Over the last few years, the automotive industry has endured a bumpy ride as the double dip recession hit businesses at every level of the automotive supply chain. Although the rest of Europe continues to struggle with slow demand, car production in the UK is booming. As the sector now enters the 29th month of consecutive growth, are automotive supply chains prepared for the challenges that lie ahead?
Demand drives british automotive industry
When the economy in the UK first crashed back in 2008, automotive manufacturers faced unprecedented market conditions as consumer lost confidence and demand slumped. However after surviving a second crash in 2010, it looks as though British manufactures and suppliers are once again back on the right track. With strong demand and increased investment from government and customers alike, British manufactures are right to feel optimistic about the future.
After all, in July alone, a staggering 172,907 new cars were registered onto British roads. Underpinned by cheap finance deals, increased employment levels and increased customer confidence, industry bodies are now forecasting that by the end of the year consumers will have bought around 2.5 million new cars; 8.1% more than in 2013. In addition to growing demand from British consumers, it seems UK manufacturers are also benefiting as a result of demand from overseas: according to Society of Motor Manufactures and Traders (SMMT), exports of new cars increased 3.4% as nearly a million cars were exported between January and August this year.
Supply chain complexities threaten growth
While this growth comes as a welcome relief from the recessionary environment in which manufactures have become accustomed to, increased demand for new cars has also presented UK businesses with a number of new challenges. For example, as highlighted by the emergence of new cars such as Vauxhall’s Adam, MG’s 3 and the latest MINI which allow customers to effectively build a completely personalised car, consumers are demanding greater choice. As a consequence, this surge in product variety places a huge amount of pressure on businesses at every level of the supply chain. Even businesses offering aftermarket spares will be hit by the growing product ranges as owners have to replace parts further down the line.
The complexities do not end there however; as demand extends beyond the current supply chain capacities, businesses now must decide how best to meet the needs of their customers. On one hand, some businesses have been forced to extend delivery times for their cars and as a consequence some customers now have to wait up to 6 months for their new car to arrive. However, given that impatient customers may be unwilling to wait, other companies, such as MINI and their new production plant in Holland, have decided to expand their facilities in order to increase output levels.
While there is no questioning that increasing output capacity will better position MINI to satisfy demand as well as the increased product variety, given the financial cost, this is an extremely risky means of coping with the changing environment. For instance, despite SMMT’s positive forecasts, some economists have questioned how sustainable the current rate of growth is. With nearly three quarters of cars now bought on finance, some are concerned that the recent growth has been the result record low interest rates and that an increase in interest could take the shine of credit deals on new cars and thus could massively reduce demand for new cars.
Given the complexity caused by the growing product diversity and the rapidly growing but somewhat uncertain demand, automotive businesses simply cannot afford to do nothing. While extending delivery times to catch up with demand could leave customers frustrated, developing production facilities instead could leave businesses with underutilized facilities should demand slow. Instead businesses should review their current supply chain practises in order drive up efficiency levels and get more out of their existing infrastructure.
Demand profiling for a more responsive supply chain
In order to capitalize on the recent growth without disappointing customers or making risky investments into production facilities, it is essential that businesses develop a more comprehensive understanding of demand. Once demand has been effectively profiled, businesses can start to plan the supply chain accordingly. By aligning operational requirements with the capabilities of their suppliers, automotive businesses can ensure that all required components needed are available when and as they are required which in turn should prevent bottle necks, supply shortages and ultimately increase overall productivity.
While the UK automotive industry’s recent strong performance has exceeded expectations, given the uncertain environment, businesses across the automotive industry should continue to strive to improve their competitiveness through focusing on getting more from their existing supply chain. Considering some the potential issues which may impact the industry in the near future, what steps has your business taken to meet the current demand?