Why An Integrated S&OP Plan is More Important Than Ever for Tier 1 Suppliers

Robin Hornung - May 02, 2023

When you speak with consultants, analysts and supply chain experts, you hear that many companies still develop supplier plans based on production needs and often neglect long-term supply chain planning with a holistic view. In contrast, successful companies are creating a monthly supply plan that considers both - profit goals and market demand. This is especially important in highly volatile markets like the automotive industry that require a planning horizon for at least a two-to-three-years to remain competitive.

Challenges For Tier 1 Suppliers In The Automotive Industry

A challenge for Tier 1 automotive suppliers is the constant fluctuation of the global market due to political instability, economic volatility, and shifts in technology usage, amongst other concerns. Unfortunately, forecasts from OEMs are currently often based on short-term horizons that are not precise or reliable enough to develop a robust S&OP plan.

Whereas automotive manufacturers can simply purchase market research on consumers in any international market to integrate it into their S&OP plan, Tier 1 automotive suppliers are dependent on OEM purchasing volumes. Plus, they need to accurately plan for downstream suppliers and provide reliable forecasts to maintain their delivery reliability to OEMs. For example, a planner at an automotive supplier needs to consider: are my forecast figures right or wrong? Are my capacities sufficient at the machine, personnel, and material level?

Today, rising material prices, a scarcity of resources, increased transport costs and the risk of supply chain interruptions are forcing suppliers to plan as economically and accurately as possible while remaining flexible to rapidly changing plans. To successfully do this, Tier 1 suppliers need to quickly identify and adapt to market changes.

How to Anticipate Market Changes:

Use the forecasts of automotive manufacturers.

Problem: these forecasts are relatively unreliable.

Use a company’s own historical data.

Problem: historical data cannot account for current changes in the market.

Extrapolate demand based on the sale figures of cars.

Problem: this requires complex calculations to determine the parts needed for each car model.

Use an external analyst’s forecast like IHS, JATO or JDPower.

Problem: these forecasts are not accurate or detailed enough to determine product demand for a Tier 1 supplier.

So, What’s the Solution?

Tier 1 suppliers in the automotive industry should instead use the support of an integrated S&OP System to help them better handle:

Planning of very complex product hierarchies between OEM products, Tier 1 Products, and supplied parts to Tier 1.
Global sales structures at OEMs that operate internationally.
Complex production networks and the management of order planning processes for real orders and planned orders.
Integration with production planning and transportation planning.

The flexis cloud-based S&OP solution can account for product life cycles, market specifics and seasonal trends. Plus, it allows for forecasting of individual product features and special combinations of products.

Some additional features of the flexis cloud-based S&OP solution:

Intelligent Ordering to optimize market inventories in terms of stock and product mix.
Production Planning with ideal resource allocation and working time models to maximize efficiency.
Logistics Planning for required capacities in all points of the supply chain.
Supporting Business Decisions to optimize across sales, production, stock and logistics planning.
Multiple other functions are available, such as trend analyses, reference application, and reporting.
A simulation environment for the analysis of planning scenarios.