The automotive industry is a complex ecosystem, characterised by a tiered supply chain with the vehicle manufacturers (or OEMs – Original Equipment Manufacturers) at the top.

Below these sit thousands of suppliers. Tier 1 suppliers provide major components such as engines directly to car manufacturers; tier 2 supplies parts to tier 1 suppliers, but not directly to the car manufacturers; and tier 3 provides the raw materials such as metals and plastics.¹

They all face unique challenges in catering to the automotive supply chain, which is characterised by a need for speed, efficiency and adaptability. Wherever your business fits, here are four ways to help better meet the demands:

The automotive industry is dynamic – demand for parts fluctuates and the technologies involved are constantly advancing. Businesses must be able to respond quickly to evolving market trends, shifting customer preferences, and constraints at different points in the supply chain.²

Make it work

Take steps to showcase your business’ abilities and financial health. In an industry characterised by challenging market conditions, can you prove to your customers that you have what they need to meet their production demands? Build trust in your stability by carrying out comprehensive financial risk assessments and providing transparent responses to supplier assessments. Many customers will be scrutinising your key financial ratios: liquidity, solvency, and profitability.³

You can also convince customers of your suitability by displaying the necessary expertise in equipment, skills and processes (such as quality assurance), by demonstrating compliance with industry standards, and by maintaining a healthy cash flow.⁴

Improve your flexibility. Being able to respond to the changing needs of your customers is essential. There are digital tools available, including AI tools, to help you get ahead in areas such as demand forecasting, production planning and inventory management. These can help you to anticipate market fluctuations, enabling you to be more adaptable while optimising production schedules and minimising inventory excess or shortage.⁵

It could also be useful to think in terms of how the broader industry is evolving. Recent market trends, for example, include tier suppliers forming strategic partnerships with OEMs – rather than just supplying a specific number of products at a fixed price – and simplifying design and development requirements by creating larger parts from fewer components. Having the flexibility to respond to these or other trends where necessary could be a valuable asset for your business to have.

Speed isn’t the only production metric that matters. It’s about producing the right item, at the right time, in the right amount. Systems like just-in-time (JIT) and just-in-sequence (JIS) have become increasingly essential to the ways many automotive companies dial up their efficiency.⁶ As the automotive supply chain becomes increasingly complex and competitive however, it can be worth revisiting the fundamental principles of these systems, to home in on what really works best for your specific business.

Make it work

Set your watches to “Takt” time. Taking its name from the German word for a conductor’s baton, Takt time is the JIT principle that refers to the rate at which parts are readied to meet your customer’s demand. It encourages you to regulate the speed of all activities in your system, using a simple formula: available production time, divided by customer demand.⁷ As the Takt time increases or decreases for a particular part, you can vary the number of people working on producing it to ensure you still hit your targets.

Smooth your processes with “Heijunka”. Heijunka is often translated as “levelling” – a JIT approach that encourages production at a steady pace rather than constantly trying to respond to sporadic orders. Levelling by volume and item type can help you react to fluctuations in relation to your average demand while reducing unevenness in production, resulting in smaller, easier-to-manage inventories as well as lower capital costs for your business.⁸

Ramping up efficiencies on the shop floor can be vital, but it could all count for nothing if your items are taking an age to get from your business to your customer. On-time delivery using efficient logistics solutions is essential – and automotive suppliers are increasingly looking to the best practices deployed by e-commerce companies for tips on how to optimise deliveries.⁹

Make it work

Overcome warehousing challenges with automation. New technologies are fast replacing manual warehouse workflows, to make storing and sending items a more flexible, robust and timely process. Consider exploring the impact that automated systems – and even vehicles – can have on the way you run your warehouse.¹⁰

Choose a carrier that can handle complex shipping requirements. Are you supplying awkwardly shaped, bulky parts to a manufacturer? Perhaps you deal in smaller, more intricate components with fragile electronic components? Whatever items you need to ship, make sure you research and compare the different carrier options to ensure your specific goods get from A to B in one piece, in good time, and at a competitive price.¹¹

Consumers and regulatory bodies increasingly demand eco-friendly practices and products from the automotive sector. By reducing waste and enhancing efficiency, you can minimise your carbon footprint and potentially increase your appeal to automotive customers under pressure to improve sustainability in their supply chains.¹²

Make it work

Use digital tools to enhance ESG. Monitoring and improving Environmental, Social and Governance (ESG) metrics is increasingly important for the automotive industry, but doing so can be hard. New technology can help you to close the gap between ambition and reality. For example, Enterprise Resource Planning (ERP) can help you to optimise inventory production flows, cutting resource and energy usage, while a Supplier Relationship Management System (SRM) can provide greater visibility into how the businesses you work with align to your ESG principles. This enables you to evaluate them based on their levels of compliance, risk, and environmental impact – so that you can adjust your relationship with them accordingly and potentially become more attractive to other businesses you’d like to work with.¹³

Make greener packaging choices wherever possible. Robust packaging is paramount in the automotive industry: nobody wants to receive a part that’s scratched or damaged before it’s even hit the road. Much of this packaging is often plastics-based, so finding ways to reduce use and recycle is an opportunity to significantly improve your footprint. Try to minimise the amount of backup packaging you hold and make extra efforts to recycle the types of plastic – such as clear film and plastic bags – that most often end up in the waste stream.¹⁴

Disclaimer: The information provided on this page does not constitute legal, tax, finance, accounting, or trade advice, but is designed to provide general information relating to business and commerce. The FedEx Small Business Hub content, information, and services are not a substitute for obtaining the advice of a competent professional, for example (but not limited to) a licensed attorney, law firm, accountant, or financial adviser.