Photo credit of: (Brian Day/For The Washington Post)
Building, buying, leasing, renting, or selling a car has become a more complex task than it was ever before. Among the various factors nurturing this crisis, the shortage of semiconductors (chips) is still one of the primary obstacles influencing the entire automotive production cycle.
With the heavy concentration of the automotive industry based in the Detroit metropolitan area, The Washington Post came to assess the widespread crisis within the industry.
The unavailability of car customizations, substantial price increases, the excess of time added to dealership dynamics, and all the unfinished new cars sitting in parking lots prove that the disruption within the automotive market has substantial ramifications. The Washington Post talked with Thomas Kowal, Seraph’s President, about the labor complexity that is currently challenging the industry.
Kowal pointed out the difficulty that management and workers are having regarding the instability of materials. The back and forth between material availability leaves production and workers in frustration. The market is still carrying the effects of the pandemic’s struggles, which after two years are still as relevant as they were at the beginning of the semiconductor’s shortage.
Read the full article from The Washington Post: https://www.washingtonpost.com/technology/2022/07/23/chip-shortage-detroit-manufacturing/
The tragic collapse of Baltimore’s Francis Scott Key bridge has blocked ship access to the port of Baltimore until the debris can be cleared. Baltimore is the largest port for imports of autos and exports of heavy equipment. This will disrupt logistics operations for companies like Mercedes, Madza, Caterpillar and John Deere among others.
From the Washington Post:
“Baltimore’s the top port in the nation for automobile shipments, having imported and exported more than 750,000 vehicles in 2022, according to the Alliance for Automotive Innovation, an industry group.
About three-quarters of the autos that travel through the port are imports, dominated by big-name brands, including Mazda and Mercedes-Benz. Most of the top companies have enough inventory sitting on U.S. dealer lots that any immediate impact on supply is unlikely, said Ambrose Conroy, chief executive of the consulting firm Seraph.”
Read the full story in The Washington Post
In the automotive manufacturing industry, managing inventory effectively is crucial for ensuring smooth production and acceptable costs. There are several best practices that companies follow to manage their inventory more effectively, including maintaining accurate inventory records, implementing Just-In-Time (JIT) inventory management, establishing safety stock levels, managing supplier relationships, and utilizing inventory management software. Companies that optimize their inventory management, especially given the likelihood of supply chain disruptions, place themselves at the forefront of automotive manufacturers.
Maintain Accurate Records and Current Data
Maintaining accurate inventory records is crucial for effective inventory management. This includes keeping track of all inventory levels, including how much stock is on hand, what is on order, and what has been sold. Keeping accurate records allows you to identify patterns in inventory usage, such as seasonal fluctuations in demand, and adjust your inventory levels accordingly. This can help you avoid overstocking, which can tie up valuable resources and increase storage costs or cause production delays and lost revenue.
Having accurate inventory records also allows manufacturers to identify slow-moving or obsolete items, which can then be phased out or sold off to make room for more profitable products. When signs emerge that inventory data can’t be trusted, it’s best to do a physical inventory to correct the record. After this inventory, periodically doing cycle counts ensures that the records don’t deviate from the warehouse stock and stock on the shop floor.
Implement JIT Inventory Management
Just-In-Time (JIT) inventory management is a methodology that is based on the principle of ordering parts as they are needed, rather than maintaining large inventory levels. The goal of JIT inventory management is to minimize inventory costs by reducing the amount of stock that needs to be stored and managed. This is achieved by closely coordinating production schedules with supplier delivery schedules so that parts are delivered to the production line just in time to be used. While most suppliers practice JIT, it typically decays at some level of the organization. Practices deployed for a short-term fix become entrenched and pretty soon, the deviation becomes the standard. Once a crisis is mitigated, the team’s focus should be on returning to the standard, not rewriting standards to accommodating abnormal conditions.
