CSCMP's Supply Chain Quarterly
December 16, 2017
Supply Chain Executive Insight E-Newsletter
Each week the Supply Chain Executive Insight e-newsletter will include brief articles about developments that are often overlooked by other supply chain publications. We will present you with summaries of the latest research as well as new ideas on how to make your supply chain operations more effective. And we'll offer commentary that sheds light on what's happening in supply chains today.
Sign up now!

Most Read Articles

News from our sister publication
DC Velocity
Top-Performing Supply Chains

Top-performing supply chains: Automotive

Comment
As our review of automotive companies' performance measures reveals, the most efficient supply chain is not necessarily the most effective.

Henry Ford is famous for saying that "the customer can have any car as long as it is black." Much has changed since Ford made that pronouncement a century ago. Today's automotive leaders are redefining the driving experience. New designs focus on luxury, automation, and high-performance materials—the antithesis of Henry Ford's mantra.

Post-recession innovation is also redefining the automotive supply chain. Improved fuel-performance designs and component personalization increase complexity, and the number of recalls is forcing automotive companies to redesign their supply development and quality programs. This is a stark contrast with the focus of the last decade on the efficient supply chain: pushing costs back on the suppliers and manufacturing large batch sizes of cars to push into the dealer network. The fragility of the supplier base is now recognized.

Supply chain excellence is not easy to define. It is even harder to compare companies across industries. In 2014, Supply Chain Insights developed the Supply Chain Index to quantify not just supply chain excellence, but also supply chain improvement in a meaningful and objective manner. We found that improvement (defined as the rate of change) when coupled with performance (current capabilities) and compared within a peer group was a good measurement of supply chain excellence.

To test the model, we studied balance sheet patterns for over 2,000 public companies and shared those results with over 150 executive teams. The metrics we selected are based on correlation to market capitalization: growth, inventory turns, operating margin, and return on invested capital (ROIC). (For more details about the Supply Chain Index and its associated metrics, see "The Supply Chain Index: A new way to measure value" in the Q3/2014 issue of CSCMP's Supply Chain Quarterly.)

We believe supply chain excellence is based on the ability to improve the portfolio of metrics. In this article we apply the methodology to the automotive industry. In Figure 1, we list automotive peer-group companies for the period of 2006-2013.

As seen in most industries, companies with the greatest improvement are usually the worst performers. The reason? They are starting at a low point and have the greatest opportunity to make big improvements. But as companies' performance improves, incremental improvement becomes tougher to achieve. The best performers that are still making improvements will normally be found mid-way in the improvement rankings.

With a focus on both performance and improvement, which company did best? In the automotive industry, Audi AG posts the best performance delivering on a balanced metrics portfolio, distancing itself from its competitors. The company also is driving improvement as measured by the Supply Chain Index. Note that while Ford and Toyota have great inventory turns, they are not able to achieve a balanced portfolio or drive improvement as measured by the Supply Chain Index.

What can we learn about the automotive industry from this analysis? The behavior of the automotive manufacturers varies by continent. The European manufacturers tend to post results that are more balanced across the portfolio, whereas the Asian manufacturers tend to have higher inventory turns and lower margins. North American automotive manufacturers, meanwhile, are still struggling to compete. Today the North American factories are humming and production levels are high, but the results are not balanced. The industry is still in transition as it moves toward becoming more customer-centric and agile.

Lora Cecere is founder and chief executive officer of the research firm Supply Chain Insights.

Join the Discussion

After you comment, click Post. If you're not already logged in, you will be asked to log in or register.


Want more articles like this? Sign up for a free subscription to Supply Chain Executive Insight, a monthly e-newsletter that provides insights and commentary on supply chain trends and developments. Click here to subscribe.

We Want to Hear From You! We invite you to share your thoughts and opinions about this article by sending an e-mail to ?Subject=Letter to the Editor: Quarter : Top-performing supply chains: Automotive"> . We will publish selected readers' comments in future issues of CSCMP's Supply Chain Quarterly. Correspondence may be edited for clarity or for length.

Want more articles like this? Subscribe to CSCMP's Supply Chain Quarterly.