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Supply chain performance is critical to the success of the South African Automotive Industry. Economic challenges, market forces and rapid technological advances have compelled organisations to restructure their supply chain and the way in which it operates. Supply chain complexity arises from forces such as globalisation, product proliferation, shorter life cycles and a shift in the market to consumer driven supply chains. Globalisation has changed the way businesses think, operate and engage with consumers. As global supply chain competition intensifies, organisations are implementing innovative initiatives to gain competitive advantages. Supply Chain partners are striving to work together to improve the overall performance of the supply chain, as a competitive supply chain facilitates global sustainability.
Operational silos within organisations lead to inefficient operations and limitations in terms of flexibility and responsiveness. In order to remain successful in the global market, organisations need to restructure supply chains, improve communication and operate synergistically to reduce overall network costs and increase efficiency of service. Value is an important attribute in today's market, through innovation and integration; supply chains can improve value of final products through supply chain optimisation.
Collaboration and coordination within and across supply chains result in integrated services. Competitive advantages are gained through synchronisation and cooperation between members of the supply chain. The dynamic characteristics of global trade place pressures on organisations in terms of lead times and total cost. Innovation and market interaction require collaborative efforts by all members in the supply chain. In order to provide efficient service, supply chains need to gain a competitive edge in the market by implementing performance and knowledge driven operations. Working collaboratively offers improved responsiveness, innovation, flexibility and workflow optimisation.
The report to follow will elaborate on the importance of integrated supply chains and how collaboration offers strategic advantages in the global marketplace. The opportunities and possibilities of improved competitiveness will be examined through discussion and analytical insight. The South African automotive industry is complex; the success of the industry offers economic development and growth for the country as well as organisations that operate within the industry. Supply chain integration is a catalyst for sustainability and competitive advantages in the global market place. The report will examine how the South African Automobile Industry can capitalise on global trade through supply chain coordination and collaboration.
Globalisation has challenged organisations, offered growth and expansion opportunities, as well as concluding many established organisations. Global competitiveness requires agility, flexibility and innovation. The only constant is change; organisations have been redesigned and established a strong foothold in the global economy. According to Bob Ferrari (2012), many organisations with market dominance nationally have failed in international markets. Globalisation challenges organisations to rethink operations and innovatively meet the needs of the consumer. Global markets mean supply chains need to increase the spread of services geographically and operationally, offering high service levels requires optimal supply chain efficiency. Performance metrics are difficult to maintain, such as perfect orders, on time delivery and total cost. (Littleson, 2008).
The movement of products and services globally has changed business operations and the mindset of professionals. The development of Just-In-Time services has challenged supply chains in demand management and visibility over the network. Different geographical areas impose trade constrains which require supply chain operations and services to maintain legal compliance. The diversity of the market has impacted practices and strategies for service excellence. (Littleson, 2008).
Globalisation has increased the size and spread of supply chain networks, non-core activities such as transport and warehousing are increasingly outsourced to 3PL's. Outsourcing allows supply chains to integrate various services and strategically improve the global presence of the organisation. Outsourcing can create control problems and quality of service issues, organisations need to integrate services and ensure visibility throughout the supply chain. Globalisation has offered cost reduction possibilities through strategic sourcing and the strategic establishment of core facilities. Organisations need to continuously adapt and respond to change proactively to remain competitive in global markets. Supply chain collaboration is an effective asset to global competitors, by integrating information, plans and processes. Integration allows supply chains to synchronously adapt and develop innovative solutions to ensure effective operational performance and high levels of customer service. (Naude & Bradenhorst, 2011).
The South African Automotive Industry
The automotive industry is an important contributor to the success of the economy in South Africa. The increasing consumer and market pressures have emphasised the importance of supply chain processes as a tool for efficient and costly service. The large industry competes with various supply chains globally and nationally. The economic recession in 2008 has impacted various aspects of the industry, although operational efficiently requires continuous change and adaption. (Naude & Bradenhorst, 2011). The industry is responsible for the production of over 500 000 vehicles as of 2011, literature indicates that sales have improved in the current fiscal period. The increase in sales offers many challenges for the supply chain professionals as new innovations and business challenges arise. (Costella G, 2012).
Globalisation and international trade is a common concept to the industry, international markets, economic difficulty and changing dynamics in world trade place pressures on supply chain efficiencies. The South African automotive industry is competitive; however china and India offer improved competitive advantages through cost efficiency and access to profitable markets. South Africa is geographically competitive as international trade routes facilitate exports. Local resources lack presence in final products, therefore procurement activities need optimisation to ensure total cost efficiency. A strategic approach to supply chain management is essential to global competitiveness. (Venter, 2009).