One of the key benefits of JIT inventory management is that it helps to prevent stock from becoming obsolete. With traditional inventory management methods, companies may order large quantities of products in advance, and then hold onto that stock for an extended period of time. However, with JIT inventory management, products are only ordered when they are needed, which means that there is less likelihood of stock becoming obsolete or redundant. JIT inventory management also allows for a better inventory turnover and improved visual management. It helps to keep your team focused since it requires close coordination between the supplier and the company.
Establish Safety Stock Levels
The purpose of safety stock is to provide a cushion of inventory that can be used to meet unexpected spikes in demand or to cover short-term supply chain disruptions. Safety stock is typically established by determining the average demand for a product and the lead time required to replenish that product, and then adding a safety stock buffer to ensure that there is always enough inventory on hand to meet demand.
Establishing safety stock levels is an important part of effective inventory management, and is particularly important for companies that operate in highly dynamic markets. These manufacturers often rely on just-in-time inventory management methods, and may be more vulnerable to disruptions in the supply chain.
When establishing safety stock levels, it is important to consider the costs and benefits of holding safety stock. While safety stock can help to ensure that production does not come to a halt, it also ties up valuable resources and increases storage costs. Therefore, it is important to find the right balance between the cost of holding safety stock and the potential cost of production downtime. Additionally, advanced inventory management systems can help in forecasting demand and setting appropriate safety stock levels.
Managing Supplier Relationships
Developing close relationships with suppliers allows you to work together to optimize inventory levels and delivery schedules, which can help to minimize costs and improve efficiency. This can be achieved through regular communication and collaboration with suppliers, such as by sharing information about inventory levels, production schedules, and demand forecasts. As is often the case, communication is the primary currency when managing supplier relationships. Without effective communication up front, overcommunication becomes necessary. The pain of a poor supplier close to a launch date is extreme. Although your team might not mind occasional travel, weekly trips to deal with a supplier in crisis or “babysit” are a drain on morale and resources.
One of the key benefits of developing close relationships with suppliers is that it allows you to negotiate better terms and prices. By working closely with suppliers, companies can gain a better understanding of their needs and capabilities, which can then be used to negotiate better deals. Additionally, close supplier relationships can lead to more reliable delivery schedules, which can help to reduce the risk of stockouts and production delays. Suppliers can also provide valuable information about industry trends, technology advancements and regulations that can help the company to stay ahead of the competition. Furthermore, having multiple reliable suppliers can help to reduce the risk of supply chain disruptions and increase the overall resilience of the company.
Use Inventory Management Software
Many executives already have inventory management software deployed, but the reality under the surface is disappointing. Companies frequently use a patchwork system of spreadsheets to compensate for half-finished implementations. When the inventory management software isn’t properly rolled out to support the business processes, the workarounds create an unnecessarily fragile system. When the factory is placed under the stress of large or unexpected orders, these weak links begin to break, one by one. Consequently, utilizing inventory management software is an important aspect of effective inventory management. There are various software tools available that can help you manage your inventory more effectively, including tools for tracking stock levels, forecasting demand, and optimizing production schedules.
Inventory management software can help you track your inventory levels in real-time, allowing you to quickly and easily identify which products are in stock, which products are on order, and which products are running low. This information can then be used to determine when to reorder products, and in what quantities. Many inventory management software applications also include forecasting features that allow manufacturers to predict future demand for products, which can help you to optimize your inventory levels. This can’t be done unless the systems has accurate data that precisely reflects the reality in your plant.
Conclusion
Managing inventory effectively is crucial for the success of any automotive manufacturer. By following best practices companies can optimize their inventory management and improve their bottom line. However, even with the best practices, companies may still encounter inventory management problems. In these situations, hiring a specialized consultant can be a valuable solution. A consulting agency can provide expert analysis and advice on specific inventory management issues, as well as help implement and monitor new inventory management strategies.
Thanks to our team of specialized operational consultants, Seraph can come alongside a new company and act as a support structure and begin adding value from day one. Our advisors are former management at many suppliers and OEMs and are experts in production and operational efficiency. Contact us today to schedule a discovery call, or see our case studies for more information.
