| Written by Mark Buzinkay
What is Automotive Logistics in the Supply Chain?
In general, automotive logistics refers to the thorough planning and execution of complex processes in moving auto components, replacement parts, and complete vehicles from suppliers to consumers. It encompasses all modes of transportation, including rail, truck, and marine. Key operations of this process include warehouse management, loading and unloading and distribution. Warehouse management involves organising and storing automotive parts and vehicles efficiently. Loading and unloading ensure the safe and efficient transfer of goods at various stages of the supply chain. Distribution focuses on delivering products from warehouses to their final destinations, and data processing manages the flow of information to optimise logistics operations.
Automotive logistics can be split up into different parts:
- Supply chain of auto components for manufacturing (assembly)
- Logistics of the finished vehicle (customisation and delivery)
- Logistics of spare parts (servicing)
To be more detailed, production logistics manage the flow of materials and components needed for vehicle manufacturing. Manufacturing and distribution logistics oversee the distribution of vehicles and parts from production facilities to various destinations, and car sales logistics involve the delivery of vehicles from manufacturers to dealerships. Supply logistics ensure that all necessary parts and materials are available for production. Additionally, recycling logistics manage the disposal and recycling of automotive parts and materials.
The automotive supply chain is an economy motor.
The automotive supply chain is an extensive global network involving manufacturers, suppliers, and service providers collaborating to bring vehicles to market. It functions like a giant, well-coordinated machine with millions of components that must work together seamlessly to produce the final product. This highly interconnected system spans the globe, engaging various stakeholders at each stage of the process. It is a critical and dynamic industry within the global economy, employing millions and generating trillions of dollars in annual revenue.
In 2021, the automotive industry employed over 8 million people worldwide and generated $2.8 trillion in revenue (1). The global automotive logistics market is projected to grow from an estimated $317.29 billion in 2024 to $437.80 billion by 2029, with a compound annual growth rate (CAGR) of 6.65% during this period. (2).
How an automotive supply chain works
The process begins with raw materials suppliers, such as companies involved in mining and processing steel and aluminium, transporting these materials to component suppliers. These component suppliers then craft parts like engines and transmissions and send them to assembly plants, where cars are assembled.
Once assembled, cars are finalised (customised within the factory or importer), shipped to car dealerships and sold to customers. However, the automotive supply chain does not end there. When customers want to add new gadgets to their cars or replace worn-out parts after many long road trips, the large aftermarket industry provides parts and accessories for cars after they have been sold.
When cars reach the end of their life cycle, the automotive supply chain comes full circle as they are recycled or disposed of sustainably. Creating a car is a team effort. The original equipment manufacturer (OEM) designs and assembles the vehicle, but it is not a solo act. It relies on a network of suppliers to provide the components and systems. In many cases, larger suppliers are involved in product design and development and even assembly for certain niche vehicles. These suppliers are categorised into different levels known as tiers.
Tier 1 automotive suppliers provide major components such as engines, transmissions, and advanced systems to the OEM. Tier 2 automotive suppliers manufacture smaller parts that are incorporated into the Tier 1 components, including items like nuts, bolts, and sensors. Tier 3 automotive suppliers provide basic components or raw materials like steel and plastic, which serve as the foundational building blocks for Tier 2 components.
To summarise, the OEM relies on major parts and systems from Tier 1 suppliers, who, in turn, use parts from Tier 2 suppliers, whose components originate from basic sources provided by Tier 3 suppliers. Each tier plays a crucial role in the creation of a high-quality vehicle. The automotive supply chain is a complex network of companies and processes that must work together to produce a finished vehicle. If any part of the system breaks down or if there is any disruption, it can have a ripple effect on the entire industry.
Typical and current challenges in Automotive Logistics
A typical motor vehicle can contain anywhere from 15,000 to 25,000 component parts, depending on how they are measured and the design engineering of its major systems. This vast number of materials must be brought together to ensure the integrity of the final product (delve deeper into our article about "Vehicle Logistics Software"). Over many decades, the international sourcing of parts has become an industry-standard practice, as OEMs and larger suppliers have searched the global market for parts and material inputs that meet necessary quality thresholds at the lowest cost. Distances and costs for transportation, along with arrangements for warehousing, are also part of the equation. However, higher efficiencies and technological advances in international freight shipping have driven phenomenal growth in international parts shipments. Worldwide, international trade flows in automotive products, including both finished vehicles and component parts, have become enormous.
An additional critical structural characteristic of supply chains in the auto industry is the emphasis on a supply chain management philosophy that minimises inventory costs and enhances process efficiency and feedback communication loops for improved quality standards. This approach, known as 'lean manufacturing,' began with Toyota and is encapsulated by the term 'just-in-time,' which describes lean supply methods and principles. Over the past decade or so, the rise of digital and connected technologies that integrate all parts of the manufacturing and retail process has further supported these ways of working.