The complex supply chain comprises of; Automotive Component Manufacturers (Tier one suppliers), Original Equipment Suppliers (Tier two suppliers), Original Equipment Manufacturers and the Automotive Retail and Aftermarket. These core components are accompanied by supportive services such as warehousing, distribution, transportation and various other ancillary services. (Naude & Bradenhorst, 2011). The report to follow will focus on the most important component of the automotive supply chain, specifically the Automotive Component Manufacturers. The reason is the tier one suppliers are vulnerable to supply chain inefficiencies and poor collaboration in the supply chain. The report will provide insight to current problems such as demand management misalignment, international market pressures, collaboration and coordination across global supply chains and how the automotive industry in South Africa can gain global competitiveness through supply chain integration. (Naude & Bradenhorst, 2011).
Importance Of Supply Chain Coordination And Cooperation
Supply chain management encompasses the planning and management of functional activities in procurement, manufacturing and distribution. Supply chain activities are interdependent and interconnected, integration among these underlying activities is a catalyst for success in leading supply chains. Integration in supply chain management refers to connecting major business functions within and across organisations in the supply chain. Integration provides a high performing business model which is a key component in supply chain management. (CSCMP Glossary of Terms 2010).
The coordination within global supply chains accommodates streamlined business functions that interconnect the organisation across boundaries (Cagliano, Caniato & Spina, 2006:283). In the automotive industry, the seamless flow of information and products through the supply chain achieve improved cash to cash cycles, facilitating flexibility and speed. As global boundaries limit efficiency, organisations need to adapt and work together to achieve operational service excellence (Van Donk, Akkerman & Vander Vaart 2008). Poor coordination within global supply chains lead to inefficiencies and poor levels of service. The automotive industry has complex supply chains, channel partners need to coordinate processes to meet market demands and achieve competitive advantages (Naude & Bradenhorst, 2011). Innovation through integration offers organisations competitive advantages by incorporating various services and operations by leading suppliers. This integration is a catalyst of success for global supply chains. By collaborating various functions and partners, supply chains gain significant improvements through standardisation and optimisation. These improvements include flexibility, speed, responsiveness and product superiority. (Naude & Bradenhorst, 2011).
As consumer driven supply chains rise, many organisations need to change, adapt and innovate to maintain competitive in the global market place. Various inefficiencies are eliminated such as demand management misalignment, bullwhip effect and supply chain bottle necks. Innovative organisations make use of interconnectivity through E-business models to structure goals and objectives in real time. The rapid growth in technology has allowed organisations to operate and make decisions timely. (Phillip, 2009). A synergistic approach to supply chain excellence is accommodated by business process frameworks, these processes are standardisation tools used by organisations to integrate coordinate and collaborate the entire supply chain (Naude & Bradenhorst, 2011).
Business Process Frameworks
Supply chain network integration is achieved through business process frameworks; these frameworks provide interconnectivity among role players in the supply chain. This interconnectivity is fundamental to the successful execution of collaboration within the global supply chain of automotive component parts. Independent operational silos result in inefficient and ineffective business performance. Integration within and across multiple organisations eliminate silos and improve communication and collaboration throughout the supply chain. (Phillip 2009). Successful integration within the supply chain offers synergistic opportunities to the organisation and suppliers to provide the highest level of customer satisfaction to global partners. As modern supply chains are competing for competitive advantages, integration facilitates relationships and long term success. Integration through business processes allows organisations to reduce costs and improve operational performance, communications, efficiency, workflow and customer satisfaction. (Lambert, Garcia & Croxton, 2005).
A competitive advantage is achieved through collaboration, interconnectivity, relationships, integrated technology and a shift in operations from silos to interconnected processes (Power, 2005). Communication is an important part of operational success, cross functional and cross organisational communication channels allow supply chains to respond swiftly to market changes or challenges. Collaborative efforts of supply chain partners improve the operational efficiency and long term business success. By synchronising operations with customer demand, supply chain success and efficiency is achieved through cost improvements, market satisfaction and improved product quality. (Naude & Bradenhorst, 2011). Supply chain integration allows strategic partners to optimise their collective performance, together improving the implementation, production and distribution of consumer driven demand in global competitive markets (Sundaram & Metha, 2002:537).
Automotive Supply Chain Relationships
Strategic relationships within the automotive industry are a foundation for the successful collaboration and coordination of global supply chains. International trade has drastically revolutionised organisations and the way in which they operate. Specifically automotive component manufacturers, as first tier suppliers, the bullwhip effect and demand mismanagement is common problems. These suppliers will attempt to push inventory through the supply chain, whilst other partners will misalign demand. Automotive component manufacturers are the most critical component of the automotive supply chain. These suppliers need to develop cross functional integration through strong networking to achieve real time demand and improve overall operational performance. Global supply chain competition in the industry is aggressive, South Africa is a developing nation, integration is fundamental to the survival in international markets. World leading supply chains in the industry make use of strategic suppliers and leverage those suppliers for competitive advantages. (Costella G, 2012).
