Today’s global supply chains introduce new complexities and as a result automotive manufacturers are struggling to deploy inventory in the right quantity, location and time. Uncertainty around demand due to unplanned events like COVID-19 is causing disruption, creating a surplus or shortage of inventory. The systems created to overcome these challenges can span multiple ERP, SCM and CRM tools, making it difficult and inefficient to track and trace products, both internally and across the partner ecosystem.
The common factor in all of these challenges is the lack of inventory visibility, which is stopping supply chains from operating at their maximum potential. Lack of transparency creates gaps in the supply chain, increasing your risk of being impacted by disruptions. Automotive manufacturers need to analyze each step of their supply chain and learn how to use inventory management to optimize operations. But first, it’s important to understand inventory management practices and their impact on the bottom line.
The Impact of Inventory Management on the Automotive Supply Chain
Inventory management is more than knowing how much inventory you have on the shelf; it includes tracking and organizing of goods from suppliers, through the manufacturing process, and into customers’ hands. A recent study found that 43% of small businesses either track inventory manually or don’t track it at all.
Holding too much inventory leads to discounting and obsolete inventory and ties up cash that could otherwise be used in other areas of the business. Not having enough inventory results in lost sales and disappointed customers due to stock-outs. Finding the right balance between too much inventory and not stocking enough can be difficult, especially if you’re relying on spreadsheets or other manual processes.
With an inventory management system, automotive manufacturers can get visibility into items across all channels, ensuring the right items are available, at the right time, in the right place. An inventory management system that is integrated across the organization optimizes inventory to ensure product availability, enabling the entire supply chain to run efficiently.
Benefits of Inventory Management in Automotive Supply Chain
1. Demand Planning
Inaccurate demand planning can result in inadequate inventory to fulfill customer orders and lost sales. On the other hand, having excess inventory leaves you with obsolete inventory, tying up money and storage space that can instead be put to better use. Businesses are forced to get rid of excess inventory through discounts or off-price retailers. Both these scenarios reduce your profit margin and overall sales.
Effective demand planning ensures that the right items are available at the right time, in the right place. Inventory management systems allow you to automatically track and keep records so that you can predict and plan for the future, based on historical demand. Modern inventory management systems with IoT and analytics capabilities provide a real-time view of inventory quantities, location and status, improving the accuracy of your demand planning.
2. Supplier Management
Automobile manufacturers usually source the same item from multiple suppliers or OEMs to reduce the effects of a disruption and minimize supply risks. If one supplier is unable to fulfill an order, the business can quickly increase the order size from another supplier and ensure product availability.
An inventory management system helps you keep track of which components or raw materials came from which supplier. If a component is faulty and a recall is necessary, you can drill down to find out which vendor supplied the faulty item and recall those products, instead of recalling all items produced within a certain timeframe. Traceability reduces wastage and operating costs. Inventory management systems also allow a company to track and monitor supplier quality, ultimately leading to better, more reliable suppliers.
3. Production Scheduling
Effective production includes building a plan that ensures material availability, positions items in workstations, schedules employees and reserves machines and work centers. Without accurate inventory visibility, employees and machines can be reserved for a scheduled production run only to discover the required components are not available.
Utilizing material availability status and shortage reports within an inventory management system allows you to know exactly when the material is going to be available and schedule production accordingly. Inventory management systems update records in real time, enabling you to proactively adjust production plans as necessary and plan for any unforeseen delays. Inventory management makes the production cycle more efficient and enables staff to schedule production based on availability.
4. Warehouse Management
Streamlining automotive warehouse operations across multiple locations can be much more challenging without the right system in place. Without inventory visibility across multiple locations, you have to operate each warehouse as a standalone unit, meaning you need sufficient stock in each location. Also, when each product has a specific place in the warehouse, it prevents staff from moving about inefficiently and maximizes labor efficiency.
Effective inventory management gives you visibility into an item from the supplier purchase order to the customer order, and every step in between. An inventory management system that allows you to see inventory levels across all locations can significantly reduce the amount of stock on hand because a business can strategically fulfill orders from the warehouse with adequate stock. Inventory visibility provides the insights necessary to optimize everyday processes and increase labor efficiency, reducing costs and delivering products on time.
5. Order Fulfillment
Executing a seamless fulfillment strategy across multiple channels requires enterprise-wide visibility and coordination. Without visibility into automotive inventory, the fulfillment process can quickly become complex and unprofitable. Inventory management is a key component in expediting the fulfillment process and optimizing inventory use across all channels, leading to minimal obsolete inventory and happy customers.
An inventory management system helps with fulfillment by providing visibility into item quantities and location across all sites. Orders can be automatically cross-checked against global inventory availability and routed to the most efficient location, such as: fulfilling from the closest warehouse location, assigning certain items to a select warehouse, or prioritizing important customer orders.
6. Customer Service
Inventory records that trace a product through the supply chain enable businesses to more accurately and quickly address customer issues, including order status, exchanges and returns. Inventory visibility across channels and locations gives customer service reps the information they need to help customers get the product they need instead of potentially losing the sale due to out-of-stocks at one location.
Inventory management gives sales and customer service reps everything they need to proactively solve customer issues in real-time. Without an inventory management system to link components to finished goods to customer orders, it is hard to track quality issues, hold suppliers accountable and provide exceptional customer experiences.