Putting the Pedal to the Metal

Recent innovations have transformed traditional sourcing, manufacturing, and distribution practices within the automotive industry.

If it seems like there are more cars on the road (and more traffic) than ever, you might be onto something: in the US, 17.5 million new vehicles were sold in 2016 alone. While recent innovations in automobile manufacturing have upended the traditional supply chain, production has continued at a frenzied pace, creating new opportunities and unprecedented challenges for the country’s manufacturers. Let’s take a closer look at how cars are manufactured today, and what the future has in store for the automobile supply chain.

From the Assembly Line to the Driveway

A typical automobile manufacturer reigns over an extensive supply chain, with companies across the world supplying thousands of components for final assembly at the plant. In fact, the average car is constructed from 20,000 to 30,000 parts, most of which are manufactured by different companies in different factories. As you might expect, building and shipping these parts in a timely manner is a complicated process, demanding close collaboration between manufacturers and suppliers and careful coordination of every aspect of the supply chain.

Most automobile manufacturers are classified as “original equipment manufacturers” (OEM) — companies responsible for designing and marketing cars, ordering the parts from suppliers, and assembling the final product.

The materials and components used in the finished vehicle are sourced from several tiers of suppliers:

Tier 1 suppliers make “automotive-grade” hardware, or hardware specifically built to meet the manufacturer’s standards regarding motion, temperature, and longevity.
Tier 2 suppliers provide materials for automotive manufacturing, but don’t necessarily cater to the automotive industry. Computer chip manufacturers like Intel, for example, provide both automotive and non-automotive-related parts.
In contrast to Tier 1 and Tier 2 companies, Tier 3 suppliers provide raw materials such as metal and plastic.
Once these components have arrived at the OEM production facility, they are assembled piecemeal on a line, generally by specialized machinery. The cars are then transported to dealerships, where they’re made available for sale to consumers.

The Road Ahead

The automotive industry has undergone widespread changes in the past century. Gone are the days of Ford’s human assembly line, with robotic equipment now handling most of the factory assembly. These machines build vehicles faster than ever, increasing efficiency at every stage of production.

In recent years, the automotive supply chain has also been transformed by innovations in product sourcing. Instead of building components on site at assembly plants, OEMs now source parts from low wage countries with equally low shipping costs. While some OEMs — such as Chrysler, which can assemble a Jeep Wrangler in its Toledo, Ohio, factory in just 13 hours — do source from nearby facilities to increase production speed, the vast majority of manufacturers source their materials from abroad.

Over the next few years, the biggest innovation affecting the automotive industry will be the shift towards self-driving cars. As autonomous vehicles become more common, the automotive supply chain will need to balance investments in traditional building materials with the expected demands of driverless car technology — many of which are yet to be determined.

Despite these revolutions in the automotive industry, there’s no sign that cars will lose their top seat as the world’s preferred mode of transportation. In order to continue to meet this demand, auto manufacturers must keep pace with technological innovation in decades to come.

Originally published on Supply Chain x