Supply Chain Metrics That Matter – A Focus on Automotive Companies 2017

A Focus on Automotive Companies
A Seven-Year View of Progress on Supply Chain Excellence
08/21/2017
By Lora Cecere
Founder and CEO
Supply Chain Insights LLC
and Samuel Borthwick
Research Associate
Supply Chain Insights LLC
Supply Chain Metrics That Matter

Contents
Research
Disclosure
Executive Overview
A Closer Look at the Industry
Growth
Value
Performance
Cycle
Industry Focus
Recommendations
Conclusion
Appendix
Other Reports in This Series
About Supply Chain Insights LLC
About Lora Cecere
About Sam Borthwick
Endnotes
3
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4
6
10
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Research
Supply Chain Metrics That Matter is a series of reports published throughout the year by Supply
Chain Insights LLC. Each report in the series is a deep analysis of supply chain performance within
an industry. This report focuses on the automotive industry for the period of 2010-2016. Here we
analyze how companies made trade-offs to balance growth, profitability, cycles and complexity.
Within the world of Supply Chain Management, each industry is unique. We believe that it is
dangerous to list all industries in a spreadsheet and declare a supply chain leader. Instead, we
believe supply chain excellence needs to be managed with a focus on a balanced portfolio of metrics,
with a focus, over time, by peer group. In this series of reports, we analyze the potential of each
supply chain peer group, share insights from leaders within each industry, and give recommendations
based on general market trends.
Disclosure
Your trust is important to us. As such, we are open and transparent about our financial relationships
and our research process. This independent research is 100% funded by Supply Chain Insights.
These reports are intended for you to read, share, and use to improve your supply chain decisions.
Please share this data freely within your company and across your industry. All we ask for in return is
attribution when you use the materials in this report. We publish under the Creative Commons
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here.

Executive Overview
Electric vehicles. Autonomous cars. Shared car ownership through Uber and Lyft. While the
automotive industry emerged from the recession with the best balance sheet performance of any
manufacturing industry, the future poses new challenges. Today’s questions are: “Can the industry
reinvent itself? Is Google the new General Motors?” Traditional automakers fear the “Google effect” in
the same way that retailers fought the “Amazon impact” a decade ago. All know that it is coming. The
question is “Can the traditional automotive industry adapt?” The jury is out. The processes are old
and stodgy, and supplier relationships are combative. This is not the industry of enlightened supplier
development or inter-enterprise process automation. The industry responds in traditional, rote
processes. A recent example is the failure to recognize the shift from four-door sedans to family-
centered SUVs in 2017. The processes are consistently out of step with the market.
To better understand the industry in the context of supply chain management, let’s start by looking
back. As shown in Table 1, the impact of the recession, with a decrease in consumer spending,
surprisingly drove growth in the automotive industry at a faster pace than any other manufacturing
industry. In the automotive value chain, the auto manufacturer fared much better than component
suppliers or the other supporting manufacturing industries. The industry has consistently pushed cost
and waste back in the supply chain, lengthening payables and enforcing tougher procurement
policies. Investment in traditional work processes, and factory automation, improved operating margin
and inventory turns.
To understand the table, let’s walk through some of the details. Most automotive manufacturers would
like to forget the end of the recession. 2010 was a tough year. This industry, hit hard by the
recession, was regrouping in 2010. Balance sheets and income statements were just starting to
recover from the blow of the economic downturn. As a result, when we compare 2016 to 2010, the
results of 2016, with a post-recessionary recovery, show a marked improvement to the weak
performance of 2010.
In the period of 2010-2016, the automotive industry averaged 5% annual growth. When the period of
2016 is compared to 2010, growth is down 45%. The green arrows in Table 1 indicate improvement
while the red arrows show a decline in performance when 2016 is compared to 2010. Across all
metrics except growth, inventory turns, and Sales & General Administrative Expense (SG&A), the
position of the automotive manufacturer in 2016 is dramatically better than 2010.

Table 1. Industry Overview of Trends for the Period of 2010-2016
The automotive world is largely ‘push’. In North America, automotive manufacturing plants are
scheduled to maximize Return on Assets (ROA) and the automobiles are pushed to dealers. The
selection of cars at a dealer does not match demand. Demand sensing, localized assortment and
customer sentiment are gaps. Companies struggle to redesign to embrace e-commerce and new
business models.
In the past seven years, as automotive supply chains became more global with greater dependency
on sourcing, the severity of product recalls increased. The effective translation of quality of design
into quality of conformance in a global supply chain of interconnected supplier relationships remains
an opportunity. Likewise, as a larger percentage of the automobile becomes software and technology,
the management of maintenance with shorter high-tech life cycles is testing the warranty, repair and
claim service model.

