Managing global supply chains

Ford doesn’t make cars in Japan, and it gets few if any components from there. But in 2011, it had to tell dealers not to order certain black or red cars because of the earthquake and tsunami that devastated the Asian nation.

Even though it made and painted its cars in North America, using locally produced paint, a key pigment in the Tuxedo Black color and a handful of reds came from a single supplier in Japan.

“The tsunami was a real wake up call to a lot of companies who thought they had good supply chains. A lot of businesses didn’t think they’d be affected because they didn’t have any Japanese suppliers, but a lot of them found out that their supply chains went through Japan,” says Diane Palmquist, vice president of industry solutions for GT Nexus, an Oakland, California-based supply chain management services provider.

Palmquist says several key trends in the commercial truck, off-highway, and automotive markets are pushing manufacturers to rethink their supply chain management strategies – the growth of global supply chains, the desire to better anticipate problems that could impact production, and customer demand for more transparency.
 

Expanding markets

Between growth of key overseas markets and outsourcing of low-value parts to low-cost countries, global manufacturers are managing supply chains that cover almost every time zone, Palmquist says. In the past, companies had regional manufacturing centers with European teams dealing with purchasing and manufacturing for that continent, North American teams handling this region, etc.

In recent years, cost cutting has made it harder to justify the duplicate costs of multiple management systems, and European, North American, and Asian safety and emissions regulations have become more similar to each other, making it easier to design a vehicle once and sell it around the globe.

Purchasing managers have pushed that trend, buying larger volumes of critical parts from suppliers in low-cost countries and shipping those to regional manufacturing sites. With commercial vehicles, Palmquist adds, the supply chains get even more complicated as the base vehicle can be built at one site (using globally sourced parts), and key add-ons, such as harvesting equipment, can be added elsewhere.

She adds that one vehicle can have a supply chain that stretches across four continents.

Keeping track of where the vehicle is throughout that multi-location build process is critical when it comes to arranging when parts need to arrive, where they need to arrive, and when the customer can expect vehicle delivery.

Many manufacturers have developed ad-hoc systems to track the critical materials and delivery data, setting up calendars with expected materials delivery, product installation, and product shipment deadlines. Maintaining such systems can be labor intensive for purchasing managers, manufacturing engineers, and sales staffs, Palmquist explains.

“If you’re trying to synchronize all of that to provide status data to the dealer, you can either send around static pieces of information that people have to keep together, or you can enrich one set of data and update it as it moves through the system,” Palmquist says.

GT Nexus’ system acts as a centralized network, maintaining key data points that need to be accessed by suppliers, vendors, and manufacturing sites around the world.
 

Supply chain risk

The biggest issue associated with the sprawling growth of supply chains is that it can open manufacturers up to more risk. When 95% of a manufacturer’s suppliers are within 100 miles of your plant, what affects the manufacturer has the same impact on the supplier. But when critical parts come from halfway around the world, manufacturers have to be aware of what’s going on globally.

Following the 2011 tsunami in Japan, not only was Ford out of black vehicles, Honda and Toyota plants in Kentucky, Ohio, Indiana, and Alabama were temporarily shut down. The plants sourced most of their parts from nearby suppliers, but critical pieces still came from Japan.

Monitoring supply chain risk requires knowing exactly what components are critical to production, and where those products are built, Palmquist says. Complicating that task is that producers buy most of their parts from Tier 1 and Tier 2 suppliers, something that can mask the true origin of every piece. While a steering system supplier may be down the road in Detroit, key components in the system may be globally sourced.

When one large manufacturer asked for an audit of its supply chain, Palmquist says experts from GT Nexus traveled to Asia to study the details. “For every specific SKU, they had a number of suppliers. But when we looked at their suppliers, each one of them was getting their parts from two distributors. And those two distributors were getting those parts from the same person. The multiple sources weren’t multiple sources. Ultimately, there were two guys in Thailand supporting everyone.”

To get a complete picture of risk, companies need to study their suppliers, and their suppliers’ suppliers. Modern transaction software and tools can help set up real-time risk maps, showing what end products are threatened when bad weather looms in Asia, political sanctions hit Russia, or currency crises hit Europe, Palmquist adds.
 

Customer information

Maintaining real-time information on risk and supply chain health can have secondary benefits. With holistic views of where suppliers are in the manufacturing cycle, product planners can better predict when equipment will be finished and when it should arrive at a workshop or dealership.

“For a long time, people have complained that you can buy a $5 book on Amazon, and you’ll know when it’s going to arrive, and you can track your package at any point before delivery. But with a $2 million tractor, you don’t have anything like that,” Palmquist explains.

Traditionally, such real-time monitoring had been difficult because manufacturers didn’t have a lot of visibility into the supply chain. Some used time-intensive manual tracking systems while others used third-party logistics (3PLs) companies such as UPS or DHL to handle regional shipments. Getting immediate data was a challenge with both systems.

“It’s a different approach now. Companies used to deal with 3PLs by saying, ‘OK, handle all of my business in Asia, and let me know if anything goes wrong.’ With our system, the 3PL still handles the execution, but the OEM can track parts and materials along the way,” Palmquist states.

GT Nexus Inc.
www.gtnexus.com

About the author: Robert Schoenberger is the editor of TMV and can be reached at 216.393.0271 or rschoenberger@gie.net.