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Future of the automotive supply chain: Asia-Pacific report

Tad Simons  Technology Journalist/Thomson Reuters Institute

Tad Simons  Technology Journalist/Thomson Reuters Institute

Elon Musk isn’t the only person in the world who struggles with automotive supply chain logistics. The average automobile contains 20,000 parts from more than a dozen countries, and making sure those parts are available at any given time is one of the most complex management challenges in modern industry.

Ever-shifting international trade policies, evolving safety and environmental regulations, escalating demand for electronic and autonomous vehicles, changing societal attitudes toward automobiles, global politics, and even cybersecurity issues—all play significant roles in the great auto supply chain puzzle.

To find out which industry trends concern automotive supply chain professionals the most through 2025, Thomson Reuters has partnered with the Automotive Industry Action Group (AIAG) to survey supply chain stakeholders around the world. The first regional report from these surveys, The Future of the Automotive Supply Chain: Asia-Pacific, addresses trends affecting the Asia-Pacific region (APAC), though many of the same issues and themes apply to other regions of the world.

Top trends

Changes in international trade requirements and the logistics of electrification were listed as the top two trends expected to impact the automotive supply chain most over the next few years by the majority of APAC survey respondents. Global supply chains everywhere have been disrupted by volatile trade negotiations between the United States, China, South Korea, Mexico, and the European Union, creating uncertainties that make it difficult to plan for the future with any degree of confidence.

You can download “The Future of the Automotive Supply Chain: Asia-Pacificreport here.

To maintain reliable supply channels, manufacturers are utilizing sophisticated data analytics and improved forms of artificial intelligence to build dynamic, flexible supply systems capable of responding to — and even anticipating — changes that require action. But because of the market’s inherent uncertainties, more than 80% of survey respondents in the Asia-Pacific region agreed multi-region sourcing will become even more important to guard against regional disruptions.

The global push to expand adoption of electric vehicles (EVs) is also fraught with complications and risk. More than 70% of respondents agreed that the transition to EVs represents a significant challenge, because it affects virtually every aspect of the automobile design and manufacturing process. EVs use fewer parts and different materials than a conventional vehicle, which impacts the entire supply chain. But internal combustion engines (ICEs) are far from obsolete, and consumer demand for EVs tends to fluctuate depending on the cost of gasoline, government purchase incentives, charging logistics, performances (power/range), and shifting attitudes toward climate change. Furthermore, the majority of respondents agreed that competition for key materials and battery components would be ongoing skirmishes in the larger battle for EV market share.

Autonomous vehicles

The trend toward autonomous vehicles represents a potentially dramatic shift in supply chain logistics as well. Parts such as steering wheels and pedals are unnecessary in autonomous vehicles, for instance, but both commercial and passenger models will require new components for electronic systems, software, network connectivity, entertainment options, and other amenities.

Survey respondents were divided on how quickly autonomous vehicles would assert themselves in the marketplace, but most agreed that meeting the growing demand for autonomous vehicles — while also supplying components for ICEs and managing the transition to EVs — would continue to complicate the logistical puzzle for supply chain experts in the years to come.

Regulatory compliance

The survey also asked respondents to answer questions regarding stricter rules for international compliance, as well as changing environmental and safety regulations, particularly with regard to climate change. To avoid regulatory disruptions and bottlenecks, 74%of respondents agreed that automakers will need to innovate new approaches to network logistics design in order to create nimbler, more responsive operations.

And 83% also expressed concern over the supply of lighter metals and other materials needed to improve vehicle range and efficiency, especially considering that industry consolidation may limit options and reduce capacity.

Societal changes

Virtually all the major factors affecting the automotive supply chain are connected to broad societal changes regarding what customers expect from vehicles in terms of safety, efficiency, reliability, operation, and cost.

Another broad trend that respondents identified was the growing demand for advanced safety features in lower-priced vehicles, combined with an overall shift in preference for higher-priced, more feature-rich vehicles in general. Indeed, 87% percent agreed that consumers no longer view such features as adaptive cruise control, collision warning systems, rearview cameras, and improved sensors as luxuries, but rather as necessities. A majority of respondents also agreed that the so-called “Amazon effect” would exert pressure on supply chains as consumers come to expect greater degrees of customization, the ability to order vehicles online, and speedier delivery.

While there are many regional differences in automotive supply chain management, automakers the world over are grappling with similar challenges as improved technology and evolving cultural expectations alter the supply chain landscape. To meet these diverse challenges, automakers will need to keep pace by using advanced data analytics and improved forms of artificial intelligence to monitor and respond to changing market dynamics as quickly as possible.

For automakers, a well-managed supply chain is a significant strategic advantage. Those who get it right between now and 2025 will be well-positioned to evolve and prosper despite the many challenges ahead.

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