Semiconductor shortages have presented significant challenges due to the long lead times required to add chip foundry capacity upstream. The absence of a critical part, especially one that is safety-related or otherwise essential for the finished product, has meant that some model lines were more severely impacted than others. Vehicle makers have sometimes been able to adjust the market mix, but the old adage that supply chains are only as robust as their weakest point has proven true once again. Across the industry, procurement methods and processes are under unprecedented scrutiny.
Recent experiences have made companies question whether single-sourcing is as desirable as it once seemed. A reset in approach may be necessary in a world beset by higher risks and uncertainties. Electrification brings new challenges to future supply chains in the automotive industry. OEMs face considerable uncertainties over the supply of new and critical components, most notably powertrain batteries, which they strive to resolve.
Additionally, the Association of European Vehicle Logistics (ECG) has predicted an ongoing imbalance between supply and demand in the Finished Vehicle Logistics (FVL) sector that is expected to persist for the foreseeable future. Alongside this imbalance, the industry faces a transportation capacity crisis spanning all modes of transportation—ground, rail, and sea—making it difficult to move vehicles to their destinations.
Automotive Logistics Outlook
The automotive logistics market is characterised by a fragmented landscape, with a mix of large global players, small and medium-sized local operators, and a few dominant entities holding significant market share. Many global logistics companies have dedicated automotive logistics divisions to meet specific market demands. Meanwhile, local players are increasingly enhancing their capabilities in inventory handling, service offerings, product range, and technology adoption.
Third-party logistics (3PL) service providers compete intensely based on reliability and supply chain capacity. Offering value-added services has become a key differentiator for these companies. The rise in e-commerce sales is creating both opportunities and challenges for logistics firms, particularly in terms of speed and delivery efficiency (see also: Vehicle Yard Management).
Global companies with substantial assets and capital are able to invest in advanced technology and distribution centres, benefiting from these enhanced capabilities. Conversely, regional and local players are developing better sector solutions to support manufacturers, retailers, and dealers. Major players in this industry include Hellmann Worldwide Logistics, APL Logistics, BLG Logistics Group, CEVA Logistics, and DB Schenker (3).
Logistics service providers are focusing on improving automotive logistics operations due to the increase in vehicle production. They are introducing Finished Vehicle Logistics (FVL) services to manage logistics operations more effectively. FVL offers real-time vehicle location data and analytics, giving logistics providers total control over vehicle movements. This technology helps reduce costs and errors associated with older methods, such as manual scanning and radio frequency identification.
Enhancing operational efficiency can decrease the need for large fleets in logistics. For example, National Vehicle Distribution, an Ireland-based auto distributor, relies on advanced FVL technologies to streamline its operations. The company has quadrupled its production and significantly reduced customer lead times by loading eight to ten automobiles onto a truck in under 45 minutes. In contrast, many Eastern European institutions take more than three hours to complete a similar process. The increased use of FVL is expected to contribute to the growth of the automotive logistics market during the forecast period.
FAQs
What are the primary challenges facing the automotive supply chain?
The automotive supply chain faces several significant challenges, including the complexity of managing thousands of component parts, international sourcing and transportation logistics, and the impact of semiconductor shortages. Additionally, there are growing uncertainties and risks related to supply chain disruptions, which have led companies to reconsider single-sourcing strategies and adapt to new demands brought by electrification and advanced technologies.
What role do local and regional logistics players play in the automotive logistics market?
Local and regional logistics players are increasingly enhancing their capabilities to meet the specific needs of manufacturers, retailers, and dealers. They offer tailored sector solutions, improve inventory handling, expand service offerings, and adopt advanced technologies to stay competitive. While global companies benefit from substantial investments in technology and infrastructure, local players focus on providing specialised services that address regional market demands and support the overall efficiency and effectiveness of the automotive logistics network.
Takeaway
Automotive logistics is a complex and crucial part of the automotive supply chain, involving the coordination of numerous parts, suppliers, and transportation modes. Understanding its challenges, such as managing thousands of components and adapting to industry shifts, is essential. To gain deeper insights into how vehicle yard management plays a critical role in this intricate process, continue reading about effective strategies and innovations in vehicle yard management.
Delve deeper into one of our core topics: Car logistics
Sources:
(1) https://www.statista.com/statistics/574151/global-automotive-industry-revenue/
(2) https://www.mordorintelligence.com/industry-reports/global-automotive-logistics-market
(3) https://www.mordorintelligence.com/industry-reports/global-automotive-logistics-market
