Role of Logistics in unsertain automotive supply chain

After the seasonal brake in Automotive Industry on the end of July and first half of August the trend on the market is showing the recovery. This is a green light for automotive business after the crisis due to the war in Ukraine and lack of microchips from Asia. The prediction of positive trend is till end of the year and new seasonal brake during the winter for both car manufacturers and suppliers. The high sales will bring the positive impact to financial result of companies in Automotive business and significantly improve the loses in first and second quartal of the year.

The orders from car manufacturers (customers) are so high that overcome installed production capacities at supplier companies. It makes difficulties for Tier 1 and Tier 2 suppliers how to increase own production capacity and fulfill customer demand. It is word to mention the one of the most important KPIs for suppliers is “Delivery on time”. Delivery on time is indicator which measure the quality of service to customers and ranks suppliers on the reliability list. One of action for supplier to increase capacity is overtime work with 6 or even 7 days during the week with existing manpower. It generates high overtime for manpower and increase the cost for companies. A part of the cost for overtime is compensated with additional sales. The increased salary is a good opportunity for employees to earn more money but in longer period the overtime schedule could be counterproductive making people tired and reduce productivity.

This phenomenon could affect lost quality of products. Employing new manpower is more expensive than previous action, but more sustain for longer period. The high demands in period September – December in 2022 could be fulfilled with overtime, but in case of the same trend in first quartal 2023 the suppliers must think of new employment and organize additional shifts of production. For some projects where three or four shift patterns already exist the capacity increase will be possible only with new equipment and machines implementation. An investment in new equipment is always very expensive strategy and only in long term can be profitable. That is why the analysis must be very robust and reliable before decision for new investment.

The Logistics as a key driver in supply chain must be very reactive in daily analysis of customer demands not only for short term but for longer period (more than three months). Every pick with higher or lower order than usual should be investigated and communicated with customer. The customer demands are pretty unstable with significant fluctuation and main task for Logistics is to recognize and react to customer on the time. It is important to understand the behavior of customers demand in order to organize own production and order enough materials from own suppliers. Every delay from Tier 2 or Tier 3 suppliers will reflect to delay of production for Tier 1 supplier and to final customer, car manufacturer.