Disruptive forces are rapidly changing future-planning scenarios in the automotive industry. From geopolitical events to autonomous and electrical vehicles to technological advancements like Industry 4.0, the automotive supply chain is facing a perfect storm of disruption.
No two industry forecasters, however, have the same predictions about what will happen in the industry over the next five years, let alone the next 15 to 20. As stated by Akio Toyoda, CEO of Toyota, “This is an era in which the correct answers are unknown.”
One thing is for sure: To survive in this new world of technology, mobility and market changes, the automotive supply chain has no choice but to perform future scenario planning for the long term.
Long-term Planning and Forecasting
Regardless of the process and technology, long-term planning requires assumptions to be made about the future. Each assumption has a varying degree of likelihood of occurring. This is often represented in planning models by using what-if scenarios. There are multiple “what if” scenarios, the ramifications of which should be considered when looking into long-term planning in this transformative era. These scenarios should examine the risks posed by:
- The impact of autonomous vehicles and ride-sharing.
- Geopolitical risks such as trade wars and tariffs.
- Adoption of electric vehicles in markets such as France, UK, China, India and Brazil.
- The volume scale-down of the internal combustion engine.
- The impact of Industry 4.0 in areas such as using additive manufacturing to produce parts.
One of the major risks from the inability to properly do long-term forecasting could be extinction. If we look at just one of the above scenarios, the adoption of electric vehicles, automotive strategy consultant Paul Eichenberg predicted that 75 percent of the world’s top 100 automotive suppliers will not survive the industry shift to electric vehicles (EV) unless adaptation plans are made now. It has been reported that by 2023, the top 12 automotive OEMs will launch 182 new EV nameplates.
So what should organizations be asking themselves in regards to their long-term planning? Here are some suggestions:
- What is the real impact of mobility, autonomous vehicles and electric vehicles on my business now, and what will it be in the coming years?
- How fast will this change come?
- Is it going to drive production downwards?
- What happens if mobility really drives production down?
- How will it affect my supply chain and the ability of my suppliers to deliver the parts I need when I need them?
- How often should organizations evaluate their planning?
Once the proper tools are in place, organizations can replan and reanalyze as often as the markets shift. This is especially important in an industry like automotive that is experiencing a period of extreme volatility.
Tools for Strategic Decision Making
The ability to make proper strategic decisions in an evolving landscape is crucial to ensure sustainability as well as appropriate margins, capacity and inventory levels throughout the supply chain. Organizations that are unable to accurately manage long-term planning based on these “what if” scenarios will be placing themselves at significant risk. Long-term planning will require multiple steps be considered to avoid risk and accurately manage revenue and capacity projections.
The process should include the following steps:
- Create a single planning model that dynamically aligns demand with capacity and supply.
- Document the major risks and assumptions and create “what if” scenarios to measure the impact of each risk or assumption.
- Include phase in and phase out calculations for capacity decisions.
- Allow for collaboration and approval from multiple sources, such as sales, finance, supply chain.
- Provide access to historical decision-making data.
- Turn the global plan into local plans.
- View the impact of the plan on operational and financial planning.
- Place the resulting consensus plan into ERP for forecasting and production planning.
To maintain success in the future, the key is to act now. If organizations are not scenario planning for the future today, it could mean bankruptcy or extinction in the years to come. Organizations should do an impact analysis using “what if” scenarios to reduce exposure to risk. Organizations who continue to manage this process through complex spreadsheets and other manual processes, which are prone to errors, will not be able to keep up with all the scenarios facing them in the future.
How to Get Started
Evaluate where your critical information resides. Many organizations still operate scenario planning from spreadsheets, which aren’t scalable and introduce human error into the process. Spreadsheets have become too cumbersome, yet they are still the No. 1 tool being used right now. With spreadsheets, collaboration across business units is virtually impossible, since you can’t load past history or forecast from ERP. Furthermore, the speed required to react and replan in the face of disruption is just not possible in a spreadsheet environment.
Strategic planning software allows companies to manage with volatility, risk and opportunity in the supply chain. Companies should use software with integrated strategic planning capability that uses rapid in-memory planning to align potential demand, capacity and supply. They can then write a capacity constrained plan that adheres to their business strategy. What demand should be served or declined? What resources are required? What sources should be engaged? Results are monetized for comparison and decision support. Assumptions and risks are measured and planned for accordingly.
Keep Up with Demand by Planning Ahead
Long-term planning requires a robust set of repository information, which includes all the history from ERP and new OEM programs, especially considering all the new launches, to get an accurate simulation and plan. By not acting now, companies may incur costly premium freight, overtime, obsolescence and personnel costs at a time when competition from nontraditional competitors and innovation investments will be at an all-time high.
By developing proactive long-term planning strategies now, automotive supply chain organizations can have the right vision and tools in place to help weather the coming vehicle production, geopolitical and market disruptions. Better yet, they can be better prepared to capitalize on the opportunities these emerging forces can bring.