The capital intensive inventory and cost to produce, transport, handle and store automobile equipment requires accurate demand management and flow of information upstream and downstream. The demand for vehicles worldwide is changing; economic stress decreases demand for vehicles, by integrating the supply chain and strategically reducing cost, long term success is inevitable. Communication and integration offer organisations strategic benefit of accurate information, by building strategic relationships, organisations can achieve optimal efficiency. (Costella G, 2012).
In the last decade, incremental improvements in technology have offered organisations opportunities to integrate supply chains and remain competitive in global markets. E-business is a platform that has revolutionised business and offered organisations the potential to virtually optimise operational efficiency. E-business allows organisations to share real time information and resources on line. The driving force of supply chain integration is the use of E-Business; this allows partners to interconnect and provides supply chain wide visibility. Along with interconnectivity, this innovation changed consumers and the way in which they interact with organisations. E-business facilitates real time information sharing, workflow coordination, progress tracking and synchronised planning with all members of the supply chain. The standardisation of business processes and goals allow organisations to operate synergistically, working together to identify improvements and optimise the entire supply chain. (Lee & Whang, 2001).
E-business is essential in the automotive industry, components and materials can be sourced and available in the shortest time. Mass customisation in the industry requires flexibility and a highly responsive network of organisations. Supply chains need to accommodate for the needs of the consumers, offering optimal service levels and agility. (Lee & Whang, 2001). This section will discuss how E-business will integrate supply chains and offer global competitive advantages through coordination and collaboration.
Supply chain collaboration requires communication and information flows across the entire supply chain. The collective sharing of important information will create information integration; this will accommodate proactive strategies and effective decision making. Operating in silos will limit the accuracy and quality of available information which result in highly inefficient services. When dealing with global supply chains, unforeseen threats may require quick responses to markets or contingency plans, information sharing facilitates decision making and ensures alterations can be promptly implemented. Collaboration will allow supply chain partners the benefits of accurate demand information, schedules, plans, constraints and availability of inventory throughout the supply chain. (Lee & Whang, 2001).
Shared information allows organisations to restructure operations and optimise processes to streamline transactions across the supply chain. The integration of business processes allows information; capital and products to efficiently reach the final consumer. Real time and accurate information is reflective of the integration among the supply chain, a highly integrated network will provide superior information for an efficient and comprehensive service. Information sharing will facilitate accurate demand forecasts, suppliers will have access to real time information and ensure supply availability meets the network requirements. The bullwhip effect is alleviated by removing demand misinterpretations and optimising inventory levels throughout the supply chain through coordination. Challenges of globalisation and international competition may still exist; the integration of information streamlines flows across the supply chain, thus attaining a competitive advantage. (Lee & Whang, 2001).
In the automotive industry, international suppliers and the spread of partners offer challenges for organisations. The components manufacturers require predetermined production schedules and accurate sales information in order to service second tier suppliers. Knowledge shared throughout the network is used for improving and reconstructing operational innovations. Automotive production and distribution is a complex process, the standardisation of processes allows organisations to meet international challenges and support industries globally. (Naude &Bradenhorst, 2011).
A strategic tool used to gain competitive advantages through integration is Collaborative Planning, Forecasting and Replenishment (CPFR). The use of shared forecasts and information allow supply chain partners to plan and articulate the optimal replenishment strategies through the supply chain. CPFR minimises the inventory levels through the supply chain and improves service levels through optimum asset utilisation and availability. E-Business allows organisations to integrate and share information virtually, synchronising operations throughout the supply chain. (Lee & Whang, 2001).
Synchronisation Of Planning
Synchronisation of planning among supply chain partners enables supply chain optimisation through collaborative participation. Optimisation of supply, demand, inventory and distribution allows partners to synchronise operational efficiency and generate improved value. Planning involves product characteristics, forecasting and replenishment as well as distribution through the supply chain. By collaboratively planning, partners cooperatively share information to define strategic and operational plans for the overall success of the supply chain. Inventory optimisation is achieved by implementing standards and synchronising the plans of supply chain members. Performance metrics are established through planning, thus collaborative performance measurements will allow members to identify opportunities in the supply chain. Cost and value are important contributors to customer satisfaction, by planning collaboratively the supply chain can offer efficient, optimised and competitive service. (Logility, 2010).
Global supply chain complexity requires members to contribute information to facilitate planning synchronisation. Each member of the supply chain will have global visibility over the performance and expectations of partners within the supply chain. Failing to accurately plan supply chain operations will lead to inefficient service and poor performance in the global marketplace. Joint planning allows the entire supply chain to achieve homogeneous objectives and a performance driven supply chain. (Lee & Whang, 2001). Visibility through collaboration facilitates planning, accurate planning allows the supply chain to operate optimally and outperform competitors through flexible, responsive and reliable service. (Logility, 2010).
