Updated: Mar 17
Late delivery of crucial parts for final product assembly continues to be a major issue for both OEMs and their suppliers. The recent semiconductor chip shortage fiasco perfectly demonstrates the severe impact part delivery complications can bring upon the supply chain. In spite of the overall economic recovery and increase in automotive demand, the global automotive industry as a whole is expecting a $60.6 billion loss in revenue this year due to the chip shortage.
While most of the times OEMs and suppliers alike seek solution in a logistics perspective, the source to the problem at hand — late part delivery — often lies within the manufacturing process itself. And this is a problem without an easy way out for both parties involved. For OEMs, although switching the current suppliers with better performing ones is an option, the overwhelming switching cost makes it unviable. As for suppliers, implementing radical solutions and making innovative efforts might help them improve production performance, but it would be a time consuming and uncertain process with no imminent results. Considering the time sensitive nature of the parts delivery issue, such one dimensional investments will not help them resolve the issue but will rather come back as an additional financial burden.
For OEMs: Supplier Switching Cost Might Outweigh the Benefit
OEMs not being able to meet the surge of demand leads to multiple complications that go beyond the obvious loss of profit they would have earned in normal circumstances. Roll out delay and misalignment in production schedules hits manufacturers in customer trust and strategic planning of the organization as well as the revenue stream, ultimately inflicting damage to the brand value. Once tarnished, it takes a considerable amount of time and effort to bring the confidence back to the original state.
Further complicating the issue, although OEMs would like to switch the suppliers to the better-performing ones, the switching costs might outweigh the benefit of doing so. The penalty of breaching the contract, the cost of reallocating the necessary people to take charge of the totally new suppliers, re-educating them, and ordering new molds to be distributed and installed — the total cost for the supplier transition will be astronomical. Switching the suppliers might be the right call, allowing OEMs to improve in risk prevention and performance management. Ultimately, however, supplier transition is a long and pricy process in itself, and it fails to address the core complications of the parts delivery issue once and for all.
What they need is a solution that can pinpoint the source of the problem efficiently and accurately, and help identify appropriate changes that can be done in the process.
For Suppliers: Late Delivery Issue Might have No Immediate Fix
As for the suppliers, the most immediate concern stemming from late parts delivery is the heavy penalty they have to pay according to their contract with the OEMs. The added burden from the penalty on top of the already strained financial situation will undoubtedly force many suppliers to resort to desperate measures such as taking on more than optimal production quota or blindly heading into new partnerships, which in lots of cases are not sound long-term solutions.
Furthermore, late delivery of crucial parts can potentially start or intensify an unhealthy OEM-supplier relationship. Rather than communicating each party's information and aligning their strategic goals, the relationship becomes about control and coercion. The general mistrust between both parties prevents effective cooperation, translating into more time-consuming and costly business operations. There is a clear incentive for both OEMs and suppliers to appropriately deal with crucial parts delivery issues in order to prevent this vicious cycle from manifesting in the first place.
When attempting to solve this issue, one must consider the fact that often the reason why suppliers fail to meet OEMs' demand is related to external business environment, such as economic/political issues, inflation in raw material price, and even natural disasters. These factors are something one cannot fully prepare or anticipate, which is why suppliers need to improve their ability of coping with the given situations by maximizing the utilization of current resources. For this, suppliers will need an accurate set of data they can set as a reference when formulating a plan to boost their production performance in a short amount of time. The accumulated tamper-free dataset will further allow them to present it to the OEMs whenever there is a dispute over production capabilities.
Starting from a Basic Step: Gain Visibility of Production Process
For both OEMs and Suppliers, they need a solution which they can:
implement easily, and fast
immediately access to the source of the problem
gain immediate return of the investment.
eMoldino has been working with global manufacturers, both OEMs and suppliers, to solve late part delivery pain points and provide them with quick solutions that strengthen OEM-Supplier Relationship. The solution includes providing a wireless IIoT sensor that automatically collects cycle time, temperature, pressure, and location of the tooling (injection mold, die, stamping machine...), and an analytical software which grants clients real-time data visibility and late delivery forecast.
The implementation is simply a matter of quick installation of the sensors and terminals. Through the solution, the relevant employees can gain visibility on:
Cycle time performance
Tooling capacity of parts
Condition of the tooling
Number of right molds for the designated part
Alert system on any anomalies of production
Late delivery forecast
so they can determine the source of the production lag and promptly deliver the parts.
One of our clients tells us of an incident where one of their Brazilian suppliers could not deliver their parts on time. In order to solve the problem, the client first needed to know how many parts had already been made, and how fast their other suppliers could pick up the slack.
However, without any form of real-time tracking and monitoring, the client found it extremely difficult to access this information. With no data, the client had no visibility; could not oversee their external production, let alone mitigate the damage done by the disruption in their supply chain.
That is why they reached out to eMoldino: they were in dire need of a comprehensive solution on getting visibility on their tooling. After the implementation of the eMoldino solution, they saw success in getting clear data on the late part delivery forecast, utilization rate, and scrap rate. A more detailed version of their success story is available on eMoldino's website along with other clients.
Industry giants like Samsung Electronics have applied eMoldino's solution in their supply chain of mold and die, and have already seen the tremendous benefits of cost reduction and risk management, especially during these times when an urgent supply chain checkup is required.
Ask for a quick showcase of our delivery-monitoring analytics; see how we create value for top-tier global OEMs and suppliers worldwide.