Sustainability in the Automotive Supply Chain
Brian Hoey - December 11, 2018
In the past few years, sustainability has become a topic of considerable importance throughout the automotive industry. As the automotive supply chain becomes increasingly globalized, businesses are now more than ever faced with the Herculean task of managing not just the logistics and costs associated with a complex web of global suppliers, but with the environmental impact and long term sustainability of the associated businesses practices. While this process is often daunting, it has grown in importance to the point where manufacturers ignore it at their own peril. Even beyond supply chain considerations, many businesses are finding that discussions of sustainability bring up questions and dilemmas that they’ve never faced before, from deciding on acceptable trade offs between sustainability and profitability and uncovering areas where sustainability increases profitability, to developing new KPIs for managing vendors and suppliers.
Sustainability as a Competitive Edge
There are plenty of businesses out there right now who think of sustainability requirements as onerous and unnecessary—something that companies only undertake in order to get good press. These businesses are half right: sustainability can get you positive press coverage and can bolster your reputation amongst conscientious buyers. This can have a positive impact on both sales and customer loyalty (since you’re attracting customers who are judging your business based on something other than raw specs and price point), potentially in excess of the expenses laid out in your sustainability initiatives. This means that going green could actually yield a positive ROI. But that’s not the only way that sustainability can lead to a competitive advantage.
We’ll talk later in this post about the ways in which sustainable practices can eliminate waste and thereby improve profitability. But for now, the most important link between sustainable supply chain management and gaining an advantage over the competition comes in the form of the increased supply chain visibility and control that true sustainability requires. In order to be certain that your suppliers are meeting your standards for eco friendly practices, you’ll need a high degree of visibility and integration across all touchpoints on the value chain. Without this visibility, there’s simply no way to know where your parts are coming from and how they’re being produced and shipped. With a high level of visibility, on the other hand, you can manage your partner network more effectively not just in terms of sustainability, but in terms of cost efficiency and other relevant KPIs.
The Challenges of the Global Supply Chain
Let’s dig a little deeper into just why supply chain visibility is such an important part of both sustainability and broader business goals. In recent decades the automotive supply chain has become significantly more globalized, meaning that it’s harder than ever for businesses to keep track of where all of their materials are coming from. Your vendors will have sub-vendors, who may have sub-vendors in turn, meaning that without a fairly comprehensive degree of IT integration up and downstream in the supply chain it’s almost impossible to manage your supply chain effectively. Regardless of what information your vendor scorecards are intended to contain, it will be difficult to make an accurate assessment.
For this reason, modern auto manufacturers need to work towards increasingly open and visible IT environments, all while driving increased integration across the value stream. Let’s say, for instance, that your current green initiative requires you to source some of your parts from factories that employ alternative energy sources. If, at first blush, you can’t confidently establish which of your vendors are complying with this requirement, you may need to update your operational technology to make it easier to track this kind of information. In this way, you’ll have more control over the sustainability of your supply chain operations, while gaining a level of visibility that can add enough value (in the form of more transparent, and therefore more easily optimized transport and warehouse costs, in addition to new insights into existing production programs) to be a competitive advantage in and of itself.
Managing Waste and Risk
Sustainability is in large part a matter of gaining control over an increasingly complex global value chain, but it also depends on your ability to take control of your own planned production workflows and design-decisions in such a way as to minimize unnecessary waste and adhere to modern fuel efficiency standards. This can take the form, for example, of sourcing lighter materials for certain parts in order to create a more lightweight (and therefore more fuel efficient) vehicle. By the same token, you might find yourself reexamining your planned production workflows in order to uncover any potential areas of waste or inefficiency. If you can find a way to streamline the production of a given product, or decrease your warehousing needs, you can reduce your overall carbon footprint by consuming fewer resources.
Crucially, this latter example suggests another of the ways in which sustainability needn’t be anathema to profit. If you can find and root out these areas of supply chain inefficiency, you can decrease your costs and your carbon footprint simultaneously. The same logic can be applied to risk management: any supply chain disruption that leads to the need for premium freight will simultaneously be expensive and extremely resource intensive; if you can avoid those sorts of disruptions, you can simultaneously optimize both sustainability and cost. Of course, uncovering meaningful levels of waste will require exactly the type of visibility we were discussing above (prescriptive analytics processes, for instance, will require data from all touchpoints on the value chain); likewise minimizing risk, which will require improving forecasts and bolstering operational flexibility. But the result can be a vision of sustainability in the automotive supply chain that prioritizes operational improvements and efficiency—both worthwhile goals in and of themselves.