The following commentary is also featured on the Supply Chain Expert Community web site where the author is a featured guest contributor.

Much has been stated and written noting the fact that global enterprises compete not only on the differentiation of offered products and services, but also on the differentiated capabilities of individual supply chains.  There are many industry case studies, but one that continues to evolve is the global automotive industry.

The global automotive industry has experienced a post-recessionary comeback from the depths of the 2008-2009 global financial crises. Growth markets have been in Eastern Europe, China, Latin and North America. There is, however, a strong possibility that the top three players including Toyota, will shift in ranking status because of a series of quality, supply chain disruption and economic setbacks.  Some industry watchers are predicting that Volkswagen will surpass both Toyota and General Motors for the top global spot.

The Financial Times (paid subscription or free metered view) has been featuring a series of running commentaries related to Volkswagen.  This auto maker is current on-track to sell 8 million vehicles on a global basis in 2011, and deploys a supply chain presence involving more than 90 manufacturing plants, over $80 billion in procurement activities supporting the building of 200 different vehicle models.  Revenues have increased 26 percent in the latest quarter with profits surpassing 13.6 billion euros. More importantly, the Times points out that industry competitors view VW as the benchmark for manufacturing efficiency and profitability, a competency that was once the sole purview of Toyota. VW was one of the first auto makers to invest in China, choosing a partnership strategy with existing Chinese producers SAIC and FAW.  Today, VW brands have the number one market status within China, followed by GM and Hyundai.

What is important to keep in mind relative to VW is its diversity of 10 car and truck brands, from low-cost to ultra- premium, its emphasis on integrating product engineering with production and global supply strategy needs, and a ruthless focus of product quality that stems from senior management. While various brands adhere to autonomy in vehicle design and pricing, areas of procurement and production focus on global supply chain leverage.  The more expensive Audi  and lower-cost VW brands are often produced with the same underlying platforms sharing similar supply components. Of late, various brands have customized vehicle features to accommodate local market needs and desires.

The competitive strategy among global automotive players is having the ability to leverage large volumes of vehicle production leveraging just a few vehicle platforms. We recently penned a Supply Chain Expert Community commentary reflecting on Fiat and Chrysler’s efforts to deploy a global supply chain strategy.

Another evolving strategy has been a renewed emphasis on vertical integration of supply, for instance, the ability to customize specialty steel designs.  Supply Chain Matters recently penned a commentary on Hyundai’s efforts in this area.

VW has been hard at work consolidating underlying product platforms to just two basic architectures, engine in transverse position, and engine in a longitudinal position. Engine and drivetrain production is shared among brands, and each Volkswagen-owned factory features the same processes and controls across the globe. VW is in the process of rolling out a “modular toolbox” manufacturing system that allows for platform sharing on a global-wide scale.

VW also believes in leveraged investment in IT technologies to streamline information flows, increase productivity among procurement and supply chain teams as well as enabling sense and respond capabilities to enhance local and global-wide decision-making.

But as the FT article rightfully points out, vast scale and commonality in procurement of components can lead to increased exposure to risk, as Toyota and other Japanese car makers discovered with the effects of the 2011 Japan tsunami and Thailand monsoon related floods. This places a renewed emphasis on risk mitigation and response management as important supply chain capability differentiators.  Recent reports indicate that Nissan may overtake Honda in global ranking, primarily because it was able to overcome recent natural disaster impacts more quickly.  For its part, VW management is reported to have been closely observing the effects that supply chain disruption can have to the overall business, along with the need for geographical redundancy of parts and production capability.

The global automotive industry ranking may well be different in the coming months and years, and the differentiators in our view, will be the seamless integration of product platform design, procurement sourcing, consistency in manufacturing and agility in global supply chain response capabilities.

Bob Ferrari

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