Automobile Industry


Explain Point of consumption in a motor vehicle manufacturing plant.


The automobile industry has been constantly evolving in order to provide desired products to the consumers in the competitive target market. This efficiency in supplying and meeting the demands of the consumers while staying competitive is achieved by an efficient management of the production practices. The success of an automobile company is highly dependent on the management of the resources required for production. The resources and materials involve glass, rubber, plastics, seats, brakes etc. These resources similarly require storage from where the motor vehicle manufacturing plant can easily access. In this context, Ackerman (2012) stated that these materials are, in turn, divided into various tiers based on their accountability and level of direct access. In the motor vehicle manufacturing plant, the tier one supplier provides products like seats, windows, etc, while the second or the lower tier provides products like plastics, rubber, glass, steel, etc. 

As mentioned by Amjed & Harrison (2013), the retrieval facilities in the motor vehicle manufacturing plant are integrated with the manufacturing facilities for meeting the needs of customers. These retrieval facilities ensure that the stocks for the material are maintained to meet the current demands as well as low emergency demands. In the words of Christopher (2016), the lower tier suppliers play a very vital role in the stock holding of motor vehicle manufacturing plants. The resources are retrieved based on the demands for the products. In this context, House & Jackson (2013) argued that the motor vehicle manufacturing plants generally maintain low level of stock with themselves, while maintaining high level at the tier one and tier two suppliers.  

Point of supply at a tier 1 supplier 

The tier 1 suppliers play a crucial role in the inventory management of the motor vehicle manufacturing plants. The tier 1 suppliers are regarded as the primary sources for the finished goods, work in progress and material in the automobile industry. In the words of Aßländer, Roloff & Nayır (2013), the motor vehicle manufacturing plants, in general, ensure that the tier 1 suppliers are close to the consumption unit. The shorter distance between the storage facilities and the consumption unit ensures competitiveness in the market. In the present case, the tier 1 supplier is located 1.5 miles from the manufacturer, which ensures that the demand for any type of material would be delivered to the manufacturer within a short period. The tier 1 suppliers in the automobile industry generally maintain higher level of stock for the vehicle manufacturers including components of the lower suppliers. 

The stock holding by these suppliers in the motor vehicle manufacturing plants mainly involve work in progress and the finished goods from the lower tier suppliers. In this context, Chanaron (2013) stated that the tier 1 suppliers in the automobile industry also ensure rigorous quality of the sub-assembled products set by the manufacturing plant. The tier 1 suppliers mainly hold stocks, which are delivered quickly to the original equipment manufacturers. However, the lower tier suppliers are mainly involved with storing the supplies of goods. 

Point of supply at a tier 2 supplier

In the given case scenario, the vehicle manufacturers act as a tier 2 supplier for another vehicle manufacturer based 180 miles away. In this case, vehicle manufacturer that is the tier 2 supplier acts as a storage facility provider and sub-assembler of products for the manufacturer located 180 miles away. In the previous case, the vehicle manufacturer was the original equipment manufacturer for its suppliers. However, in the present case, the vehicle manufacturer acts as a lower level supplier (tier 2) for the OEM. The products earlier were regarded as the finished goods, as these were supplied by the tier 1 supplier. However, in the present case, the manufacturer is tier 2 supplier and the stocks are now regarded as sub-assembled products to be delivered to the tier 1 supplier or the vehicle manufacturer located 180 miles away. 

From the viewpoint of Prajogo & Olhager (2012), the main difference between the level 1 and level 2 suppliers is the storage and supply of the finished goods. Earlier, the goods were regarded as finished to the level of tier 1 suppliers, while, in the present case, the goods shall be regarded as completed to the level 2 suppliers. The storage of the goods in the previous case involved finished or sub assembled to tier 1, while, in the present case, the storage would act as raw material or work-in-progress for the vehicle manufacturer located 180 miles away. Earlier, the supply made to the vehicle manufacturer was considered finished to the level of tier 1 supplier. However, in the present scenario, the goods shall be regarded as finished to the level of tier 2 suppliers situated 180 miles away from the OEM. 

