Pressure is mounting on automotive production lines that serve high-growth markets. More customers are waiting for more vehicles to roll out of local manufacturing plants. By 2016 the world had managed to build around 90 million vehicles yet by the 2020 this number is expected to rise to around 100 million.
Some markets are experiencing extreme new-generation growth – China is an obvious example and so too are India, Mexico, and Thailand which together are predicted to achieve an additional installed assembly capacity of 5 million units by 2022.
As domestic automotive markets develop in emerging economies, companies want to get closer to the action and many are rapidly relocating. Thanks to significant foreign direct investment, new plants are being built to serve both local and international export markets. But if cars are going to get to customers, companies must overcome diverse global and local (or ‘glocal’) supply chain challenges. Here are my top 4 glocal challenges:
Challenge #1: Infrastructure and local capacity
The additional throughput generated by existing manufacturing plants as well as the output from brand new facilities in new locations puts extra stress on the entire logistics infrastructure, including road networks and air and ocean terminals. In many cases, the current infrastructure cannot support new requirements.
Challenge #2: Service consistency
Automotive players entering new markets are experiencing skills shortages, varying quality standards, and volatile labor markets. These represent a significant challenge to service consistency, especially in contract logistics operations.
Challenge #3: Supply & imports
Customers are telling us that they intend to meet local sourcing targets, but before they can achieve this they must continue to import components from historical sourcing areas. As a result, supply chains are stretched further still, adding risk and putting extra pressure on flow management and cost control.
Challenge #4: Growing export bases
As our automotive customers grow production capacity in new countries, often a percentage of this output is reserved for regional or even global markets. This introduces new logistics and delivery management challenges for finished parts and vehicles.
DHL’s experiences in Mexico
A place where all of these supply chain challenges are playing out right now is Mexico. The country is experiencing rapid manufacturing growth not just in automotive but also in many other global industries thanks to government incentives, favorable trade agreements, and a highly skilled yet cost-competitive workforce. Billions of dollars in foreign direct investment are pouring into Mexico and automotive production is rising fast. By 2020, vehicle production should reach the 5 million unit milestone.
Service consistency is probably the weakest link in Mexico’s automotive supply chain, particularly in the area of labor availability and labor retention. DHL Supply Chain Mexico is addressing this by providing attractive social benefits to its 4,000-strong labor force, enabling easier and affordable access to the workplace, and supporting employee development with best-in-class industry training and incentives.
Our approach is global in scope and local in implementation. We are leveraging expertise and best practices through our relocation programs into upcoming and developing areas. We are also working closely with the Mexican government and universities to nurture and continuously develop talent to support the long-term needs of our customers. Added to this, our import/export teams are helping our automotive customers to efficiently navigate Mexico’s regulations and customs.
Does your organization manufacture in Mexico? Do any of my top 4 supply chain challenges sound familiar to you? I’d be very interested to understand your perspective and hear about your experiences so please add your comments below. To explore logistics pressures generally, click to read my blog [JESC(C1] on the triple-trend impact of globalization, digitalization, and sustainable development.
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Published: February 2018