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What Is the Supply Chain in the Automotive Industry?

March 7, 2022 Kevin Baxter

Cars in Window

Supply chain issues have pervaded across product types in recent times, and the automotive industry has certainly been among those with supply chain challenges. Before discussing the issues it faces though, it's important to understand what the supply chain in the automotive industry is, and how problems develop. The automotive industry supply chain on its most basic level involves four main steps:

  1. Parts Suppliers
  2. Manufacturing
  3. Dealerships
  4. Customers

Within each automotive industry supply chain link are many complexities. And if any one of the moving parts related to the suppliers has a hiccup, it can throw off the whole chain. Add in the general transportation issues affecting finished products across industries, and the automotive supply chain has certainly been vulnerable to challenges.

What are the tiers of automotive suppliers?

A key link on the automotive supply chain is the parts supplier, as vehicles have many moving parts (think 15,000 to 25,000). Automotive suppliers are typically broken into tiers - Tier One, Tier Two and Tier Three suppliers to be precise. Tier One suppliers refer to companies that supply finished parts/components purpose-built for cars to the auto OEM (original equipment manufacturer), often with direct relationships with specific automakers. Tier Two suppliers are further removed. They make needed parts too, but their components are not limited to cars. A semiconductor maker would qualify for instance, and some Tier Two suppliers may have components that are used in Tier One components. Moving to Tier Three - another step away - those are the suppliers of raw or unfinished materials that go into the making of the car. These materials go to the automaker and each tier of supplier, and can include things like plastics and metals. Evolving technologies have led to the need for more high-tech components and thus more automotive suppliers, but these tiers have generally remained.

What is the biggest challenge for supply chain in the automotive industry?

It can be hard to narrow down supply chain issues in the automotive industry to one challenge, as there are multiple areas where a small hiccup can affect the whole process. For instance, due to the sheer number of components that go into each individual vehicle, a problem with one of the supplier tiers can stop the car manufacturing process in its tracks (or on the road to avoid mixing metaphors). That could mean a lack of raw materials, perhaps a semiconductor shortage, an issue in the supplier's country/region or something else. Just like any other industry, the automotive industry is also at the mercy of transportation speed and availability. Once components are ready for the auto maker, they have to get to the automaker's factory. And then of course, once those finished vehicles roll off the assembly line, they too have to find their way to dealerships and then customers. Automakers also typically engage in just-in-time manufacturing to avoid making more cars than the market demands. However, when demand rises and other supply chain issues occur, that leads to potentially major shortages and lost revenue.

Is your company having its own supply chain issues? Let us know, and we'll be happy to discuss your individual needs or answer any questions you may have.

Get more information about freight & logistics through our Resources Page. And here are a few example articles on other supply chain issues to point you in the right direction:

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