Mandate material supplier located 6500 miles away from tier 1 supplier

In the given scenario, the mandate material supplier located 6500 miles away from the tier 1 supplier is a lower level of material supplier for the vehicle manufacturer. As stated by Shaheen, Mallery & Kingsley (2012), mandate material suppliers in the automobile industry are suppliers designated to perform certain type of activity by the OEM or the tier 1 supplier. These mandate material suppliers in the automobile industry are entrusted with materials that are not easily available and sometimes for various specific parts like brake clamps, brake hoods etc. In this context, Thomé et al. (2014) stated that the quality of these materials supplied by the mandate suppliers is regarded as the responsibility of the tier 1 suppliers. The range of storage for these suppliers is specific to the quantity requirement by the original equipment manufacturer.

As mentioned by Grimm, Hofstetter & Sarkis (2016), the stock holding by the mandate is generally very low; however, based on the requirements from the OEM the inventories are issued. In addition to this, Wilhelm et al. (2016) stated that the distance between the supplier and the OEM also plays a vital role in the retrieval process. The longer the distance, the earlier the demand, while, the shorter the distance between the OEM and supplier, later is the demand of material. However, Kato, Nunes & Dey (2016) argued that early delivery of products might result in increased labour cost in the form of increased retrieval costs. In the present scenario, since the mandate supplier is located 6500 miles from the level 1 supplier, therefore; the demand for the products shall be earlier keeping in mind the time lag. 

Discussion on the modal choice and the transport strategy for the delivery of goods at different point of supply chain

The most appropriate mode shall be road transport through vehicles. In the words of Vrat (2014), the modal choice is a complex sequential model structure mainly concerning the choice between private and public transit. This transport by roadways would help in reducing the cost, while saving necessary time for the booking and paper works in other modes. The roadways mode for the transportation would involve transport of the goods from the lower tier supplier to the tier 1 suppliers and then the transportation to the OEM by the tier 1 suppliers. This would ensure quality management at each level, which is ultimately set by the original equipment manufacturers. 

The transport strategy for the delivery of the goods at different point of the supply chain would involve the time taken for the delivery of the goods along with the amount. In the words of Richards & Grinsted (2013), the transport strategy for the delivery of the goods also involves the level of services on the completion mode for every trip interchange. Moreover, the transport strategy shall also involve the in-vehicle travel time as well as the out of vehicle time required for the trip. The transportation of the goods from the lower supplier to the tier 1 supplier shall involve time taken and the cost, while the also considering the congestions in the roadways network. 

Explanation on balancing stock at its various points of consumption by demand forecasting, storage and ease of assuring stock accuracy

The balance between the stock and supply plays a very crucial role in the development and growth of the business as well as mitigation of the adverse situations. Balancing of stock at the various point of consumption based on demand forecasting involves segregation of the products and stocks accordingly. In balancing of stock based on the demand, both stock in hand as well as the stock in transit are taken into consideration while, ensuring mitigation of the excess stock scenario. In case of the automobile industry, the demand forecasting plays a very vital role in stock balancing. For instance, if the demand for the eco-friendly vehicle increases consequently, the demand for the CNG engines increases. Therefore, in this case, the vehicle manufacturing plants need to ensure that the stocks for the diesel and petrol engines are not in excess. The balancing of stock by demand forecasting, in this case, needs to be done on the basis of the petrol and diesel car demand within a particular expected period and considering the demand for the CNG engines. Based on the demands for the eco-friendly vehicles, the stock for the vehicle accessories shall be maintained at the various levels of suppliers. 

In case, the demand for the SUV vehicle increases as compared to the hatchback vehicles, the stock of steel at the tier 2 supplier shall be reduced considering the stock in transit. Moreover, the work in progress by the company shall also be given due importance in order to ensure excess stock for finished hatchback vehicles. As stated by Battini, Boysen & Emde (2013), the balancing of stocks based on the demand forecasting mainly involves trend analysis on previous years and the changing desires and competitors strategies. In case of the automobile manufacturers, the stock of materials can be maintained at a higher level for the lower suppliers, while the stock at OEM and tier 1 suppliers can be maintained at a lower level. The reason behind this is that the lower level supplier in the motor vehicle manufacturing plant mainly involves steel, glass, seats and plastics, etc. that are generally used for all types of vehicles. While, the tier 1 suppliers provide specific and more accurate products; thus, maintaining lower stock level would help in reducing the cost and mitigating overstock scenario. In this context, Wiengarten et al. (2013) stated that balancing of stock mainly involves meeting the demands of customers and assuring stock accuracy. While on the other hand, Khan, Lew & Sinkovics. (2015) argued that the balancing of stock also involves mitigation of the over stock scenario and adjusting with the adverse situations of changes in demand. 