In recent developments, the crisis in the Red Sea has had tangible consequences for the automotive supply chain, leading Tesla and Volvo to announce temporary production suspensions in Europe due to a component shortage originating from plants in Asia. Brian Fairchild, our Senior Director of Sales and Sales Operations, highlighted the ongoing challenges in the automotive supply chain, emphasizing that disruptions are becoming more manageable post-COVID. However, he cautioned about potential future disruptions, particularly in the realm of labor, as the United Auto Workers expand their influence beyond traditional associations.
Fairchild underscored concerns about potential wage increases impacting suppliers and a shift in focus by the UAW towards other manufacturing sectors. Border issues, particularly between the U.S. and Mexico, are also identified as a potential challenge, impacting customs checks and slowing the flow of components. The evolving dynamics with China and nearshoring, as well as the influence of political environments and ethical sourcing considerations, add further layers of complexity to the automotive supply chain. The overarching geopolitical concerns and the financial implications of significant investments in electric vehicle (EV) initiatives were also acknowledged, especially with the potential softening of demand and infrastructure challenges.
In the face of these challenges, Fairchild commended the resilience and adaptability of the supply chain but emphasized the ongoing need for careful management to navigate potential disruptions without compromising efficiency or accumulating excess inventory.
For further insights into Brian’s comments, you can refer to the Supply Chain Management Review piece following the link below.
The biggest challenge facing global supply chains is instability. Recent disruptions have led to delays in the delivery of critical components — in particular, microchips —and price peaks due to high demand and low supply. The automotive supply chain is a primary example of an industry severely impacted by these issues.
Read more about the factors causing instability concerns from Seraph North America President Thomas Kowal in The Supply Chain Brain piece by clicking on the link below.
Just-in-time (JIT) and just-in-sequence (JIS) are two closely related inventory management strategies designed to improve efficiency and reduce waste in the supply chain. JIT focuses on producing and delivering goods precisely when they are needed, thereby minimizing inventory holding costs and reducing the risk of obsolescence. This approach emphasizes tight coordination among suppliers, manufacturers, and distributors to ensure a smooth, timely flow of materials. JIS builds on JIT in a few crucial ways to make the entire production process as efficient as possible.
What Is Just-In-Time (JIT)?
Just-in-time (JIT) is an inventory management strategy that seeks to optimize the production process by minimizing inventory levels and reducing waste. This approach is based on the idea that raw materials, components, and finished goods should be produced and delivered exactly when they are needed. Before this approach became common practice, inventory was being stored in large quantities which had the unintended consequence of increased inefficiency and bloat which taxed the entire production line. JIT, which has its roots in the Toyota Production System was created to eliminate inefficiencies in this manufacturing process.
Advantages of JIT
One of the core principles of JIT is the reduction of inventory holding costs, such as storage, insurance, and depreciation expenses. By producing and delivering goods only when they are needed, businesses can avoid tying up capital in excess inventory and minimize the risk of obsolete or damaged goods. This approach also helps to free up valuable warehouse space and reduce the amount of capital invested in inventory.
Another key aspect of JIT is the focus on continuous improvement and waste reduction. By identifying and eliminating non-value-added activities, such as excessive transportation or overproduction, companies can streamline their operations and increase efficiency. This lean and efficient approach to manufacturing encourages businesses to constantly evaluate their processes and identify areas for improvement.
While JIT creates unparalleled efficiency, it requires a high level of coordination and communication among suppliers, manufacturers, and distributors. In order to ensure that goods are produced and delivered on time, Tier 1s and OEMs must closely monitor their supply chains and maintain strong relationships and open lines of communication with upstream producers. This often involves sharing information and collaborating on forecasting, production schedules, and demand planning.
Disadvantages of JIT
However, JIT is not without its challenges. The strategy relies heavily on accurate demand forecasting and a stable supply chain which, as learned during the COVID pandemic, are anything but constant. Any disruptions, such as natural disasters, pandemics, or supplier issues, can lead to production delays. Additionally, the reliance on frequent, small deliveries can increase transportation costs and the risk of delivery delays in the event of a missed delivery.
