CS132-6 Developing Independent Research Assignment Sample
Module Title And Code : CS132-6 Developing Independent Research Assignment Sample
Title: Identifying supply chain management issue faced by automotive industries in the UK
Overview of the UK automotive industry
According to Saeed and Kersten, (2019) the UK automotive industry is the most important part of the UK economy that valued over 78.9 billion Euros in turnover and contributed 15.3 billion Euros to the economy. In 2016, the production reached its highest level in 17 years which was considered as an impressive period of growth. According to the report of The Society of Motor Manufacturers and Traders (SMMT) that 1.3 million cars, 78,270 commercial vehicles, and 2.5 million engines were produced in the UK in 2019.
Figure 1: UK automotive industry data (Source- The supply chain consulting group, 2022)
The supply chain consulting group, (2022) stated that eight out of 10 vehicles manufactured in the UK are supplied in 160 different markets worldwide. This data shows that the UK automotive industry is giant and has a great heritage of innovation and modern designs. However, the entire industry is entering into a period of upheaval. The industry experienced significant growth, high production, investment, immense demand before 2018 but after that the industry faced serious issues mainly due to poor supply chain management.
Challenges faced by the UK automotive industry
During 2018-19, the entire economy of the UK is facing a serious recession due to Brexit. Automotive industry similarly faces huge losses and supply chain disruption. Sarkis, (2020) argues that during the situation, most of the manufacturers announce the movement of production to the Europe regions. On the other hand, customers are becoming cautious to buy new cars because of the evolving electrification of vehicles and diesel scandals.
Further, last minute trade deals increase the risk of supply chain disruption, bureaucracy, and red-tape at the border of the UK and France. There are rules of origin requirements as 40% of the value part must be produced in the EU or UK which also disrupt supply chain management of automobile companies.
Later, in 2020 the automobile industry experienced a significant decline in their profit due to Covid-19 pandemic. According to SMMT, there is a 29% fall in new car registration between 2019-20. In this result, vehicle sales are down and thus the supply chain also gets disturb. Cooney, (2021) says that in the meantime, the government is also not providing adequate support by reducing VAT and providing subsidies. Furthermore, most of the countries-imposed lockdown and restricted trade movement which led to uncertainty of demand and the supply of vehicle parts was also fluctuating.
Hence, producers need to rationalise their number of productions. During 2019-2021 there is significant change in customer demands as they prefer electric vehicles. As per the SMMT recent data, there are more electric vehicles registered in 2021 as compared to 2010 to 2019. In October 2021, new car booking numbers increased by only 2.8% from which electric and hybrid vehicles are 65.4% and 82.5% respectively.
Boggs, (2020) suggests that in order to meet customer demand and get competitive advantages most of the automobile companies need to adopt changes. It means they need to invest in research, and EV technologies along with suppliers, at a time when they already face several challenges. Additionally, original equipment manufacturers (OEMs) and lenders are forcing the companies to consider environmental, social and governance (ESG) which increase significant cost into the supply chain.
Centobelli et. al. (2018) provides information that these structural issues bring global supply chain challenges as there is a lack of microchips in the automotive industries and some critics said that this will continue till 2023. Additionally, shipping costs to transport parts and raw materials from the Far East nations have also increased to more than 15,000 Dollar per container.
However, such cost remains the same during the last 10 years which did not exceed 2,000 Dollar per container. Kumar et. al. (2018) critics that there is a huge shortage of labour in the UK as the country needs 100,000 drivers for heavy goods vehicles in order to move goods from port to Tier 1 and 2 suppliers. Due to the lack of drivers, they find challenges to dispatch finished goods to OEMs.
Belhadi et. al. (2021) report that, in October 2021, steel and aluminium prices got very high from the last ten years and other associate goods prices followed the same trend due to increase in energy price. It impacts the supply chain in both direct and indirect ways. As such high prices of raw products and energy cause inflation and high interest rates which increase debt cost for automobile companies.
According to Kusi-Sarpong et. al. (2019), most of the OEMs adopt just-in-time processes where they roll a 13-week production cycle in order to provide on time delivery to Tier 1 and 2 suppliers. Due to the lack of supply of core materials, production has to stop which disrupts the entire associate supply chain. The main challenges are that the stoppage comes late, sometimes even in the week an order, and till the supplier already invests in labour and materials. Such volatility becomes very challenging for businesses and for suppliers.