The storage of the inventories forms an integral part for all the business concern, while highlighting the effectiveness of the management. In case of the motor vehicle manufacturing plants, the balancing of the stock can also be effectively performed through storage. The storage of the accessories helps the vehicle manufacturers meet the demands of the customers, while, on the other hand, ensuring mitigation of the overstock situation. Balancing of stocks through the storage facilities in automobile industry involves high concentration at the lower level supplier and lower level at the top tier suppliers (Burns & Marx, 2014). In case, there are sudden changes in demands, the lower tier suppliers stock can be used for addressing the changes; thus, reducing loss due to changes. If the vehicle manufacturer maintains higher level of stock with the top tier suppliers, the loss would be devastating, as the vehicles would either be sold at lower cost or even restored as per the changed demands. This high concentration at the lower level suppliers and lower level at the top tier suppliers helps the vehicle manufacturer to maintain stock accuracy. The stocks at the lower level of suppliers in automobile industry are generalised material used irrespective of the changes in the demand. Therefore, maintaining higher level of stocks for tier 2 and tier 3 or mandate suppliers would ensure stock accuracy. While on the other hand, the top tier suppliers are highly volatile to the demands. Therefore, maintain lower level of stock at the top tier would ensure stock accuracy and thus, balance in stock. 

As mentioned by Maxcy (2013), technology and data sharing empowers the companies to compete and mitigate various business risks during its operations. One such risk mitigation is related to stocks in the motor vehicle manufacturing plant. Technology and data sharing play different role in the automobile industry starting from cost minimization to analysis of market trends to stock maintenance. Technology and data sharing for stock maintenance ensures that the vehicle manufacturers have stock accuracy and the stock order level for those in transit. In this context, House & Jackson (2013) stated that technology and data sharing keeps the suppliers at different level of industry involved while, maintaining parity between the demand and supply. In addition to this, Richards (2014) mentioned that the data sharing and technology ensures higher understanding between the suppliers and role delegations. This role delegation ensures that the stocks in transit for the manufacturers are not excluded during the stock valuation. 

Data sharing ensures that the stock of the materials at the various levels are integrated with the OEM thus, reducing the overstock scenario. While, technology ensures that the stock at the lower tier suppliers and mandate suppliers are developed as per the changing demands. This, in turn, ensures that the vehicle manufacturers do not fall behind the demand while ensuring reduced chances of overstock. The change in the demands of the products in the automobile industry creates a phase of operational inefficiency for the vehicle manufacturers (House & Jackson, 2013). The data sharing and technology, in this phase, plays a crucial role, as it helps integrating the stock in hand and the stock in transit. While, it also helps in ensuring that the demands of the customers are met at its earliest using technology profitable for the original equipment manufacturers. In the words of Hakansson (2015), the demand forecasting and technology are closely related to each other by means of the use and benefits. The use of technology for the demand forecasting ensures that the stocks for the vehicle manufacturers are in accordance with the demand. While, on the other hand, materials or stocks at the various levels of the suppliers are in relation to this demand from consumers. 

In the opinion of Rushton, Croucher & Baker (2014), the data sharing ensures information pertaining to the quality and quantity of the material are delivered to the suppliers. While, in case of urgent demands, data sharing ensures the mandate suppliers and other lower level suppliers are informed for increasing the stock of material. To conclude, technology and data sharing plays a vital role in the storage of material for motor vehicle manufacturing plants. The data sharing ensures that the urgent demands are conveyed to the suppliers, while also ensuring that the over stock situation are mitigated by including stock in transit. However, technology, on the other hand, ensures that generalised materials in the lower level suppliers are restored based on the changed demands. 

Reference list


Ackerman, K. B. (2012). Practical handbook of warehousing. Springer Science & Business Media.

