Trends In Automotive Industry Implication On Supply Chain Management

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Trends in the Automotive Industry Implications on Supply Chain Management

Author Michael Schwarz

February 2008

Cisco Internet Business Solutions Group (IBSG)

Cisco IBSG Copyright © 2008 Cisco Systems, Inc. All rights reserved.

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Trends in the Automotive Industry
Implications on Supply Chain Management
Recent emphasis on global climate change is increasing pressure on automotive executives to make the right decisions in many areas, including R&D and manufacturing. In fact, emission-level targets, currently in question, threaten to alter the entire structure of the auto industry. These challenges hit an industry already plagued with high costs, low profit margins, and accelerating competition. New entrants from China (such as Chery Automobile) and India (such as Tata Motors) are working aggressively to capture their share of the global market, following the path taken by the Japanese in the 1980s and the Koreans in the 1990s—both of whom went beyond their domestic markets by focusing on the United States first, and on Europe later. Only a handful of established players are consistently delivering satisfactory profits, such as Toyota, Honda, Porsche, and BMW; leading tier-1 suppliers such as Bosch and Denso; and some specialized tier-2 and tier-3 companies such as ElringKlinger and BorgWarner. Meanwhile, many others are undergoing some form of restructuring. General macroeconomic and financial circumstances are not necessarily favorable, either. The cost of energy and raw materials continues to increase due to rising global demand. Strong fluctuations in exchange and interest rates pose another challenge and are difficult and costly against which to hedge. In this dynamic business environment, a superior supply chain is one critical element to helping automakers differentiate themselves from the competition. In fact, many of trends in the auto industry are reinforcing the need to redefine supply chain strategies, layouts, and operations. This paper summarizes the current challenges in the automotive world and analyzes their implications on supply chains.

Cisco IBSG Copyright © 2008 Cisco Systems, Inc. All rights reserved.


The most complex challenges automakers face are summarized in Figure 1. Figure 1. Global Challenges in the Automotive Industry External • Legislation (environment, safety, others) • Raw material and energy costs • Exchange and interest rates Auto Industry Trends and Challenges Customer • Stagnating demand and price pressure in established markets • Segmentation and polarization (low cost vs. premium) • Decreasing loyalty Industry • Global overcapacity • Complex alliances, partnerships, M&As • Consolidating ecosystem (suppliers, dealer groups)

Competition • Quickly entering every segment

• Moving targets—everyone optimizing or restructuring • Global game (for example, aggressive Asian companies, new entrants) Source: Cisco IBSG, 2008

Based on these challenges, the Cisco® Internet Business Solutions Group identified eight major trends affecting the automotive supply chain. Figure 2 shows these supply- and demand-side trends.

Figure 2. Trends that Have Implications on the Supply Chain Demand-Side Trends Uneven Growth Fragmentation Accelerated Volatility Importance of Aftermarket Source: Cisco IBSG, 2008

Suppy-Side Trends Differentiated Outsourcing Low-Cost-Country Sourcing Risk Management Transparency/Accountability


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Trends in Demand
Uneven Growth
The demand for cars is growing, stemming in large part from China, India, and Eastern Europe. Established automotive markets in the United States, Western Europe, and Japan, however, are flat to declining. This uneven growth raises implications for the supply chain. For one, OEMs and their tier-1 suppliers must establish a local presence to benefit from these new growth opportunities in emerging...
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