Supply Chain For The Automotive Industry

The supply chain for the automotive industry integrates four groups of players: original equipment manufacturers (OEMs), first-tier suppliers, sub-tier suppliers, and infrastructure suppliers.

As the automotive industry shifts from a traditional local business model to a global one, OEMs and their suppliers are experiencing much disruption and many challenges.

Key challenges faced by automotive companies

Transforming from local to global

Increasing globalization drives increased operational complexity. This requires a focus on integrating technology and processes which is costly and time consuming. While growth is clearly a goal of many automotive executives, cost reduction continues to be an important driver. The challenge is to balance these needs as well as managing supplier partners, product quality and local regulations.

Automotive companies are often restricted by local content and compliance regulations, requiring the establishment of multiple support centers across the globe. Local supply chain networks are required for accessing local markets and ensuring that products meet market-specific requirements.

Low cost country sourcing

More and more supply chains originate in low-cost countries, primarily in Asia and Eastern Europe and as a result, traditional organizational structures and business practices are being challenged. The aim is to achieve greater scale and cost efficiencies while capitalizing on rapidly expanding markets such as China and India.

Outsourcing is clearly a long term strategy. The attraction is lower employee costs and an educated labor pool. However, there are additional factors to consider such as extended lead times, quality assurance and protection of supply that need to be managed.


In local supply chains transportation is a low percentage of overall costs compared to parts and labor. Most companies do not consider transportation a core competency and outsource it to third- or fourth-party-logistics companies. Globalization increases both inbound and outbound (move) activity so transportation costs increase as a percentage of overall costs. Some automotive companies are considering taking control of their logistics network.

Risk in the automotive supply chain

Supply chain risks have increased due to globalization initiatives. Automakers (OEMs) are passing more responsibility down the chain to lower-tier suppliers, who often have neither the experience nor the capability to perform the tasks they are being assigned. Failures in lower tier supply can be critical so support such as engineering assistance, process and financial support are often provided by the automakers.

Supplier collaboration and visibility

Customer queries such as where is my order? require automakers to have scalable, repeatable, and globally consistent processes. These are necessary to track orders, goods in-transit and inventory. A combination of a systematized approach and human intervention is necessary to be effective given the diverse time zones, languages, and cultural business environments of the global automotive industry.

Companies must maintain and preferably enhance supply chain flexibility and customer responsiveness whilst managing product complexity and cost control. Designing supply chains for automotive manufacturers requires a high level of technical skill and global experience.