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An overview of the complex supply chain in the automotive industry

Under the hood of the automotive supply chain

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Automotive organizations can adapt to today's challenging market by adopting sustainable practices and streamlining operations with supply chain management solutions, to increase visibility and efficiency, decrease risk and bring products to market faster. Read on to discover how to thrive in today's dynamic automotive landscape. 

car manufacturing

Driving the economy: The automotive supply chain's trillion-dollar engine

The automotive supply chain is a vast, intricate global network of manufacturers, suppliers, and service providers that work together to bring vehicles to the market. Think of it as a giant, well-coordinated machine, with millions of moving parts that must work together perfectly to produce the finished product. 

This highly interconnected system extends across the globe, involving various stakeholders at each step of the process. It is a complex and vital industry within the global economy—one that employs millions of people and generates trillions of dollars in annual revenue.  

The automotive industry employs over 8 million people worldwide and generated revenues of $2.8 trillion US in 2021, according to studies by Statista.

Nuts and bolts: How an automotive supply chain works

Here's a typical example of how the automotive supply chain works: 

Step 1

It starts with the raw materials suppliers – such as companies involved in mining and processing steel and aluminum – that transport these materials to component suppliers. 

Step 2

These component suppliers craft parts like engines and transmissions, then send them to assembly plants, where cars are assembled.  

Step 3

Once assembled, cars are shipped to car dealerships, where they are sold to customers. But hold on, the automotive supply chain doesn't end there.  

Step 4

What if these customers want to add cool gadgets to their cars? Or replace worn-out parts after many long road trips? There is a large aftermarket industry that has you covered, providing parts and accessories for cars after they have been sold.  

Step 5

Lastly, when cars reach the end of their life cycle, the automotive supply chain comes full circle, as they are recycled or disposed of in a sustainable manner. 

The tiered effect: A collaborative supply chain effort

Creating a car is a team effort. The original equipment manufacturer (OEM) designs and puts together the vehicle, but it is not a solo act. It depends 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 categorized into different levels known as tiers.

Tier 1 automotive suppliers

They supply major components such as engines, transmissions, and advanced systems to the OEM.

Tier 2 automotive suppliers

These companies manufacture smaller parts that are incorporated into the Tier 1 components, including items like nuts, bolts, and sensors.

Tier 3 automotive suppliers

They provide basic components or raw materials like steel and plastic, which serve as the foundational building blocks for Tier 2 components. 

 

To summarize, 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.

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