The South African automotive sector is plagued by uncontrollable factors such as strike and labour action, port delays due to weather and congestion, unreliable rail infrastructure and high costs for road transportation.
This is according to Rob Williams, Business Unit Director of Automotive Supply Chain, DHL South Africa, who says that these factors highlight the crucial need for effective supply chain management (SCM) within the sector.
He says that South Africa is also a large country, and as a result significant distances need to be covered by suppliers transporting parts.
“In addition, local component manufacturers need to manage both local and export demands carefully in order for the supply chain to be effective.”
Williams says that as most local original equipment manufacturers (OEM’s) within the automotive sector do not compete with each other, but rather with their sister plants in other countries, it is imperative that they fulfil their export order obligations.
“In an environment where strikes plague the industry, not only in the automotive manufacturing sector, but also the transport and fuel industries, it is very difficult for the manufacturers to be consistent. Stringent policies therefore need to be put in place when it comes to supply in the sector.”
Williams says that Sub-Saharan Africa is fast becoming the next market which automotive clients are expanding into, and many are contemplating opening manufacturing plants in the region.
“Sub-Saharan Africa is at the moment predominately a distributors business, as opposed to the OEM’s full ownership.”
He points to the recent Lean and resilient: the new automotive supply chain hybrid report released by DHL, which makes the case for re-evaluation of the automotive industry’s approach to its supply chains and logistics, and encourages companies to ask themselves, “what if?” to avert a crisis tomorrow.
“Today’s supply chains must be ever more resilient and agile in order to survive the ‘butterfly effect’ – where a small change at a localised point in the supply chain can result in much wider consequences for the business, such as loss of customers or brand reputation, and billions off their bottom line.”
He says that often, companies risk critical damage to their business if they are not in a position to anticipate and respond to the increasing unpredictability and vulnerability of their supply chains in light of economic volatility, natural disasters and political unrest, which is something that affects the automotive industry in South Africa frequently.
“Production stoppage results in lost vehicle production and lost revenue. It also results in the production not being able to meet the demand.
“There are various benefits of re-evaluating and revising logistics operations, and establishing new ‘hybrid’ supply chains that are simultaneously lean and resilient by adding in contingency options to improve resiliency and protect against failure are necessary.
“The research highlights the crucial need for supply chain resilience, and in order for the industry to survive, global collaborative simulations must be developed.
“Companies that ignore or lag behind in addressing supply chain volatility do so at the peril of their bottom lines and their shareholder confidence.”
He points to four major trends which the report reveals are re-shaping the automotive sector and the risks associated with each are identified in the report:
* Global growth and emerging markets – despite the drag-effect of the debt crisis in Europe, global automotive production is forecast to hit record levels, driven by emerging markets China and India.
* Mega-plants and multiple platforms – companies are shifting to producing multiple models or platforms in a single plant to gain flexibility, reduce costs and better utilise production assets. These improve capacity while reducing the need for plant expansion with strongest growth in China and Mexico.
* Getting closer to the customer – OEMs are locating their new manufacturing plants and supplier bases closer to their end markets and moving to a model of geographically regionalised production – manufacturing at or near the point of demand.
* Relentless cost pressure – logistics typically represent five to 10% of manufacturing revenues in automotive: a need for speed to meet the growing affluent consumer markets while having to drive down costs puts huge pressure on supply chains.
Williams says that these trends emphasise the shifting global market and the need for suppliers in the automotive sector to adapt in order to survive the sometimes challenging economic environment.
“A reliable supply chain is key to output production and the correct choice of partner, who is not just part of the “last mile”, but has sight of the end-to-end supply chain, will help differentiate manufacturers and significantly improve their competitiveness,” he concludes.