Organization of production and logistics in the automotive industry

The functioning of the automotive industry is associated with a whole range of very interesting problems. Their occurrence means that the manufacturing and sale of cars, especially those most frequently sold and produced on the largest scale (so-called “compacts,” or as they are sometimes called in the automotive industry, “no longer small-displacement, but not yet cars,” and their derivatives – commercial vehicles built on their basis), involve a large group of practices characteristic of this industry. These concern practically every stage of a popular car model’s life, starting from its design, through production preparation, manufacturing, marketing and sales, after-sales service, to the disposal of the used product. These practices have been developed over years of the automotive industry’s operation and stem from its experience. They set standards for manufacturers’ conduct and are widely transferred to industries cooperating with car manufacturing. Finally, they are (with varying degrees of success) copied by other industries.

Writing a complete monograph on the operation of the automotive industry is currently a task beyond the capabilities of a single researcher. Why did the author of this article focus only on a segment of the issues related to the automotive industry – the organization of production and logistics, and only in the area of products of this industry most accessible to the average-earning customer? Because the organization of production and logistics in the automotive industry has undergone significant changes over time – therefore, they have been presented in a historical perspective. Solutions characteristic of individual “eras” of manufacturing popular car models have also been briefly discussed.

Why the organization of production and logistics in the automotive industry is a problem
Compared to other products, a popular car is distinguished by the following features:
• relatively high complexity – a typical model consists of at least several thousand components
• a wide set of technologies used in its manufacturing. This set includes plastic working, machining, welding, painting and applying protective coatings, and final assembly
• high demand and strong competition from other manufacturers.

These features mean that in the case of popular car models, we are dealing with the mass production and sale of complex products in highly competitive markets. This causes most manufacturers to choose a competitive strategy based on striving for cost leadership. Choosing such a strategy creates constant pressure to reduce costs in the production and supply process. On the other hand, mass production requires the use of specific manufacturing technologies, which are essentially identical for every manufacturer. A certain level of costs and a specific threshold of efficiency for its application are associated with the use of a specific technology. This relationship implies that production and supply costs are identical or very similar among individual manufacturers. Competing through costs becomes very difficult in such a situation and requires support through appropriately conducted marketing. In the area of production and logistics, manufacturers seek ways to reduce costs by improving the organization of production and supply and changing production locations. The most effective solutions are quickly disseminated – they are copied by competitors. This, in turn, causes a constant need to develop and implement ever-new solutions or, as we clearly observe at present, moving production to countries with lower costs, where labor is cheaper but possesses appropriate qualifications, and local supply sources provide access to cheap raw materials and semi-finished products of the required quality. A given car model is currently manufactured in many locations, often under local brands. At the same time, however, manufacturers competing in the market for finished cars cooperate with each other in developing new projects (the first such example was the “Neon” – a car designed jointly by Toyota and Chrysler and manufactured by both companies) and developing local supply sources.

The article comes from the magazine “Logistyka” 2/2007.