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Importance of EDI in the Automotive Industry

Highlights

  • Car manufacturing is a complicated process involving a tiered supply chain structure and multiple moving parts
    • EDI is quintessential in making the automotive supply chain simple
      • Car manufacturers should provide simple-to-use EDI instructions and tools to all the suppliers involved in the process

      Manufacturing of a car is an extremely complicated and elaborate process with multiple components, parts and modules involved across different entities. Bringing these entities together considering they are all in different locations across the world and sourcing raw material from them is not a joke.

      Let’s learn about how the automotive industry operates first. Here are some practices you should know:

      1. Lean manufacturing or production in the automotive industry:

      Toyota Motor Corporation developed a lean manufacturing model called the Toyota Production System that helps achieve highest quality, lowest cost, shortest lead time and eliminate waste. There are two strong pillars that this model is built namely:

        • Just-in-time that emphasizes on the fact that certain steps of the production phase shouldn’t start until a signal is given. With Covid, JIT became a no-brainer with extreme shortage of supply of goods.
          • Jidoka also referred to as autonomation (automation with human intelligence) that emphasizes on use of equipment to alert workers of a problem before more resources are wasted and separate human work and machine’s work
          1. Tiered Supply Chain Structure

          1. Tier 1 Suppliers: Upstream from the car manufacturer or OEM (Original Equipment Manufacturers) are the Tier 1 suppliers. These companies supply some of the largest components or sub-systems for the cars like suspension assembly, gearbox etc. They are the most important to the car manufacturers and are located near to the car manufacturers.
          1. Tier 2 suppliers: These companies provide components to Tier 1 suppliers, for example pump units, electric motors or bearing assemblies. They can be based anywhere in the world especially in the low-cost countries like India or China.
          1. Tier 3 Suppliers: These companies provide the Tier 2 suppliers with anything from brackets, seals through to machined components etc. They can also be based anywhere in the world.
          1. Raw Material Providers: These are companies like the steel manufacturers who will provide sheet products directly to the car manufacturers.
          1. 3PL (Third-Part Logistics providers): 3PLs are downstream from OEMs who distribute finished vehicles to storage compounds and vehicle distribution hubs located around the world. These get shipped to the dealer networks based on the timelines discussed.
          1. Business Communication

          Effective business communication and timely delivery of all parts and components being sourced from across all the above entities across the world becomes extremely crucial for smooth running of the production lines. In the most recent times, the pandemic changed everything and made it even more essential to re-think our digital strategy when it comes to business operations.

          Role of EDI in the Automotive Industry

          Considering so many moving parts in automotive, it’s imperative for businesses to:

          1. ensure smooth communication between manufacturers and suppliers
            • ensure arrival of requested components in time
              • onboard suppliers as quickly as possible even if they lack modern technology and communication
                • provide visibility of inventory levels and notifications of when shipments will arrive at the production line
                  • reduce hefty fines and fees if delivery windows aren’t met

                  EDI makes all of the above possible! Simple-to-use EDI instructions and interface is what is needed to be provided to all the suppliers involved in the car manufacturing process.

                  Because of the global nature and extensive industry wide standards of EDI, this technology has been the norm for decades and will be in the years to come.

                  Below are the standards specific to the automobile industry that have been developed in joint consultation with key players:

                    • GALIA (Groupement pour l’Amélioration des Liaisons Informatiques dans le secteur Automobile)
                      • ODETTE (Organization for Data Exchange by Tele Transmission in Europe)
                        • VDA (Verband Der Automobilindustrie) in Germany
                          • ASC (Accredited Standards Committee) with the ANSI X12 standard in North America

                          EDI Transactions Used in the Automotive Industry

                          Watch this video to learn about the most common transactions used in the automotive industry across both standards ANSI X12 and EDIFACT

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