Taking Control of Supply Chain Transformations · autonomous transportation, it is arguable that the most significant transformation yet is taking shape within the supply chain. Many
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Nearly a century has passed since Henry Ford established the original River Rouge manufacturing complex in Dearborn, Michigan. The plant forged its own steel, produced its own glass, and manufactured tires on-site using rubber from a Ford plantation in Brazil. It even had its own power plant.
We have come a long way since the 1920s, when Ford built the largest integrated factory in the world. Now, as automakers move full speed into the age of electric and autonomous transportation, it is arguable that the most significant transformation yet is taking shape within the supply chain.
Many factors have fueled this supply chain transformation. From a rapid shift of consumer trends to an increase in specialized components, coupled with competitive pressures and disruptive innovations – the path from the design table to the showroom floor has become more complex than ever.
The challenge for automobile manufacturers is clear: Stay ahead or risk market share.
As a result, automakers are increasing their focus on their supply chain. Supply chain management is becoming less about reducing costs and more about driving profitability and market differentiation. To that end, automakers are re-examining the roles that original equipment manufacturers (OEMs) and suppliers play within their networks.
Technology plays a more critical part than ever before in this revolution. According to KPMG International’s The road to everywhere report, a majority of auto sector
manufacturers are planning to augment their supply chains with artificial intelligence (AI), automation, Internet of Things (IoT) capabilities, and data analytics tools. They’re also embedding real-time monitoring, “smart” equipment, and drones within their manufacturing, warehousing, and distribution facilities to perform maintenance, manage inventory, move stock, and generate data-driven insights.
But to what end? A majority of KPMG’s survey respondents tell us that their supply chain investments are being made to improve visibility into product journeys (manufacturing, shipping, storage, distribution, etc.). In other words, they strive to enhance visibility and flexibility across all processes, including but not limited to: the forecast and predictive analytics, the supply and replenishment plans, the production plan, the distribution, and the delivery. Meanwhile, one third are making upgrades to enhance planning thereby lowering their cost-to-serve, and nearly 40% are doing so to fuel faster innovation.
With the latest technology advancements it is now possible for companies to create a “digital twin” – a real-time digital supply chain model of the physical supply chain process, thereby providing real-time visibility across the end to end supply chain. Control Tower technologies, for example, can ingest information from all relevant planning and execution systems. These include, but are not limited to multiple ERP, TMS, and WMS applications – as well as external data sources from customers, suppliers and digital data sources, such as RFID, FourKites or project44, to provide the real-time visibility. AI and machine learning can then be leveraged
to analyze this vast amount of data. The analysis helps sense disruptions, predict events before they happen, analyze correlations between patterns, spot trends, understand the consequences of different options, and provide prescriptive recommendations. The sooner an organization can sense disruption, the more options it will have to find solutions and lower costs – leading to more profitable decisions.
The journey to digitalize the supply chain is not without risks. While the adoption of AI, automation, IoT, cloud-based computing, and advanced data analytics comes with clear strategic and operational advantages, these technologies also expose supply chains to greater risks of cyber-attacks, data mismanagement, and third-party threats. Therefore, as organizations continue to digitize and upgrade their supply chain, they require the means – including people – to unlock full value from their investments. As such, organizations are restructuring their supply chain management capabilities to optimize functional skillsets and replace traditional job descriptions with new and hybrid roles, typically not seen before. These new positions combine supply chain expertise with proficiencies in cyber security, data science, and AI engineering, amongst other future-ready skills.
A case study
A global tier 1 manufacturer was looking to improve its overall supply chain efficiency and business performance. The company had a complex, vertically integrated supply chain with end products sold to demanding OEMs, requiring strict service-levels and standards. They faced several core challenges, namely:
– Additional costs and upstream supply challenges: Though the first production tier received consistent and reliable OEM demand signals, the extended horizon demand signal required by subsequent tiers, failed to pass consistently. This resulted in added costs and upstream supply issues.
– Lack of efficiency trying to meet service level standards and targets
– Decentralized processes, tools, and supply planning skills were spotty and inefficient, rendering costly service levels.
After completing KPMG’s operating model design engagement, the company gained knowledge on the benefits and the value of institutionalizing and centralizing their supply chain planning, and with KPMG’s guidance and help, began the transformation journey. The team conducted a successful pilot using proprietary planning tools, developed and socialized an approved business case, conducted a technology solution selection process, and conceived the design using BlueYonder software solutions.
Ultimately, the BlueYonder and KPMG strategic alliance led to the creation of a centralized operating model and the implementation of BlueYonder supply chain management state-of-the-art software technology that has since unlocked numerous financially measurable benefits, including:
– Working capital reduction
– Premium freight reduction
– Planner productivity improvement
– Overtime reduction
Tangible benefits include:
– An annual inbound freight cost decrease of over 75%
– A planner efficiency increase of over 30%
– An inventory reduction of 10%
Re-making the chain
The auto-sector is constantly evolving and its supply chains are no different. As automakers and OEMs seek improved tools, technologies, and talent to remain competitive and profitable, it is important to remember that this is not a solo race.
KPMG in Canada professionals have worked with a variety of auto industry stakeholders to build capabilities and add value to supply chain transformations. We do so by combining deep industry experience, methodologies, and an agile approach to make the most of supply chain investments, and more importantly, drive sustainable growth for the road ahead.
For the latest in automotive industry publications, webcasts, and more please visit:
kpmg.ca/automotive
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