The challenge is to learn from the crisis and maintain the momentum.
As a senior researcher at the International Car Distribution Programm (ICDP), Ben Waller believes that one particularly important lesson from the crisis is that automotive companies benefit from reducing stock and maintaining a demand-led model, rather than pushing product onto the market. This can lead to greater efficiencies, better environmental performance and more profit.
The ICDP, a UK-based research organisation with a broad membership of car makers, trade associations, dealer groups and aftermarket suppliers, focuses on the auto retail sector. Its areas of expertise include new vehicle supply systems, aftermarket parts supply chains, manufacturer fleet and leasing strategies, used car remarketing and retail network design. It has taken a particular interest in lean distribution across the vehicle supply chain.
“In 2009 we saw dramatic cuts in production, stocks were cleared and incentive schemes helped manufacturers adjust to changes in volume and mix of sales,” says Waller. “Those brands that benefited from scrappage incentives saw stock levels drop to historic lows and increased use of the order pipeline for selling new and amended orders.
“However there are signs that while, for some, stock objectives are better targeted, the drop in sales in 2010 has seen a return of old behaviors. The challenge is to learn from the crisis and maintain the momentum.
“Increasing production volume and mix flexibility, keeping stock low and using the supply chain capability not only delivers profitability, it reduces business risk to changes in the market.”
Waller, who has also worked in food retail, IT and defense, says supply chain management is particularly critical to the automotive industry because new car retailing is a low margin business (except for selected premium brands) across the whole supply chain. Furthermore, other industry revenue streams, such as after sales, are set to decline over the next five years, making margins in new vehicle supply even more critical to maintaining viable retail networks.
Some progress has been made and European carmakers lead the way. According to ICDP analysis, sales from new and amended orders, rather than from stock, now average around half of sales; which is higher than generally recognised. But more can be done.
“ICDP has been benchmarking new vehicle supply chains since 1993 and, in that time, improvements in capability have not been matched by changes in performance,” notes Waller. “There has been significant progress by some carmakers but overall progress stalled over the last decade when oversupply seemingly became an acceptable way of doing business.”
Waller believes there is general acceptance within the industry that supply chain management is critical but, for many reasons, achieving a lean supply chain is more challenging.
“Often different parts of the organisation have different priorities; no one looks at the whole system,” he says. “Historically, the various elements of the supply chain are accounted within walls. And some of it is a legacy from 30 or 40 years ago when selling from stock was the norm.
“If you look at all the new vehicle supply costs, including franchise holder sales incentives, tactical promotions and stocking costs, then it is clear that the incremental savings available in manufacturing are insignificant compared to the waste created by oversupply.”
Clearly logistics providers, such as WWL, have an important role to play – not just in promoting supply chain management but also in developing services and systems that will further improve efficient and more environmentally friendly transport methods.
“Logistics providers can help manufacturers design and sustain lower cost distribution models but the whole system view must be prioritised within carmaker corporate policy making for the advances made after the financial crisis to be sustained,” says Waller.
“The opportunity is there. The one good thing that came from the financial crisis is a wide acceptance within carmakers that the industry cannot revert to its comfort zone of manufacturing, allocating and wholesaling cars to an annual budgeted plan then worrying about the consequences later.”
Lives: Warwick, England.
Education: BA from University of Sheffield, MSc from University of Salford.
Career: Expert on supply chain management; currently senior researcher at International Car Distribution Programm (ICDP), formerly senior research associate Cardiff Business School (working on defence, IT, automotive and retailing) and commercial analyst at UK supermarket retailer Sainsbury’s.
Hobbies: Cinema and the arts.
Family: Lives with partner, no kids.