What Is the Automotive Supply Chain?

Supply chains are responsible for the products and services consumers and businesses rely on daily. Complex supply chains support multiple stages and entities within the automotive industry, from consumers and OEMs to suppliers and manufacturers. 

Explore the facets of the automotive supply chain below and discover how it evolves as each individual component faces a unique set of challenges and innovations. 

What To Know About the Automotive Supply Chain

The term “automotive supply chain” describes a complex network of related companies that support the global automotive industry. These businesses handle everything from the raw materials necessary to fabricate the assembled vehicles bought and sold on dealership lots to the aftermarket and end-of-life support that completes the chain. 

Major touchpoints in the automotive supply chain can be divided into the following:

• Sourcing raw materials necessary to construct components
• Manufacturing and production of components using these raw materials
• Assembling the various components and systems that then come together to create a marketable vehicle
• Deploying the logistics required to distribute products to dealerships, service centers, and warehouses
• Supporting vehicles with aftermarket products and services that address upgrades, maintenance, and repairs 
• Addressing end-of-life needs, such as recycling or reusing certain components 

If you trace a single component of your vehicle across the full length of the automotive supply chain, you might be surprised by what you find. The businesses, manufacturing processes, and transactions involved in producing a single automotive part represent just one facet of the entire automotive supply chain. 

What is Supply Chain Management?

Managing a supply chain requires implementing multiple strategies and systems to optimize efficiency and performance. Supply chain management aims to reduce waste, recalls, and returns while improving customer satisfaction and profit margins. 

The entire automotive industry — down to individual companies — relies on instrumental supply chain management practices to: 

• Forecast demand
• Source quality and cost-effective materials
• Streamline production processes
• Optimize logistics
• Manage inventory effectively
• Control product quality
• Enhance collaboration
• Integrate practical technological solutions

When executed properly, supply chain management offers several benefits that increase a company’s competitiveness and success. Product availability, optimal quality control, and faster delivery times ensure customer satisfaction. 

Reduced operating costs, effective risk management, enhanced sustainability, and greater transparency support higher profit margins. 

Who Are the Key Links in the Automotive Supply Chain?

The automotive supply chain consists of several key links, spanning materials suppliers to dealerships and consumers. 

Take a look at the role and value of each link as it contributes to the automotive industry as a whole. 

Suppliers

Companies that contribute materials and parts to the automotive industry represent the first few links in the supply chain. Each supplier belongs to a separate tier, which describes its role in developing automotive parts. 

For example, Tier 3 suppliers acquire the raw materials — such as plastics, steel, and rubber — and basic components necessary for Tier 2 companies to create usable products or parts. 

Tier 1 suppliers then acquire finished parts and assemblies from Tier 2 companies. Most Tier 1 suppliers collaborate with original equipment manufacturers (OEMs) to develop complete components or systems. This collaboration often results in the electronic systems, safety features, and engine components of modern vehicles. 

Transportation and Logistics Providers

Tier 1, 2, and 3 manufacturing facilities and production plants require the coordination of transportation and logistics providers to route component inventories to and from other links in the automotive supply chain. 

For example, Tier 2 suppliers use logistics providers to deliver parts to Tier 1 suppliers. 

Original Equipment Manufacturers (OEMs)

Ford Motor Company, Honda Motor Company, Ltd., and Stellantis are just a few examples of the numerous OEMs operating in the automotive industry and supply chain. Supported by Tier 1 through 3 suppliers, OEMs assemble and test the vehicles consumers eventually purchase on dealership lots. 

OEMs also rely on transportation and logistics companies to deliver vehicles from the manufacturing plant to their dealership. 

Dealerships

Responsible for connecting consumers with OEMs, dealerships represent the retail locations where vehicles are bought and sold. Maintenance, repairs, leasing, and financing occur here, too. 

Many dealerships also offer support services like extended warranties and other vehicle protection plans. 

Consumers

Nearly every link in the automotive supply chain revolves around the consumer. Suppliers incorporate user experience into product development, OEMs cater to consumers through popular features, and aftermarket companies seek to customize and improve vehicle ownership.

Aftermarket 

Maintenance, repairs, and customization represent the three main purposes of any aftermarket automotive company that belongs to the larger $405-billion light-duty automotive aftermarket industry. For example, motor oils and diesel exhaust fluid (DEF) ensure vehicles remain in working condition and perform as expected. 

Electronic logging devices (ELDs) for trucks maintain compliance with Federal Motor Carrier Safety Administration (FMCSA) regulations. 

End-of-Life

When vehicles are no longer roadworthy, they are often scrapped for metal and other usable parts. Many junkyards remove key components such as engines, transmissions, seats, doors, and wheels to resell. Some materials can also be removed and recycled to reduce landfill waste.

What Are Common Challenges in the Automotive Supply Chain?

Like many other global supply chains, the automotive supply chain is subject to geopolitical conflicts, supplier relationship management, and price fluctuations. 

Companies along the length of the chain constantly attempt to juggle flexibility, production speed, logistics, and sustainability. However, many lack the visibility to optimize their role in the automotive supply chain, especially as they connect to other businesses. 

In addition, the automotive industry has long been plagued by a lack of skilled labor. While some processes can easily be automated or performed by machines, others are not so easily modernized. Local and global sourcing has also become a greater contention point after the pandemic. 

What Are Some Innovations in the Automotive Supply Chain?

The Internet of Things (IoT), blockchain, and electrification have begun to change the face of the automotive supply chain. Direct-to-consumer sales indicate the industry is moving toward new ways of selling vehicles to customers who prefer the comfort of their own homes over the hot seat at the dealership. 

Below, discover additional innovations in the automotive supply chain. 

Digital Tools

Businesses within the supply chain have begun implementing digital tools to plan, optimize, and automate processes to increase transparency. 

For example, artificial intelligence (AI) can help companies integrate predictive analytics to better serve consumers. Introducing a digital twin gives automotive businesses greater control over experimenting with innovative strategies and methods.

Electrification and Sustainability

The prevalence of electric vehicles (EVs) has pushed the automotive supply chain to incorporate new processes, from sourcing rare earth metals to developing battery manufacturing methods. 

The aftermarket support for these vehicles continues to thrive as consumers prioritize sustainability. 

Direct-to-Consumer Sales

Consumers are side-stepping the traditional dealership sales methodology for more personable — and less pressured — virtual experiences. Many of these direct-to-consumer protocols promote transparency to meet customers where they’re most likely to be researching to inform their car-buying decision. 

The lack of overhead characteristic of a traditional dealership can also open the door to higher profit margins. 

Optimizing Auto Supply Chains With Premium Products

Cadence provides numerous entities along the automotive supply chain with superior products and distribution solutions, including motor oils, greases, fueling services, and tank monitoring. Discover the difference a safe, teamwork-oriented, and results-driven approach can make. 

Call Cadence at 336-629-2061 to speak with a friendly and knowledgeable representative about how we deliver value at every turn. 

Sources:

End-of-Life Vehicles | GEF Islands

Automotive Aftermarket Industry Size, Growth and Trends | Automotive Aftermarket Network

Internet of Things (IoT) | Internet Society

2023 Volume 4 The Digital Twin Advantage in Automotive Manufacturing Systems | ISACA