clearer when automotive respondents were asked about collaboration levels with suppliers and customers. Collaboration on cost reduction and on inventory management replenishment were the only two areas where reasonable levels of collaboration with suppliers was taking place, and they stood at a low 53.6% and 57.1% respectively. Further, a low level of collaboration with suppliers was reported around the areas of forecasting and demand planning (39.3%) and strategic planning (39.3%).
Collaboration levels with customers was even lower than that with suppliers, with the highest levels of collaboration taking place around quality improvement and forecasting and demand planning (both rated at only 50%).
Overall, such low levels of collaboration with suppliers and customers should be of concern as both forwards and backwards collaboration are crucial in the creation of flexible supply chains in an increasingly volatile global market.
To gauge the levels of supply chain reactivity or flexibility, respondents were asked to indicate their level of agreement with a series of statements relating to their ability to react to changes in demand. These included: we can rapidly execute custom orders, rapidly change our product mix, rapidly modify our products to meet changing market demands, rapidly change our production volumes, rapidly implement make/buy decisions and lastly, flexible capacity exists to quickly shift our manufacturing load.
While 68.5% of the total sample agreed or strongly agreed with the statements only 62.0% of the automotive sample agreed or strongly agreed with the statements, indicating lower than average supply chain reactivity and flexibility. The Complexity Masters drove this major shortcoming home even further with their agreement with the statements being 95.2%. While the global financial crisis impacted on industries across the globe, the automotive industry felt the crisis profoundly. The inability of the industry to be reactive and flexible to dramatic market shifts has certainly added significant ‘fuel to the fire,' and offers a partial explanation as to why it has suffered more than most. It would be interesting for these OEMs to compare their own individual answers to the industry norms. We would possibly find that those organisations that have more collaborative and flexible supply chains are faring best.
When questioned around the use of technology the automotive industry indicated a high usage. The result is not surprising given the work done in the industry to create logistics hubs, and given the use of high level technology to control the flow of components to OEMs and dealers. However, this high level of technology use is compromised by poor scores on collaboration with both suppliers and with customers. Is it possible that the very technology built to improve efficiencies, and initially constructed some years ago, is helping to produce a system that as a side effect of the high levels of control is producing a set of “rules” that have generated low levels of collaboration?
Ultimately upstream and downstream collaboration, as well as the ability to react efficiently and effectively to changing market demands, are essential in dealing with a number of challenges in the supply chain, particularly that of planning and forecasting. The Complexity Masters are clearly aware of this, and by ensuring high levels of collaboration and reactivity are better positioned to deal with the current global financial crisis, or indeed volatility for any other reason. Certainly declines in market size over one year, as the automotive industry is currently grappling with, are enough to shake any industry to the core. But have our local manufacturers blamed all on the global contagion, or are some of them going to look at these results and question themselves about their business model, and their collaborative, reactivity, and sensitivity choices?
The SCIR is an annual, independent and international study into the supply chain and logistics practices of emerging economies around the world. The aim of the survey was to uncover the approaches that the most successful companies in the country have adopted to ensure greater visibility and reactivity in their supply chains, thereby minimising the challenge of planning and forecasting and ensuring greater competitive advantage and profitability.
