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How outsourcing in the automotive industry strengthens the innovative creativity of OEMs
The automobile industry is right in the middle of a transport revolution. Many processes have changed in this sector’s factories during the past few months and years as a result of the slow but sure switch to e-mobility. Complexity at the individual factories has increased many times over with the addition of electric vehicles, which are constructed alongside the classic internal combustion models. Then there is the fact that it has become increasingly important to have well-functioning supply chains in the automobile sector, at the latest since the start of the pandemic. A shortage of raw materials, bottlenecks in the supply of semiconductors and the blockage of the Suez Canal – to name just a few examples – have created new challenges for OEMs. The supply problems have also led to the temporary closure of complete factories and huge delays in the production processes at vehicle manufacturers’ premises. This is where outsourcing in the automotive industry can help.
The challenges in automobile production
While, with the just-in-sequence concept, the components required for assembly are supplied in precisely the order in which they are installed, with the just-in-time concept, manufacturers need the materials required for production or assembly work directly at their place of insertion within a specific time frame. Both types of production need a supply chain that functions without any delays so that the necessary parts can be supplied exactly within tight time frames and in line with delivery deadlines. This is also an important prerequisite in terms of competition: there is enormous competitive pressure in the automobile sector. It is therefore all the more important for vehicle manufacturers to demonstrate resilience by having a well-functioning supply chain in view of the uncertain market situation. Another challenge faced by vehicle manufacturers is the demand for product innovations that keep up with the latest trends: digitalisation, electromobility and self-driving vehicles are just three of the topics that go hand in hand with new investments and major changes in operations.
Outsourcing logistics activities relieves the pressure on OEMs
Many vehicle manufacturers spend an enormous amount of time and resources on various types of logistics work that go beyond their core business. Outsourcing logistics to service providers can have advantages: the logistics experts create the interface between the second- and first-tier suppliers and OEMs and perform the classic inbound logistics and warehouse management tasks – but also other value-adding services such as sequencing or assembly work. Thanks to them, OEMs can optimise the logistics flow and keep complexity costs as low as possible. This means that vehicle manufacturers can focus on their core business. After all, logistics specialists bring with them the necessary knowledge of the sector, involve their own assets and specialist personnel, take over the production logistics and supply customers with the correct materials with the required quality at the right time. Classic services in the field of warehouse management include picking or goods distribution centres, where a wide variety of parts are processed and sequenced. The service providers also offer assembly services ranging from planning work to managing suppliers and quality levels. Their battery life cycle management services help OEMs to store, assemble and recycle batteries. This then enables vehicle manufacturers to meet the growing environmental requirements demanded by society. Overall, logistics outsourcing relieves the strain on the company's own resources.
"As a partner for logistics services and assembly work for modules and vehicles, we generate value added for OEMs so that they can concentrate on their core business."
Florian Karlstedt | Project Manager at Rhenus Automotive SE
Generating competitive benefits in the automobile industry
Another major advantage of logistics outsourcing is the ability to adapt to fluctuations in volumes in a flexible manner. This not only concerns seasonal fluctuations, but also unforeseen crises such as COVID-19 and market developments, e.g. shortages of raw materials and problems with supply chains. Logistics specialists are able to scale their operations quickly and absorb any fluctuations in the market. OEMs are then also less dependent on purchasing freight capacity in the market. Outsourcing in logistics is also associated with advantages that simplify work processes. Work processes can also be simplified by outsourcing the logistics activities to experts that provide an extensive range of services. Vehicle manufacturers benefit from greater flexibility too. After all, manufacturers that handle their own logistics operations are tied to the capacities that are available. If they do not have any personnel on hand or if their warehouses are absolutely full, the supply chain comes to a halt. Service providers, on the other hand, ensure that the processes run smoothly and that no backlogs occur. This has positive effects on issues such as costs: manufacturers that operate their own warehouses and employ their own specialist personnel, create high levels of fixed costs. If they make use of logistics experts, it is possible to prevent these costs. The big players in the field of logistics for the automotive industry and their customers also do business in many European countries. Cooperation in outsourcing in the automotive industry offers the potential for faster growth.
Conclusion: Outsourcing value creation creates savings
Vehicle manufacturers have been exposed to more pressure than ever since the pandemic. They have had to cope with new challenges in connection with supply difficulties and a shortage of raw materials and have always had to be in a position to use the latest technology in order to keep up with their rivals. Logistics outsourcing makes it possible to focus on the core business when a strong partner takes over logistics activities, streamlines work processes and reduces cost blocks. And not least of all, it is possible to achieve huge savings by outsourcing just five per cent of the value creation process. By making use of the localisation centre concept, which is adopted by many logistics specialists with international operations, it is possible to shift value-added work, particularly work which creates significant transport inefficiency for various modules, to locations near the factories. This can then significantly reduce that volumes of goods that need to be transported. This creates efficiency, especially in light of the high fuel prices at the moment. Logistics outsourcing also makes sense for OEMs from an ecological perspective.
