Traditional Intermediaries in the Automotive Industry

Third-Party Logistics Companies

The automotive industry requires complex logistics operations handle typically by third party companies.  These intermediaries provide warehouse management, transportation/distribution management, shipment consolidation, customs brokerage/documentation, order fulfillment, among other services.  Raw materials and products are moved from tier-3, to tier-2 all the way up to the OEMs, through these logistics companies.

 Systems Designed to Gain Efficiencies

 The automotive industry has been developing Supply Chain Optimization practices for a long time.  In their search to increase business efficiency they have implemented material requirements planning (MRP), enterprise resource planning (ERP), and advanced planning and scheduling (APS) system.  These “traditional” systems have provided them with higher levels of financial control and have allowed them to optimize activities such as, planning, scheduling, and resources. However, these systems have not provided enough functionality to assist companies in optimizing resources across the entire supply chain. 

 Communication Tools

 The automotive industries early on recognize the need for collaboration with their suppliers in order to reduce production inventories and improve vehicle design to market.  OEMs began sharing strategic design and production information, and exchanged tactical purchasing data with key suppliers via telephone, fax and/or electronic data interchange (EDI).  EDI relies on rigid communication protocols and standards that did not support the exchange of the wide variety of documents required, such as planning schedules and engineering drawings, neither the level of information exchange required for real-time collaboration.  Additionally, implementing EDI requires the purchase and maintenance of expensive software and systems, as well as a contract with one of the value added network providers (VANs).

The Automotive Industry Action Group (AIAG) was formed to help defined the EDI transaction standards for the exchange of data.  Most projects aimed to encourage improved EDI communication but focused on individual segments of the supply chain.   EDI did deliver benefits to the industry but still ignored lower tier suppliers and it was not conducive to support communications with the entire supply chain[1].  In order to bridge the gap, the AIAG developed the Automotive Network eXchange – a robust, secure communications network based on TCP/IP protocols – that has been operational for the past year.  Currently, the network connects Ford, GM, and DaimlerChrysler and more than 250 trading partners.   The big 3 have publicly expressed their support for the ANX network and are encouraging their suppliers to connect to it.

 This network provides OEMs and their suppliers with a global network infrastructure that replaces the complex legacy networks and eases the implementation of a dynamic supply chain[2].