Transportation & Logistics International - Summer 2015 - 11

Management

THE
front

4. Segment and manage parts
Even with reduced option complexity,
automobiles are complex products with
thousands of parts. It is difficult to track
and manage supplier capacity for each
component. Part segmentation can help
in this area. Segmentation criteria might
include cost, complexity or development
lead times. The idea is to treat parts
differently depending on how critical
they are, based on the cost impact to the
OEM. Capacity for critical parts should
be managed and tracked more closely
than capacity for non-critical parts.

Summer 2015

THE
front

// OEMs and suppliers in the automotive
industry need to work together to find better
ways to operate.

Value Creation
OEMs can improve capacity management by using these methods to realize
huge cost savings and reduced waste.
OEMs that tackle these challenges will
have a major competitive advantage.
Large OEMs might be able to save as
much as $1 billion every year via efficiencies through the following steps:
1. Managing material costs
Suppliers know which OEMs are most
effective in their capacity planning. Our
survey indicated that suppliers adjust
their prices accordingly, increasing them
by three to five percent for those OEMs
that, historically, have been poor at capacity planning and management. Thus, for
OEMs, improving capacity management
could result in savings of up to three to
five percent on material costs - for a large
OEM, that's over $1 billion per annum.

3. Reducing logistics costs
Manufacturers and suppliers must
account for high logistics costs because
car components can be bulky, heavy
and fragile. By improving forecasting
and managing capacity changes better,
OEMs can reduce unexpected volume
changes for components, which in turn
can reduce expedited logistics costs or
air freight for parts.

2. Improving capacity utilization
Large OEMs can spend as much as $3
billion to $5 billion every year on part
tooling. Getting projections right, so that
tooling capacity utilization is as close
to 85 percent to 100 percent as possible,
can result in cost efficiencies. Improving
capacity utilization by 10 to 20 percent
could save large OEMs as much as $300
million to $1 billion a year.

4. Reducing supply chain risks
Poor forecasts can lead to operational
and financial risks when suppliers build
plants or establish facilities for an OEM.
This is a concern for suppliers, because
they face poor utilization of equipment
as a result of cancellations. OEMs will
pay for a significant portion of these
costs through supplier claims, which
can be as high as $500 million per year.

Reducing cancellation risks alone could
save large OEMs hundreds of millions
of dollars. Poor capacity management
also can result in inability to produce
vehicles that consumers want most.
By making these improvements to
forecasting and capacity management,
manufacturers and suppliers can
achieve stability, revenue, margin and
sustainable growth. With huge OEMs,
Tier I suppliers should begin to implement these changes to better position
themselves for an uncertain future.

Sven Dharmani is Principal, Ernst & Young
LLP. Dheera Anand is Manager, Ernst &
Young LLP. The views expressed herein are
those of the authors and do not necessarily
reflect the views of Ernst & Young LLP.
SUMMER 2015 TLIMAGAZINE.COM

11


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Table of Contents for the Digital Edition of Transportation & Logistics International - Summer 2015

Contents
Transportation & Logistics International - Summer 2015 - Cover1
Transportation & Logistics International - Summer 2015 - Cover2
Transportation & Logistics International - Summer 2015 - 1
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Transportation & Logistics International - Summer 2015 - Contents
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http://www.nxtbook.com/nxtbooks/knighthouse/tli_2017fall_vol1
http://www.nxtbook.com/nxtbooks/knighthouse/tli_2017summer
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http://www.nxtbook.com/nxtbooks/knighthouse/tli_2016fall
http://www.nxtbook.com/nxtbooks/knighthouse/tli_2016summer_vol1
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http://www.nxtbook.com/nxtbooks/knighthouse/tli_2016spring
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http://www.nxtbook.com/nxtbooks/phoenix/tli_2015fall_v2
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http://www.nxtbook.com/nxtbooks/phoenix/tli_2015summer
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http://www.nxtbook.com/nxtbooks/phoenix/tli_2015winter
http://www.nxtbook.com/nxtbooks/phoenix/tli_2014fall
http://www.nxtbook.com/nxtbooks/phoenix/tli_2014summer
http://www.nxtbook.com/nxtbooks/phoenix/tli_2014spring
http://www.nxtbook.com/nxtbooks/phoenix/tli_2014winter
http://www.nxtbook.com/nxtbooks/phoenix/tli_2013fall
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http://www.nxtbook.com/nxtbooks/phoenix/tli_2013spring
http://www.nxtbook.com/nxtbooks/phoenix/tli_2013winter
http://www.nxtbook.com/nxtbooks/phoenix/tli_2012fall
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