As per the opinion of Olatunji, et. al. (2019) on average 30,000 components is required in vehicles thus there is heavy dependency on supply chains. Due to the above mentioned, challenges and further blind spots at any point can adversely impact the entire production. 81% of the automobile companies considered the visibility fact as compared with 70% companies from other sectors.
As earlier mentioned, that global supply chain dominates the automobile industry, however, suppliers from other countries also leave the partnership into great risk critics by Sharma et. al. (2020). Lack of communication about different standards, protocols, and technologies are responsible for disrupting the supply chain. Thus, lack of transparency creates operational issues and misunderstanding. For that purpose, Supplier Relationship Management (SRM) brings trust, communication, and openness to smoothing the entire process through using advanced technology that facilitates smooth processes between partners.
As per the Jabbour et. al. (2019) in the automotive industry, environmental goals are at the top after the event of Volkswagen’s ‘diesel dupe’ in 2015. Hence, government and regulatory organisations establish strict emission regulation where green initiatives need to be taken by producers and respective suppliers. During the lockdown, emissions declined by 7% along with EV registration rate increased by 185%.
Thus, automobile companies need to onboarding new suppliers that make EV and put emissions rules into practice. In the UK, CO2 per Kilometre target for new cars is 95gm in 2021 and 50gm by 2023. EV stage IV emissions require engine producers to decrease the NOx and PM. Rejeb et. al. (2019) reported that, the UK Low Emission Zones (LEZ) ban the use of vehicles with high pollutant rates along with in the UK there are restrictions on petrol and diesel cars from 2030.
However, it is difficult to implement due to location constraints. As per the opinion of Pal, (2020), third-party logistics partners are not able to understand regional environmental issues unless immense efforts and technologies put in place to grab their attention. On the other hand, the UK government needs to strengthen their infrastructure by installing charging stations at every one- or two-kilometre area. The UK produces 10,359 units battery operated electric vehicles which is high of around 14% of overall vehicle production.
The UK based car producers like MINI, London Electric Vehicle, and Nissan produce over 60,000 zero emission vehicles in 2021. The automobile industry is aiming to be independent in battery production by 2026. Aiello, (2020) criticises that however, it requires huge investment and immense support of suppliers and partners which is difficult as they have to replace old suppliers to new in order to make EVs. Hence, it can be said that the UK automobile industry is preparing for a new era of growth and success by accessing new technologies and new suppliers as well.
Ray, (2022) stated that, the international automotive cyber security market is about to flourish at an unprecedented rate from 1.34 billion Dollar to 5.77 billion Dollar from 2018 to 2025 respectively. As per the Synopsys survey by the Society of Automotive Engineers (SAE), manufacturers state that it is likely that malicious attacks on their data and software will happen within the next year. Other than that, advanced technology also enables to collect customer’s and manufacturers personal information which can be used by the suppliers to dominate over market price. Hence, such cyber security threats also disrupt supply chains.
As earlier mentioned, the UK automobile industry is huge and they have a strong presence in the international market. Handfield et. al. (2020) quotes, the industry often faces cross-border trade issues like geopolitical tension, economic challenges, legal barriers, import-export restrictions, differences in foreign currencies, environmental challenges, taxation, tariffs, quotas, competitions, and many more. Kumar et. al. (2019) argues that the automobile companies have to face these difficulties while dealing with international suppliers. For example, the auto company needs to take permission to transport materials from other European nations along with they need to pay high taxes and currencies differences. Therefore, these issues can also badly impact the automobile supply chain management.
Attaran, (2020) critics that, above mentioned challenges are human made and can be controllable as there are some uncertain threats also like war situation, terrorist attacks, and natural disasters which also disrupt supply chain. Since the UK experienced the Brexit event, there are always uncertain situations when EU nations impose restrictions. Waters, (2019) reports that the country often faces natural disasters which impact labour and production supply chains.
The above analysis shows that there are several problems in the UK automotive supply chain from which some can be controlled through effective policies, and government support. Zekhnini et. al. (2020) suggests that the automobile companies also need to adopt new technologies and meet customers’ emerging demand by producing EVs, battery operated vehicles, and hybrid cars as it reduces their dependency from suppliers and makes them independent. In order to smooth the supply chain, the automobile companies should regulate their management system through automation and effective communication.
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