An overview of the complex supply chain in the automotive industry
Under the hood of the automotive supply chain
The typical car is made from an average of 30,000 parts including everything from small nuts and bolts to the engine and transmission. Due to this, modern supply chain disruptions can wreak havoc on an automotive industry that often relies on a traditional “just-in-time” (JIT) supply-chain model.
Automotive organizations can adapt to today's challenging market by adopting sustainable practices and streamlining operations with supply chain management (SCM) solutions. A modern SCM platform can 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 with cloud-based digital transformation solutions.
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
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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
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.