How to reassess and redesign your supply chain strategy amid ongoing disruption

What’s next for supply chain management in automotive?

What’s next for supply chain management in automotive?
  • Blog post
  • June 20, 2024

Phillip Robbers

Automakers and suppliers are continuing to face disruption from multiple fronts. With ongoing macroeconomic volatility, geopolitical tensions, sourcing challenges, and sustainability reporting requirements, it is no surprise that many players have reported feeling distress. Multiple crises are putting performance and operating models under pressure, forcing companies to react constantly and quickly, but sometimes supply chain strategy and objectives are not always updated accordingly. For example, many OEMs are moving toward supply chain centralization for improved risk management, which makes sense, but that is just one small part of a much larger transformation. So, looking ahead, what is a smarter approach to supply chain management in the auto industry?

In this article, we will outline and define a framework that can act as guardrails for strategy development, incorporating both upstream and downstream considerations, addressing external conditions, internal capabilities, and operational priorities while balancing the compromises necessary.

We believe that it is critical to think about supply chain management holistically. In order to address the changing external forces, supply chains and their corresponding strategies need to be revisited and redesigned regularly while considering the company’s corporate strategy and its demands on the supply chain. To do this, we propose to look beyond the classical triangle of time, cost, and quality – however, using these as a starting base – and rather focus on so-called meta-strategies that balance and prioritize between these dimensions. As a result, companies can adapt towards one of four strategies – (1) Costs and capital, (2) Resilience, (3) Sustainability, or (4) Flexibility – that sets the basis for the development of a holistic supply chain strategy.

Here's an example. Given the current multi-crisis environment, building resilience is critical. But a focus on resilience, for instance, often costs money and capacity – necessitating upfront investments in redundancies, diversification, and risk management. In turn, that may increase operational expenses which conflicts with the cost and capital focused strategy. Whatever higher-level strategy is prioritized, tradeoffs and necessary compromises are needed.

The framework
  • FlexibilityFlexibility

    Designing supply chains that can quickly adapt to changing market demands, customer preferences, or supply constraints

  • Cost and capitalCost and capital

    Optimizing expenses and capital investments e.g., through cost reduction, inventory management, technology adoption, continuous improvement

  • SustainabilitySustainability

    Incorporating environmentally friendly and social practices into the supply chain, e.g., reducing emissions and optimizing transport routes

  • ResilienceResilience

    Building resilient supply chains that can withstand disruptions and shocks, such as natural disasters, geopolitical events, or pandemics

Using a holistic supply chain framework to develop your strategy

Currently, in the auto industry, supply chain priorities are often determined by relatively sudden incidents. For instance, collapsing supply might drive an organization to make changes in its sourcing. Or constant cost pressures could force an organization to cut costs. But rather than being solely reactive, a proactive and holistic approach enables leaders to respond quickly and more effectively. It supports deriving the right key performance indicators and strategic capabilities needed to achieve a longer-lasting competitive advantage.

Our framework suggests starting to define the supply chain strategy from the internal firm and operations strategy with a limited set of strategic performance measures around time, cost, quality, and above all customer satisfaction. Based on these strategic measures, one of the four meta-strategies emerges as the leading target picture which is described through a set of specific qualitative and quantitative KPIs. Conflicting objectives between the meta-strategies must be clearly identified and transparently resolved across all supply chain functions.

Derive high-level Top-KPIs for your supply chain based on the overall operations and/or corporate strategy

Define the supply chain strategy target picture via meta-strategies through specific qualitative and quantitative KPIs

Define strategic capabilities needed for your ecosystem play, internal operating model, and enablers

Align designed supply chain strategy with external conditions along markets, geographies, and governmental guidelines

The next layer of the framework deals with the strategic capabilities that are needed to execute the defined supply chain strategy. Capabilities can exist and be built around the three dimensions – (A) Operating Model, (B) Ecosystem, and (C) Enablers. Through their Operating Model, companies align their organization, processes, and people to the overall strategic business objectives and ensure an internal set-up that works toward set targets. Within the Ecosystem dimension, companies review and evaluate their value chain positioning and footprint while facilitating proactive management of supplier, stakeholders, and regulators. Lastly, capabilities along key enablers such as culture and technology bridge the gap between internal and external requirements that companies need to meet to achieve their strategic ambition.

Defining a supply chain strategy based on a prioritized meta-strategy and capabilities that companies need to build in alignment with their internal and external environment does not happen in isolation. With supply chain of multinational companies stretching across the globe, external conditions not only need to be considered but deeply integrated in the strategy definition. For this, it helps to think in three categories that define the boundaries for supply chains to operate.

  • 1
    Markets describe stakeholder-related and non-governmental conditions reaching from supply to customer. Examples on the supply side are e.g., regional raw material/ energy oligopolies or specific purchase requirements. The customer side is represented e.g., through order-to-delivery preferences (e.g., make-to-stock vs. make-to-order) or specific last-mile delivery expectation (e.g. dealerships vs. home deliveries).
  • 2
    The impact of international trade agreements, national legislation and tax codes are summarized in the government category. Depending on the supply chain integration level, multi-national conditions arise which need to be optimized in a global set-up. Especially tariffs and local content requirements need to be carefully reviewed to ensure the provision of required capabilities and future profitability.
  • 3
    Geographies define regional and rather physical characteristics mainly influencing transport and storage related topics. These characteristics range from climate and environment related conditions to available infrastructure and need to be translated into e.g., a risk assessment or infrastructure development.

A supply chain strategy that addresses all the above-mentioned dimensions is well sounded and ready for execution. However, arriving at this stage is a complex process and requires rigorous steering and management of all supply chain functions and related internal stakeholders. Our proposed framework set out a blueprint to guide companies through that process, one step at a time. Of course, when you design your own supply chain strategy, you will need to tailor it – including all the specific factors affecting your business and decision-making. This is why it’s critical to take a holistic and customized approach to supply chain strategy definition, to meet the rapid changes in the auto industry proactively and ensure future success and profitability.

Contact us

Jörg Krings

Jörg Krings

Partner, Strategy& Germany

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