How Better Supply Chain Automation Is Empowering Small Automotive Manufacturers

November 15, 2017 Peter Edlund

If you follow the automotive industry you know that competition is fierce, particularly with changing economic times. While the industry appeared to be on its last legs during the financial crisis of 2008-2009, it has steadily rebuilt itself during the past decade. Sales are strong, particularly for in-demand vehicles like trucks.

One result of this uptick in business has been a boon for the biggest Tier 1 Original Equipment Manufacturer (OEM) suppliers in the world, venerable companies like Robert Bosch and Denso. Due to their size and ubiquity they can command markets and dictate prices and make life tough for the smaller manufacturers in the automotive supply chain. It’s become increasingly difficult for small manufacturers to thrive or in some cases even make a dent in an industry that seems predisposed to favor size. This imbalance ultimately is passed on to the consumer with higher costs and potentially less reliable vehicle components.

How Modern Automotive Manufacturers Can Compete

However, the technological advacements that has upended the retail business is also making a considerable dent in the automobile business. Better management of the supply chain has empowered small manufacturers and created a more level playing field. Here's how small automotive manufacturers have leveled the playing field:

1. Flexible Supply Chains Allow for Competition

In the past, it was easy for the Tier 1 Suppliers to win a lion’s share of business. Their size and position offered them the reach and resources to control access to crucial automotive parts or components used by OEMs. Small manufacturers never had that luxury. They either competed on price or lost business. With a more visible supply chain, things have changed. Small manufacturers can just as easily produce or procure parts using drop shipment, and have the necessary components available in short order. This flexibility allows them to compete with essentially the same toolset at the big guys.

2. Visibility Into The Supply Chain Offers Crucial Benefits For Automotive Manufacturers

The automotive industry has a complicated supply chain, which begins with suppliers that sells small parts and ends with the company that sell vehicles. A small manufacturer that tried to track all of the components needed to do their job would be hopelessly lost. With more insight into their supply chain, small manufacturers use real-time dashboards to get a complete look at what’s happening in their supply chain ecosystem. This can be crucial if there are recalls, which often require action by manufacturers. Better insight also allows small manufacturers to make sure they are well stocked to answer periods of high demand.

3. Drop Shipment and Direct-to-Customer Models Enable More Supply Chain Fluidity

If clothing retailers complain about the cost to store materials, imagine how small auto manufacturers feel. Auto components like tires, engine blocks and other bulky items are difficult for small manufacturers to keep on hand. With drop shipment, however, a manufacturer stores products elsewhere and delivers them only when the components are needed. No need to worry about the cost to store items on-site. There is also precious little waiting time on the automotive industry, particularly when you are trying to bring a vehicle to market. If you quickly need to acquire a part for an engine, for example, drop shipment enables both a wide range of automotive components and the ability to receive them quickly.

4. The Market for Aftermarket Components

Small manufacturers looking to win on price points can connect with drop ship suppliers who offer aftermarket parts. Aftermarket parts are secondary parts provided from vehicles of any conceivable make or market. They are much less expensive but generally work as well as any OEM parts.

Deploying Retail Direct-to-Consumer Best Practices in the Automotive Supply Chain

Download the latest report on dropshipping and direct-to-consumer models to apply retail best practices to your automotive supply chain.

Report: The State of Drop Ship Compliance

About the Author

Peter Edlund

Founding member and executive at Dicentral, a global B2B integration company with over 20 years of solving complex supply chain integration problems. I am passionate about helping people in the retail, automotive and healthcare industries achieve revenue growth through a better understanding of the world of connected commerce. Frequently published, sought after speaker and host of “The Connected Show”, a video blog that connects our viewers to the people and news that influence today’s integrated supply chains.

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