New car sales in the northern hemisphere have a regular seasonal cycle.
There’s a peak in sales between the end of February and the end of May, and another peak between September and November. Summers are spent driving the new car instead of purchasing it, and the Holidays? Forget it: that’s the deepest trough in the automotive spending cycle.
No surprise, then, that new models are released in the Spring and Fall when consumers are ready to snap up something shiny and fresh. Automakers deliver new cars to dealers and keep production lines churning out this year’s model of last year’s winning vehicle.
But then it is also no surprise that in August when the lines are not running at full capacity, the industry takes a step back for a period of reflection. While workers spend a couple of days at the beach and dealers take a final big breath before the rush of the Fall sales season ahead, operations and plant managers are hard at work thinking about their production planning and control, and how they might optimize it for the ramp-up to come.
In 2020 and with COVID-19 forcing the closure of automotive production plants across Asia, Europe, and now the US, too, August has come early.
So said an industry analyst I spoke with last week as he was busily preparing new advice for an industry that has definitely taken a short-term hit and is seeking to avoid a larger, longer-term knockdown.
“There are companies right now that need to re-plan and reorganize their production lines. They’re taking the chance right now to think about their lines, something they would normally do in August, but they’ll do it now while everything is shut,” he said.
He explained that while workers in the plants might have been temporarily furloughed, plant managers and senior executives would be hard at work from home figuring out how they will bring their production back up to speed when the global lockdowns are over. They’ll be reflecting on everything related to operations from bottlenecks within plants that force lines to back up, the logistics of moving spare parts around their network and the costs associated with doing so, and even the distribution of their skilled workforce on the factory floor.
But they’ll also be looking at their overall strategy, too, because COVID-19 has proved that the old way of doing things has some major flaws.
The global automotive parts industry is worth nearly half a trillion dollars annually.
While Germany has the largest slice of the exported parts pie at 16%, countries like the US, Japan, China, and Mexico all account for between 7% and 11% of the global market.
As a direct result of COVID-19 we’ve seen these global exports slow and, in some cases, stop altogether. For a factory running on a just-in-time stock replenishment model and that relies on engine parts from China or prefabricated door panels from Mexico, production lines quickly ground to a halt.
The Chinese region of Wuhan was not only the early epicenter of the COVID-19 virus, it also happens to be, as The New York Times puts it, “home to vast factories making cars for General Motors, Nissan, Honda and other global and local brands”. All of those factories were shut down by order of the Chinese government in January 2020, and reopening the plants – if there are buyers ready and willing to spend on a new vehicle right now – was scheduled for mid-February.
And then those re-openings were pushed back to March. And even that may be short-lived.
As the analyst I spoke to put it, automotive manufacturers are realizing that their supply chains are not as flexible as they thought they would be.
“As a result, they are going to need solutions that are more agile than the ones they have now,” he said. “They need flexible supply chains because they are vital to their survival.”
Coming out the other side of the COVID-19 crisis means confronting two concurrent challenges for automotive manufacturers: there’s the challenge of optimizing operations, and there’s the challenge of optimizing the strategic supply chain.
At Cosmo Tech we know that optimizing a complex system locally – that is, optimizing the different parts of a system in isolation from each other – doesn’t help in optimizing the whole system. Indeed, a lot of the time the interconnections and interdependencies of a complex system means that optimizing locally means losing out globally.
It’s why we developed Enterprise Digital Twin solutions for manufacturing, a new class of software that helps carmakers to ask the sorts of ‘what if’ questions that they usually save up for the long, slow days of August while asking the ‘how to’ questions that define a business plan and allow them to choose an optimal corporate strategy.
In the months ahead we’re looking forward to the automotive sector bouncing back and also to our software solutions playing a role in that bounce back. By empowering manufacturers to optimize both operations and strategy, the little things and the big picture, the local plant and the global supply chain all at once, our Enterprise Digital Twins will be helping put the car industry back on stable, post-COVID-19 ground.