What Is Just-In-Sequence (JIS)?
Just-in-sequence (JIS) is an advanced inventory management strategy that builds upon the principles of just-in-time (JIT). JIS ensures that components are delivered not only at the right time but also in the precise sequence required for assembly or production. By synchronizing the delivery of parts with the assembly line’s requirements, JIS may further enhance efficiency, minimize waste, and streamline the production process.
Advantages of JIS
Just-in-sequence (JIS) features several notable advantages that make it an appealing inventory management strategy. One of the key benefits is the reduction of inventory levels. Reduced inventory levels minimizes holding costs and frees up valuable warehouse space. By delivering components as needed and in the precise order required for assembly, JIS helps companies maintain lean and efficient operations.
Another advantage of JIS is its potential to improve production efficiency. When parts arrive in the exact sequence needed for assembly, manufacturers can eliminate the need for additional sorting and handling, thus saving time and resources. Furthermore, JIS enhances quality control by enabling manufacturers to identify and address component defects more rapidly. This is possible because issues can be spotted and resolved before parts reach the assembly line. JIS also promotes greater supply chain visibility, as the strategy requires close collaboration and information sharing among suppliers, manufacturers, and distributors.
Disadvantages of JIS
Despite its numerous benefits, JIS also has some disadvantages that businesses must consider. One of the main challenges associated with JIS is its reliance on accurate demand forecasting. Any discrepancies between forecasts and actual demand can lead to production delays and increased costs, as the correct sequence of parts may not be delivered. Much like JIT, JIS is also vulnerable to supply chain disruptions and the effects of a delay can be outsized.
Factors such as natural disasters, labor strikes, or supplier issues can significantly impact the delivery of components in the correct sequence. These stoppages may cause delays and stockouts that affect the entire production process. Moreover, JIS can result in increased transportation costs since shipping intervals become more frequent with smaller deliveries rather than bulk shipments. This can be particularly disadvantageous for businesses located far from their suppliers or in areas with inadequate transportation infrastructure. Implementing JIS also requires a high level of coordination and complex logistics management. Managing the logistics of delivering components in the correct sequence can be both challenging and resource-intensive. JIS is common practice in the automotive industry between Tier 1 Suppliers and OEMs. However, their counterparts in other industries must do their own calculation to identify the point at which the benefits of JIS are outweighed by additional administrative costs.
Combining JIT and JIS
Effectively integrating JIT and JIS inventory strategies involves several key elements. First, robust coordination and communication among supply chain partners are crucial. A comprehensive information-sharing system covering demand forecasting, production schedules, and delivery requirements ensures timely and sequenced component delivery. Both strategies focus on continuous improvement and waste reduction, making supply chains more efficient and responsive.
Building strong supplier relationships is vital for successful JIT and JIS implementation, enabling strategies for timely, sequence-specific deliveries. Combining JIT and JIS demands a flexible production system, adaptable to demand fluctuations and component sequencing according to production requirements. This advanced coordination and flexible system requires investment in advanced technologies, employee cross-training, and modular production lines. Suppliers and OEMs must also develop risk management strategies when running JIS/JIT production. This helps mitigate supply chain disruptions and may involve supplier diversification, strategic inventory buffers, or contingency planning.
How Seraph Can Help with JIT and JIS
By using JIT and JIS, businesses achieve an efficient production process that minimizes waste, reduces costs, and improves supply chain responsiveness. These approaches demand coordination, communication, continuous improvement, and investment in advanced, flexible production systems. However, the tight coordination can often become disrupted, requiring immediate action and deep expertise to solve. Our team of specialized operational consultants can work alongside manufacturers and act as a support structure to optimize JIT/JIS production and operations. Our advisors are former management at many suppliers and OEMs and are experts in JIT/JIS production as well as many other areas of operations. Contact us today to schedule a discovery call, or see our case studies for more information.
