September 2012 | Commentary | Viewpoint

Logistics Providers Steer Auto Industry on Road to Recovery

Tags: Manufacturing, Transportation

The automotive industry is rapidly rebounding from its recession lows as consumer demand for new vehicles grows. In response, auto manufacturers and their suppliers are quickly increasing manufacturing output. While this is great news for automakers and the overall financial health of the auto industry, there is a downside: The quick spike is severely straining the automotive supply chain.

When the auto industry experienced painful downsizing during the recession, significant manufacturing and logistics capacity and talent vanished from the market. Because automakers cannot quickly replace these strategic assets to support a rapid increase in manufacturing output, the surge in consumer demand could be as painful to the industry as the Great Recession. A parts shortage could slow or halt production, and reduce vehicle inventory, preventing automakers from meeting consumer demand.

Capacity and logistics are also major constraints. During auto industry downsizing, manufacturing plants closed, and many specialized trucks and railcars used to move raw materials, parts, and finished goods were either eliminated or reapportioned to haul other loads.

Auto companies will need time to increase manufacturing output once existing factories are at full capacity. They may also need to expand their manufacturing footprint and acquire new equipment, which take time and require access to credit.

Access to Special Equipment

Because the automotive sector represents a relatively small portion of transportation providers' overall business, rapidly increasing capacity could present a problem. The availability of raw materials and work-in-process/finished goods inventories will tighten. Labor and set-up costs required to optimize production scheduling will also be impacted.

In addition, floods, tsunamis, earthquakes, fires, and other natural disasters throughout the world have brought into sharp focus one of the "dark sides" of globalization. Many companies are now working to improve visibility of critical component supply and risk. A renewed industry-wide commitment to collaboration and transparency will be essential to automakers' success.

The biggest hurdle for automotive companies is consumer demand for quality, which trickles down through the supply chain. As the industry looks to quickly expand manufacturing output, it cannot sacrifice quality to do so.

To help auto companies overcome these challenges, logistics providers can collaborate to create throughput efficiency by sharing loads and bundling demand. Allowing half-empty trucks to carry loads from only one facility or company to an end destination is inefficient. Transportation providers can help ensure every truck to a single destination is full by making multiple pick-ups and stops along the way.

As automotive production levels return to pre-recession levels, consistently delivering quality products, in the right quantities, to the right places at the right time, has become a defining characteristic of successful companies—and their logistics service providers.