There are many features of automotive supply chain such as Foreign Direct Investment, procurement and outsourcing, final vehicle assembly, regional structure, information technology, as well as strategic alliances. Growth of cross-border markets such as India, China, Philippines, and Brazil that have low-cost resources like skilled labour have attracted Foreign Direct Investment (FDI) which stimulates sustainable economic development in emerging markets. FDI stimulates employment rates, transfers knowledge and technology, increases productivity as well as exports in emerging economies. For instance, the automotive industry is one of the leading industries in India which takes around 7% of GDP. As a result of FDI inflows, employment in automobile manufacturing, and many segments of auto service have increased in the sector. Thus, this has created demand for talented labour, and encouraged training and development (Bhasker, 2013).
In automotive industry, in-house manufacturing takes the large percentage of the total costs. The firm needs to spend on capital equipment, and engineering resources in order to achieve high quality. Therefore, outsourcing is one of the ways to reallocate some business activities to specialized suppliers in order to lower unit cost, achieve economies of scale and flexibility. For instance, Toyota Company mainly concentrates on part procurement rather than in-house manufacturing (Fujimoto, 1999), therefore, the company can reduce its unit cost and get high quality by delegating some of its non-core activities to more experienced suppliers. Some advantages of outsourcing include high flexibility of the company to changes in market demand and be able to meet new product offerings. Also, improvements in quality, and becoming more innovative in product development such as designing new products may create new demands which can be a positive return to the company.
Final vehicle assembly is another specific feature of automotive industry which is keeping part production close to end markets because of political issues, as well as variations in market. Increase of those automakers who build their plants close to markets where they sell has led to market saturation which is another reason for final assembly dispersion. For instance, some of Japanese firms have located their final assembly production in North America in order to sell large quantities of automobiles in that market (Sturgeon & Biesebroeck, 2010). Moreover, specifically in automotive industry, main parts of the vehicle like engines, seats, body panels are large and heavy which lead to high transportation costs. Therefore, locating final assembly near to end markets helps to save cost and time.
Another important feature is possessing larger regional structure. Globally competitive markets encourages firms to implement production, consumption control, and innovation systems in global scale and possess large and strong regional structure. For example, markets are different in terms of their environments, social norms, and this eventually encourages automakers to change particular design of vehicles in order to the demand of different markets such as left and right hand drive vehicles are different from region to region, as well as in developing countries there is high demand for large fuel tanks (Sturgeon & Memedovic, 2009). Therefore, when an automobile firm is able to meet different market demand, it eventually achieves strong regional possession among its rivals.
Information technology is a major feature that automobile firms facilitate their business activities with it in order to provide fast delivery to customers, as well as optimize supply chain activities to gain competitive advantage in the market. For instance, in order to develop advanced communication system with its suppliers, Toyota has implemented computer-based ordering system instead of using manual one which is called e-Kanban. Thus, suppliers receive the required information about quantity and materials which prevents error and order duplication problems (Baudin, 2005). The MS CarPoint is the website of the Ford Company which was launched in partnership with Microsoft. The website provides services like online ordering, customizing vehicles, as well as delivery scheduling. This computer-based approach raises the customer satisfaction (Kamal & Ferdousi, 2009).
Rising globalization and uncertain business environment has made the strategic alliances an important feature for many industries including automotive industry. When a company develops new products, strategic alliances plays a crucial role particularly in partnership with suppliers because it leads to cost and risk reduction. Another reason for strategic alliances is sharing expertise, getting access to market, human, and capital resources. In 2007, 5.9% stake of Japanese company called Isuzu Motors has bought by Toyota. Both Toyota and Isuzu teams started joint project about producing diesel engines (Fujimura, 2007). This example proves that strategic alliance is necessary feature for industries with high competitive business environment like automotive industry.
Some of the major features are carrying the same necessity for consumer goods electronic supply chain such as FDI, strategic alliances, information technology, and outsourcing. Nowadays, these features are applicable to many highly competitive industries as well as for electronics industry. For instance, Toshiba, Japanese multinational electronic company, supports the idea that company should not dominate the business alone rather it should sign alliances, and encourage joint projects with different partners. Strategic alliance is the major feature of corporate strategy of Toshiba. In order to develop new types of products such as multimedia computer products, Toshiba had a strategic alliance with Apple Company. Toshiba had expertise in manufacturing which was exchanged with the software technology of Apple Company. While in the production of memory chips, Toshiba had a strategic partnership with Motorola which was U.S telecommunication company (Isoraite, 2009).
As an example of outsourcing in electronics sector, Microsoft has outsourced some of its internal business activities and services to Vanstar Corporation. The company was responsible for procurement, delivery, as well as installation processes of Personal Computers (PC). Thus, Microsoft could be able to focus on its core competencies, and maximize its budget (Redmond, 1996). Moreover, apart from reducing cost, outsourcing also increase the flexibility of the company within the production process. For instance, iPhones are assembled in China by Foxconn and Asustek who are the main contractors of the Apple Company. Those factories involve thousands of labour who work very fast in the assembly lines. Strong relationship between Apple and its contractors creates opportunity for Apple to redesign the product and contact those factories about the changes in the design (Myers & Fellow, n.d).
The importance of FDI as a main feature is increasing in today’s competitive business environment especially for industries like consumer electronics because of its dynamic and innovative nature. For example, consumer electronics sector is one of the leading sectors in India. Many firms in the sector design and at the same time manufactures variety of electronic goods such as consumer and industrial electronics, electronic equipment, computer, telephones, etc. Multinational companies from electronics industry such as Samsung, Lenovo, Siemens, and LG have manufacturing plants in India (‘Business Maps of India’, 2011). Growing demand for consumer electronics in the domestic market of India, rise of low-cost and skilled labour, as well as increasing popularity of electronics goods across the world markets attract those big electronics companies to invest in emerging markets like India.
Another important feature for consumer electronics industry is inventory management. Firms in electronics sector use different inventory management approaches and practices such as Just-in-time (JIT) which is a popular inventory management system that increase the competitive advantage of the firm. For example, Samsung Company implements JIT system which requires to reduce number of suppliers and building strong partnership with them, and implementing JIT system through the value chain (Manna, 2008). JIT increase the efficiency of production processes such as utilizing human and capital resources and encouraging new information technology systems which eventually raise the productivity of the firm. Reducing number of suppliers stimulates long- term loyalty and consistency between partners such as two companies have mutual understanding which increase their competitive advantage in terms of intellectual capital. Moreover, finding suppliers who are close to the main firm is another feature of JIT system. The reason is that the input transportation and the cost that it generates become difficult to control. Therefore, when suppliers are located nearby, it reduces transportation expenses of the input materials. For instance, by using information technology, Samsung has launched worldwide portal system called Global Samsung Business Network to collaborate with overseas suppliers, partners, as well as customers for sharing information about inventory, sales, purchase orders, as well as shipping (Boden, 2005). These few examples show that how inventory management is crucial for consumer electronics industry and the systems companies implement to optimize supply chain processes. Since the industry has dynamic market demand in nature, and the technological innovations are developing, firms should adopt latest information technology systems in order to support different supply chain activities and be able to respond changing customer demands.
AUTHOR : Leman İSMAYİLOVA
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