Too often, we fall into the trap of seeking a single, straightforward solution to complex business issues, often overstating the effectiveness of an all-encompassing solution. However, the experience of this automotive supplier illustrates a different approach. As a prominent global independent supplier in the automotive industry, this example demonstrates how employing a mix of various tools and technologies in unison can yield significant results. Known for its innovation and manufacturing excellence, the company’s mission is to revolutionize mobility, and it aims to achieve this by collaborating with customers and partners to enhance safety, promote environmental sustainability, and improve global connectivity. With around 50,000 employees worldwide, the company’s footprint includes 170 facilities and R&D centers across Asia, the Americas, Europe, and Africa.
4 reasons automotive suppliers have struggled to respond to market changes:
1.The short-term Electronic Data Interchange (EDI) Demand forecast from Original Equipment Manufacturer (OEM) customers is highly volatile and has become more inaccurate/volatile over time. Typically, the mid-to-long-term demand forecast in the automotive industry is based on projections provided by OEMs. However, OEMs tend to report conservative estimates, often submitting forecasts at the lower end of their actual expectations. This cautious approach is driven by their reluctance to overcommit financially on resources or inventory that they might not ultimately require.
2.Market leaders in automotive forecasting have been unable to keep up with the changed reality of the 2020s.
3.Lack of intra-company and inter-company synchronization. In the automotive industry, the protocols for data sharing between suppliers and Original Equipment Manufacturers (OEMs) are frequently limited. Additionally, within the suppliers themselves, business planning processes often prove to be inefficient. This inefficiency results in the isolation of forecasts from different functional areas, preventing effective integration and collaboration.
4.This inability of automotive suppliers to pass reliable demand forecasts to upstream factories and Suppliers creates a ripple effect causing significant supply-side disruption, i.e., the classic bullwhip effect.
For this Automotive supplier, they turned a big problem into a big opportunity
The extent of supply-side disruptions in the automotive industry reached a level that compelled major OEMs to collaborate with their suppliers, including this particular supplier, to address these challenges. This was especially critical due to the prolonged lead times for certain components, such as semiconductors. This urgent requirement to resolve supply constraints also opened the door for different departments within this company to start working together. For the first time, they embarked on a journey towards Integrated Business Planning and Consensus Demand Planning, fostering collaboration across various functions.
This automotive business selected o9 to empower the platforms and processes driving its Consensus Demand Planning and Integrated Business Planning (IBP) initiatives. The Consensus Demand Planning process involves using o9’s market data models to triangulate the forecasts from the OEM; a data-driven approach that means healthy challenges can be made to the OEM in terms of their Demand forecast. Since the company also implemented a Demand/Supply match as part of this process, it is able to run fully constrained planning in terms of material and capacity constraints.
IBP then achieves the best business outcome after running the constrained plan in two ways:
1) IBP Scenario Planning is used to see how (potential) constraints can be solved internally so that the company can quickly respond to changes in OEM demand. The company employs a cross-functional scenario planning approach, integrating Sales, Finance, Demand, and Supply Planning. This method is used to assess whether and how they can meet increased demand. Before implementing o9 Solutions, it took more than two weeks to complete these comprehensive cross-functional scenario plans. This delay was due to the need for the scenarios to pass through various systems to determine if the demand could be met. As a result, the auto company often missed out on numerous commercial opportunities with OEMs due to this extended response time.
2) IBP enables the company to select the best outcome for the organization when presented with trade-offs.When the company encounters situations where it must weigh different opportunities against each other, it utilizes IBP scenario planning. This process allows them to analyze the potential impact on their Profit and Loss (P&L) statement for various plans. By doing this, the company is equipped to make informed decisions, selecting the most advantageous option when dealing with trade-offs and allocation scenarios.
Expanding IBP beyond the four walls of the enterprise
This supplier’s IBP process is also extended to key Customers and Suppliers. The company enhances collaboration with its customers by conducting data-driven scenarios together, leading to the creation of Joint Business Plans. This approach fosters a genuine partnership. Involving suppliers in the IBP process grants them access to the comprehensive plan, along with insights into demand and supply risks. In the past, the company limited its communication with suppliers to order visibility. Now, with improved forecast accuracy and a deeper understanding of supply constraints through IBP, they have implemented a request-and-commit process. This advancement has encouraged suppliers to be more willing to commit where they previously might have been hesitant. It has also led to suppliers being more cooperative in working alongside the company to address any gaps, enhancing the overall collaboration.
Results that speak for themselves
Integrated Business Planning has proven transformative for this supplier, yielding a spectrum of remarkable results and driving significant value. One notable achievement lies in the reduction of premiums on components, including broker costs. The enhanced visibility provided by effective IBP has empowered the company to relay more reliable signals to its suppliers, fostering improved negotiation terms and bolstering overall supply chain resilience. Material obsolescence has seen a substantial reduction due to improved planning of New Product Introduction (NPI) and End-of-Product (EOP) cycles, through the IBP process. This not only minimizes write-downs but also ensures a streamlined flow through the entire production process.
Finally, the implementation of IBP has led to a notable decrease in expedited logistics costs due to early visibility into supplier and internal constraints. Adding to that, the utilization of the o9 platform - as part of the IBP strategy - has enabled the C-Suite at the company to provide accurate financial projections to shareholders, whereas prior to the implementation, this was difficult to achieve.
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About the author
Zarrin LilaniSupply Chain Expert
Zarrin is a Supply Chain Leader and technology strategist who has built out Supply Chains and their supporting tech systems at organizations both large and small. Zarrin is passionate about building resilient and carbon-neutral Supply chains with a particular focus on sustainable food systems.
Stijn-Pieter van HoutenVP of Industry Solutions
Stijn-Pieter is VP of Industry Solutions at o9 Solutions. He has over 13-year consulting career in Supply Chain Strategy and Transformation and a keen interest in Planning and Control Tower topics.