A strategic competitive advantage is achieved through synergy and collaboration. Sharing information and synchronised planning allows supply chain partners to coordinate workflow. Workflow coordination is the automation of critical activities in the supply chain, and identifies what is to be done, who is responsible and how activities should optimally be done. The integration of performance measurement with work flows improves the accuracy and velocity of performance. The automation of procurement, order filling, distribution as well as information and financial flows is achieved through workflow coordination. Efficient transactions and operations arise from standardised information and coordinated efforts from supply chain partners. Coordination requires cooperation, supply chain partners must realise the benefits of accuracy, cost efficiency and reliability achieved through automation. This collaborative effort reduces supply chain complexities and improves the visibility throughout the global supply chains. (Lee & Whang, 2001).
Business process frameworks such as SCOR allow organisations in the supply chain to standardise communication and information flows in a common language, such business frameworks assist in workflow coordination among supply chain partners. This coordination improves transaction efficiency and global visibility, thus improves the overall effectiveness of efforts throughout the supply chain. SCOR applications are utilised globally by organisations to achieve integration and standardisation throughout the supply chain. Business frameworks offer a competitive advantage by enhancing collaboration and information flow within and across organisations in the supply chain. (Lambert, Garcia & Croxton, 2005).
New Business Models
New business models are constructed through efficient supply chain collaboration; this offers partners and the overall channel a competitive advantage. The advantages of E-business, interconnectivity via process frameworks and technological advances allow cooperating organisations to develop integrated business models. The entire supply chain is restructured to achieve complete optimisation. Redefined business models allow information, product and financial flows to be revolutionised to suit the supply chain needs. Predefined roles, responsibilities and communication channels facilitate standardised practices which are benchmarked and measured. (Lee & Whang, 2001).
Restructured business models allow organisations to respond to market demands through visibility, standardised E-business platforms facilitate visibility globally. Virtual integration from online database technology allows organisations to implement process frameworks that create a performance driven supply chain. The simplicity and standardisation of processes allow organisations to synergistically offer superior service to the global market. (Lee & Whang, 2001). The business model defines needs and incorporates collaborative planning for optimisation of inventory levels, online access to information accommodates responsiveness and flexibility. New business models align core activities such as production and distribution and synchronise these activities with customer demand. This synchronisation improves cost effectiveness, order filling, replenishment and overall end product value to offer the highest levels of customer service. (Naude & Bradenhorst, 2011).
New business models are developed around the needs and the complexity of the supply chain. Global competitiveness is increasing, as customers seek innovative and reliable services. Collaboration allows the partners to develop, implement and maintain an integrated business model that facilitates information intensive transparency. Organisations work together for mutual benefit; coordinated, structured and integrated supply chains improve profitability and long term sustainability. Relationships strengthen with communication and cooperation, new integrated business models allow organisations to completely optimise operations and contribute to lean supply chain performance. (Naude & Bradenhorst, 2011).
The report has emphasised on the importance and complexity of global supply chain management and how a competitive advantage is achieved through collaboration. Supply chain activities are interdependent and interconnected, integration between channel partners is a catalyst for the success of leading supply chains. Industries such as the automobile industry in South Africa can capitalise on global markets through connecting major business functions throughout the supply chain to achieve streamlined operational excellence. Interconnectivity is achieved through the implementation of business process frameworks which standardise communication, information and financial flows. The challenges of the global market require highly dynamic, cost effective and responsive supply chains that excel through optimisation and efficiency. Competitive advantages are achieved by collaboratively restructuring and redesigning supply chains to become highly performance and customer driven.
Integrated supply chains exist when network partners work synergistically to achieve homogeneous objectives and performance. E-business has revolutionised supply chains by improving the visibility throughout global supply chains. Visibility allows organisations to work together to plan synchronously, coordinate workflows, share information and essentially develop newly optimised business models that meet market demands. Integrated supply chains result in cross functional and cross organisational operations which eliminate the effect of demand misalignment and the bull whip effect. The importance, size and complexity of the automobile industry mean organisations need to continuously improve and adapt to create sustainable competitive advantages. Standardised process frameworks are important in global trade, thus the implementation of SCOR models and other frameworks will form the foundation of operational excellence. Integrated operations allow supply chains to offer high levels of cost effectiveness and valued service to the global market place.
In the hardships of economic uncertainty, competitive supply chains operate globally, interconnect and collaborate to achieve market dominance. The use of integrated technologies allow members to work together to achieve more. Optimisation of key activities, high levels of communication and real time information transferral allow organisations to improve efficiency, cost, flexibility and responsiveness to offer streamlined services which meet the consumer's demands.