THE TOP 3 CHALLENGES FOR A STABLE SUPPLIER NETWORK
Suppliers have a vital role in the automotive manufacturing process. Usually, only a small number of vehicle components is produced directly in-house, with most systems and individual components delivered by suppliers. An average vehicle is composed of systems delivered from hundreds of different supply sites. As such, the quality of a vehicle’s supply network greatly affects the quality and development of the vehicle itself.
Automotive suppliers are grouped into three categories:
- Tier 1 suppliers produce system-level components for the vehicle, such as its software or battery.
- Tier 2 suppliers produce components based on detailed guidelines. They are also known as “build-to-print” suppliers.
- Tier 3 suppliers provide standardized components, such as screws or small electronic elements.
As new entrants usually interact directly only with tier 1 and to a lesser degree with tier 2 suppliers, let’s focus on tier 1 suppliers for now.
Illustriation: Tier N structure
Establishing a Supply Network
When establishing a supply network, one of the most important factors to consider is the transportation distance. If a new entrant plans to establish a greenfield site, they should choose a location within the vicinity of as many key suppliers as possible to lower time and cost demands as well as the vehicle’s environmental footprint.
Which Automotive Suppliers are the Most Important?
The most important factor to consider is the complexity of the supplied parts. A very complex system like engines, batteries, or ADAS systems comes with a long development timeline.
To ensure an efficient development and production process, these suppliers should be onboarded as early as possible. Ideally, they should be brought into the project as soon as the targets related to their system are clear.
Additionally, the supplier’s own supply network must also be taken into consideration. For example, if a supplier has longer wait times for their own tools or supply parts, the vehicle manufacturing process will have an even longer wait time.
How Much Should be Produced In-House?
Although new entrants might be concerned about giving up control, the benefits of outsourcing usually outweigh the risks:
- Suppliers themselves are specialized manufacturers and thus have the experience, skill, and infrastructure necessary to manufacture these systems as efficiently as possible.
- Good suppliers also want to differentiate themselves from their competition; thus it is in their best interest to develop new and unique solutions for the market.
The Challenges of Establishing a Supply Network
Building and maintaining an automotive supply network is arguably one of the most comprehensive and arduous tasks of the vehicle development process. The sheer size of an automotive supply network alone can be very impressive. Building a network requires precise coordination and an extremely condensed schedule that leaves very little room for mistakes.
Onboarding Automotive Suppliers
New entrants could have difficulty securing suppliers for their project. They have not built a reputation yet, so suppliers might be reluctant to take the risk and then initially produce in lower volumes than OEMs, driving up production costs.
Ensuring Supplier Quality
Once suppliers are brought on board, it is their client’s responsibility to ensure that quality standards are met. Client and supplier stay in constant contact through the Supply Quality Assurance (SQA) department, whose responsibility is ensuring that the supplier produces the parts at the agreed pace and that everything goes according to the client’s wishes.
Coordinating the Supply Network
One of the main challenges for the new entrant lies in assembling the individual systems into the complete vehicle. To succeed, new entrants need the ability to conceptualize, coordinate, and integrate hundreds of systems and components as well as their respective manufacturers within one large organizational network. Furthermore, the coordination work needs a lot of time.
How to Meet Those Challenges?
Many of the challenges can be traced back to communication related issues. Unclear terms of an agreement between parties could lead to misinterpretation of the agreement. Or another issue may be that communication within the network lacks efficiency. The best way to prevent these issues is solid communication. This is achieved by two means:
- Clearly defined guidelines and contracts that specify responsibilities for both parties.
- A solid and efficient digital infrastructure connecting the new entrant’s organization with their partners.
Obtaining a Supply Network With Contract Manufacturing
The process of building a supply network can be made considerably easier for new entrants if they partner up with an established manufacturer. These manufacturers are often OEMs or tier 1 suppliers themselves, so they already have an established network of suppliers. Furthermore, with an established name backing their project, new entrants also have a much easier job in onboarding new suppliers into their network. Contract manufacturing is a great way to quickly establish connections.