Amjed, T. W., & Harrison, N. J. (2013). A Model for sustainable warehousing: from theory to best practices.

Christopher, M. (2016). Logistics & supply chain management. Pearson Higher Ed.

Hakansson, H. (Ed.). (2015). Industrial Technological Development (Routledge Revivals): A Network Approach. Routledge.

House, R. J., & Jackson, G. C. (2013). Trends in computer applications in transportation and distribution management. International Journal of Physical Distribution & Logistics Management.

Maxcy, G. (2013). The Multinational Motor Industry (RLE International Business). Routledge.

Richards, G. (2014). Warehouse Management: A complete guide to improving efficiency and minimizing costs in the modern warehouse. Kogan Page Publishers.

Richards, G., & Grinsted, S. (2013). The logistics and supply chain toolkit: over 90 tools for transport, warehousing and inventory management. Kogan Page Publishers.

Rushton, A., Croucher, P., & Baker, P. (2014). The handbook of logistics and distribution management: Understanding the supply chain. Kogan Page Publishers.

Vrat, P. (2014). Storage and Warehousing. In Materials Management. Springer.


Aßländer, M. S., Roloff, J., & Nayır, D. Z. (2013). Suppliers as Stewards? Managing Social Standards in First-and Second-Tier Suppliers. Journal of Business Ethics, 1-23. Retrieved 21st July 2016 from

Battini, D., Boysen, N., & Emde, S. (2013). Just-in-Time supermarkets for part supply in the automobile industry. Journal of Management Control, 24(2), 209-217. Retrieved 21st July 2016 from

Burns, K. F., & Marx, T. G. (2014). Crisis management planning among tier 2 automobile suppliers: why suppliers fail to plan. Journal of Contingencies and Crisis Management, 22(2), 108-112. Retrieved 21st July 2016 from;jsessionid=26E664EC500B7489BA8715EEFE46031F.f02t02?userIsAuthenticated=false&deniedAccessCustomisedMessage=

Chanaron, J. J. (2013). The evolution of relationships between car manufacturers and France-based component suppliers in the context of deep crisis and accelerating technical change. International Journal of Automotive Technology and Management, 13(4), 320-337. Retrieved 21st July 2016 from

Grimm, J. H., Hofstetter, J. S., & Sarkis, J. (2016). Exploring sub-suppliers’ compliance with corporate sustainability standards. Journal of Cleaner Production, 112, 1971-1984. Retrieved 21st July 2016 from

Kato, T., Nunes, B., & Dey, P. K. (2016). Is keiretsu really a source of competitive advantage for Japanese automotive suppliers?. Journal of Manufacturing Technology Management, 27(1), 62-81. Retrieved 21st July 2016 from

Khan, Z., Lew, Y. K., & Sinkovics, R. R. (2015). The mirage of upgrading local automotive parts suppliers through the creation of vertical linkages with MNEs in developing economies. critical perspectives on international business, 11(3/4), 301-318. Retrieved 21st July 2016 from

Prajogo, D., & Olhager, J. (2012). Supply chain integration and performance: The effects of long-term relationships, information technology and sharing, and logistics integration. International Journal of Production Economics, 135(1), 514-522. Retrieved 21st July 2016 from

Shaheen, S. A., Mallery, M. A., & Kingsley, K. J. (2012). Personal vehicle sharing services in North America. Research in Transportation Business & Management, 3, 71-81. Retrieved 21st July 2016 from

Thomé, A. M. T., Scavarda, L. F., Pires, S. R., Ceryno, P., & Klingebiel, K. (2014). A multi-tier study on supply chain flexibility in the automotive industry. International Journal of Production Economics, 158, 91-105. Retrieved 21st July 2016 from

Wiengarten, F., Humphreys, P., McKittrick, A., & Fynes, B. (2013). Investigating the impact of e-business applications on supply chain collaboration in the German automotive industry. International Journal of Operations & Production Management, 33(1), 25-48. Retrieved 21st July 2016 from

Wilhelm, M. M., Blome, C., Bhakoo, V., & Paulraj, A. (2016). Sustainability in multi-tier supply chains: Understanding the double agency role of the first-tier supplier. Journal of Operations Management, 41, 42-60. Retrieved 21st July 2016 from

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