Connect data to value: Changing how auto suppliers plan

The automotive- parts manufacturing and supplier market is facing a drastically different future, with huge shifts in revenue and profit sources. The push for electrification is a momentous change the entire automotive industry is currently navigating, but that’s only part of the story:

• Supply chain disruptions are still causing delays in transportation, damaging service levels, and triggering production shutdowns.
• Inflation continues to drive up material and supply chain costs, squeezing margins — and in many cases, those costs are passed on to customers.
• Regulations and sustainability targets globally are becoming even more stringent.
• Operational capabilities may be lacking due to legacy planning processes or technology.
• Rising labor costs and skills shortages threaten productivity.   

It’s a lot to balance, making day-to-day stability, and the opportunity to focus on profitability, a challenge.  

The ability to plan proactively and accurately to account for this extreme volatility is an imperative — and leading automotive suppliers have started to adopt Integrated Business Planning (IBP) to do this. IBP is rooted in traditional sales and operation planning (S&OP) practices but extends further to integrate with more stakeholders and more data sources within the business. The goal of IBP is to identify risks, such as disruptions to the supply chain, and prepare strategies to mitigate the impact of those risks.  

IBP connects teams, processes, and technology through every stage of planning, improving cross-functional collaboration and optimizing decision-making in the business. For automotive suppliers, supply chain is a natural place to start on the IBP journey, helping to build resilience, improve competitive positioning, and achieve a positive impact on cash flow and liquidity.  

Why traditional planning falls short   

Traditional planning processes for automotive suppliers are geared toward a scenario that simply no longer exists: that of stable demand. As a result, these outdated processes are failing to drive value in the three key areas of revenue growth, supply chain resiliency, and working capital optimization. 

To achieve effective decision-making that centers around a single, aligned business plan, your financial and operational models must be based upon the most up-to-date, relevant data. IBP provides the business with access to this data, allowing you to make decisions that will directly impact the plan whenever the data changes. Without this, core enterprise functions will lack the insights they need to — for example — comprehend the impact that demand and supply decisions will have on P&L.  

All too often, automotive suppliers still base their plans on inefficient manual processes and spreadsheets, which are fed by siloed, inconsistent data originating from multiple sources. The planning process relies on multiple internal meetings to find insight from these disconnected sources in the business. This inevitably leads to errors, slow decisions, and lack of alignment across departments.  

Squandered opportunities  

Automotive suppliers are missing prospects for growth, owing to flawed decision-making and planning processes that are slow to react to market changes. Adapting quickly to mitigate risks becomes impossible. Lower fill rate levels risk delayed deliveries and poor customer experience, missed sales, and a reduced ability to meet after-market demand.  Because many of their processes are manual and spreadsheet-dependent, their processes are more reactive (risk management) than strategic.   

Opportunities to optimize supply chain costs are being left on the table, too. For example, less accurate demand forecasts may bring higher freight costs due to imprecise route planning, as well as higher warehousing costs. Poor inventory management is another potential impact, reducing your ability to maintain the right amount of product and materials at the right time. The cost of excess and obsolescence can be as damaging as the harm caused to sales and reputation in the case of a stockout.

Automotive suppliers have tried to strengthen their ability to react to risk and opportunity by introducing S&OP processes across multiple functions. But while S&OP practices help to identify risks, they often fall short of success as the function is too isolated and doesn’t sufficiently support proactive planning. Incremental development of existing practices isn’t enough to facilitate effective risk identification, assessment, and response.   

Leveraging a single source of truth  

Best-in-class auto suppliers are using IBP to improve their planning processes and save valuable time in cumbersome data reconciliation and review cycles. IBP extends and improves traditional S&OP practices by connecting crucial elements of the organization — such as finance, operations, commercial, and supply chain — as well as their individual planning processes. The objective is to enable the business to align behind one single operating plan, based on accurate and timely projections for demand, supply, product, and portfolio changes, and the resulting financial plans.   

At each stage of the planning process, IBP leverages real-time financial data, plans, and projections from across functions, and strongly links them with volume-based planning. Dynamic scenario planning allows you to run “‘what-if”’ scenarios to correlate supply and demand decisions to their impact on financials and identify the optimal strategy for the monthly planning cycle.  

What might this look like in reality?  

At the demand planning stage, you would review information integrated from all relevant departments to understand the demand gaps, then align on a plan to bridge those gaps, while fully understanding the impact that plan will have on P&L.  

Best practice IBP connects long-term strategic business planning to operational and tactical planning for the month ahead. This shift to a continuous planning motion allows you to pivot from a reactive stance when faced with risks and opportunities and become proactive instead.  

With IBP, data is centralized, granting all functions in your business the same view of current plans and how they will be executed. When a team member makes an update or inputs new data, the change is automatically cascaded down into dependencies. This breaks down silos — the biggest impediments to agile and efficient decision-making — and improves collaboration across the organization. As a result, the business is empowered to make strategic decisions quickly and confidently based on accurate data.

Preparing for the future

The implications of IBP for your organization’s bottom line are substantial:

• Higher growth — You can realize increased revenue through accurate demand planning and gain the ability to model P&L impact into key pricing decisions.
• A resilient and efficient supply chain — You can see improvements from accurate demand forecasts, together with lower freight, warehousing, and inventory holding costs.
• Optimized working capital — You can feel confident that you have the right amount of available inventory in your system, which frees up capital to drive ROI in other areas.  

Are you able to answer the following questions confidently?

• What impact will supply chain disruptions have on OEM orders in real time?
• How can I connect volume and value planning to break down silos and optimize planning?
• Is it the right time to make production line changes (ramp up, or sunset)?
• How in step is our operational and tactical planning with the enterprise’s long-term strategy?   

If you don’t have the answers, it may be time to mature your planning process.  

While it’s true that automotive suppliers have made progress with implementing IBP across some business functions, the planning maturity of this sector falls well behind other industries. This needs to change if you are to gain competitive advantage and deliver compelling outcomes. When you transition to mature IBP, you can unlock substantial value.   

Industry benchmarks indicate suppliers that leverage IBP see on average:

By connecting planning across the sales, supply chain, and finance functions, Anaplan helped a T1 auto component supplier in Japan to reduce the planning process from half a year to weeks and improve decision-making by integrating supply chain and finance data.

Realize next-generation planning capabilities

In a world where automotive companies face increased pressure on margins, market volatility, and a rapidly electrifying industry, your supply chain needs to be resilient and super-efficient. Automotive suppliers must act now to avoid missing growth opportunities — and nasty surprises in quarterly reviews.