Cost implications of the e-supply chain in the auto industry: results from a simple model

Abstract

The paper discusses how the ability of the automotive supply chain to exchange information and goods affects cost, comparing a traditional supply configuration to an e-supply chain, with information sharing over the internet. It proposes a simple model to replicate the functioning and cost structure of the supply chain, focusing the analysis on potential inventory reductions that may emerge from timely and accurate information on demand and supply. The results show that although the adoption of the internet may lead to a significant reduction in inventory cost in the supply chain upward from the retailers, the dispersion of the retail base severely limits any gains at this level. To fully leverage information access in terms of reductions in retail inventory requires concentration in distribution. The study also concludes that the internet can bring substantial gains in service levels, which will be able to improve at all levels of the chain, even if no changes in the distribution strategy are made. A final aspect highlighted is that greater physical proximity among the several stages of the chain has limited impact in the overall cost improvements in an internet-driven supply chain.