Electrification, as demonstrated by Elon Musk's Tesla pick-up, is a key trend for automakers © Tesla
Electrification, as demonstrated by Elon Musk's Tesla pick-up, is a key trend for automakers © Tesla

Trade policy 'biggest factor in auto supply chains'

2 December 2019

Changes in international trade requirements and electrification are the trends expected to most heavily impact the automotive supply chain in Europe and the Americas over the next five years, according to a survey.

In the second of a series of reports authors AIAG and Thomson Reuters also highlighted generational job skills and knowledge transfer and data management and predictive analytics.

The report, based on a survey of almost 100 upper-level supply chain executives in the Americas and Europe, found the factor that would most impact supply chains was international trade policy and regulatory changes, particularly the US’s ongoing trade war with China.

China is the second-largest supplier of car parts to the US after Mexico. According to the US-based Center for Automotive Research (CAR) it accounted for 12% of all US parts imports in 2017.

“For automakers, the ripple effect of fluctuating tariffs directly affects consumer prices, sales, employment, and manufacturing logistics, including the supply chain,” said the report.

“Faced with uncertainties over price and availability of parts from China, manufacturers have no choice but to develop plans for alternative sourcing, even if they don’t use them.”

However, the report warned that source switching would also present difficulties as recreating established supply chain networks in new countries required time, resources, expertise, discipline, and cooperation.

Brexit is another major challenge for the respondents, particularly European parts suppliers and automakers with manufacturing facilities in the UK.

Automakers may also face a variety of new trade restrictions proposed as part of the recently renegotiated US-Canada-Mexico Agreement (USCMA).

This treaty will replace NAFTA and is intended to encourage more parts manufacturing in the US. However it includes a number of revised labour value and regional rules whose implications are not yet clear within the automotive industry. 

According to the US Census Bureau 37% of all US auto parts imports in 2017 were from Mexico, the fifth largest auto parts producer in the world, while 11% were from Canada.

Under NAFTA, 62.5% of the parts on vehicles manufactured in the US had to be sourced from North America but it is unclear how USCMA will change this figure.

Automotive industry executives and analysts believe electric vehicles (EVs) will eventually displace internal combustion engines but as demand for EVs varies significantly from region to region there is little consensus on how this will affect supply chains.

Europe is much further along the path to EV adoption than the US – though even there EVs only represent about 2% of the overall market. South America, meanwhile, is seeing especially slow adoption of the technology.

Concerning skills and knowledge transfer, the report said systems using sophisticated data analysis techniques to anticipate supply disruptions require highly trained analysts, who in turn tend to have less practical supply chain experience.

Training new generations of supply chain technicians without sacrificing business relationships developed by older professionals is likely to be a challenge, according to respondents. 

One respondent said: “There’s a need for a talent shift in the supply chain, away from the old-school approach of, ‘Send some RFQs, get your best price, beat them up a little bit, move on’, to a much more focused cost understanding up front.”

And the shift from negotiating the cost of individual parts to considering the holistic impact of pricing on the entire supply chain will require a new mindset as well as technical knowhow to process and analyse data to assess how it impacts the organisation overall.

Another respondent said: “You’ve got to think about what value it’s going to drive for the entire company because you might pay a lot for this crazy software, but it may sell a lot of cars.”

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