A Closer Look at the Industry
When we first started the research on the Supply Chain Metrics That Matter report series, we
believed that through the combination of an investment in technology, people, and process, that
companies could drive results as shown in Figure 1. This is the conventional wisdom within an
automotive company.
Figure 1. Driving Performance Improvement
When we examine actual performance, as shown in Figures 2 and 3, a different picture emerges. An
orbit chart enables a study of year-over-year patterns at the intersection of metrics. The averages for
each company are shown in the boxes on the chart. The larger the pattern, the less resiliency of the
supply chain.
In Figures 2, 3 and 4 we contrast the performance of automotive manufacturers. The business
models of North American giants General Motors and Ford are dramatically different than the Asian
or European manufacturers.
Fuji Heavy Industries, Ltd. (now Subaru) is the supply chain leader. Fuji drove greater metrics
improvement with higher performance than any other competitor. In general, North American
manufacturers post worse performance than those headquartered in Europe and Asia. In Figure 2,

let’s take a closer look at the performance of Ford and General Motors. The average operating
margin for Ford for the period of 2010-2016 is 4%, as contrasted to a negative 3% for General
Motors. The inventory turns for Ford are 16 versus 7 for General Motors. However, the patterns tell
the story. The wide performance swings of General Motors show a lack of control of the Metrics That
Matter. The tighter the pattern, the more resilient the company on delivering supply chain
performance. In Figure 2, Ford is more resilient and a higher performer than General Motors.
Figure 2. Orbit Chart of General Motors and Ford Motor Company
In contrast, Fuji and Audi (two of the top performing supply chains within the industry) show a pattern
of more controlled improvement in Figure 3. Audi is performing at a higher level of value with an
operating margin of 8% and inventory turns of 9%. However, Audi performance shows a downturn in
2014-2016 while Fuji performance continues to improve. Topping out in supply chain performance of
a supply chain leader like Audi is common. Across the industries, companies struggle to balance
improvement with performance. The stronger the performance of a company, the harder it is to drive
improvement. An analogy is that of a lean athlete in top performance. When individuals train, it is
easier to drive lean muscle mass for the unfit. For the top tier athlete, the rate of performance
improvement is slower.

Figure 3. Orbit Chart of Fuji Heavy Industries (now Subaru) and Audi
Figure 4. Orbit Chart of Toyota and Honda

While many would advocate that the investment in Lean processes is the answer for sustained
improvement, we do not see this in the numbers. Toyota and Honda, both known for Lean processes,
struggled in this time frame as shown in Figure 4. Honda is regressing while Toyota has only been
able to reverse a negative trend in the last three years.
To help companies understand supply chain excellence, we developed the Supply Chains to Admire
analysis. We share an overview of the analysis in Figure 5, and a more complete discussion in the full
Supply Chains to Admire 2017 report. The only company to meet the criteria of driving improvement,
and outperforming on a balanced portfolio of metrics while posting value higher than their peer group
is Fuji Heavy Industries, Ltd., now known as Subaru.
Figure 5. Overview of the Supply Chains to Admire Analysis
Figure 6. Winners of the 2017 Supply Chains to Admire Analysis

Growth
Coming off the recession, automotive companies were propelled into a growth mode. In Table 2 we
contrast growth with improvement in the Metrics That Matter as measured by the Supply Chain
Indexi
. Tesla is the growth leader. Innovation in electric/battery powered automobiles propelled a new
market and growth opportunity. For the traditional automotive market, the levels of growth post-
recession were equal to those of pre-recession. In the traditional automotive market, as shown in
Table 2, Audi. BMW, Fiat and Fuji enjoyed the highest levels of growth. There is also no correlation
between growth and improvement. Usually, in our analysis, companies with higher growth rates will
also demonstrate higher levels of improvements.
Table 2. Growth and the Supply Chain Index in the Automotive Industry
Post-recession growth is 50% of pre-recession sales.

Value
Traditional supply chain leaders focus on costs, not on value. There is no industry-standard definition
for value. Here we share the results on two value metrics: market capitalization and Price to Tangible
Book Value. For the industry, the Price to Tangible Book Values are low. Tesla is the top performer.
Table 3. Company Overview of Market Capitalization and Price to Tangible Book Value

Performance
With a strong culture of cost reduction and high labor input, automotive companies focused on
reducing labor cost per unit. When we compare the values of 2004-2006 to the post-recession period
of 2010-2016, we see that employee productivity improved drastically at 226% while operating margin
improved slightly. The increase in platform complexity along with globalization challenged the
industry. While cash-to-cash improved, the greatest driver was the increase in payables. The industry
posted a slight improvement in inventory for the period of 2006-2010.
Table 4. Company Overview and Performance for Automotive Companies

Cycle
Cash-to-cash cycles is a compound metric that combines Days of Receivables, Days of Inventory,
and Days of Payables. The formula is:
𝐶𝑎𝑠ℎ − 𝑡𝑜 − 𝐶𝑎𝑠ℎ = 𝐷𝑎𝑦𝑠 𝑜𝑓 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 + 𝐷𝑎𝑦𝑠 𝑜𝑓 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 − 𝐷𝑎𝑦𝑠 𝑜𝑓 𝑃𝑎𝑦𝑎𝑏𝑙𝑒𝑠
In Table 5 we share the impact of supply chain decisions on the components of cash-to-cash. As
receivables increased from downstream customers, the industry elongated payables, improving cash-
to-cash. The impact penalizes suppliers.
Table 5. Impact on Cash-to-Cash Elements

Industry Focus
To get a flavor for the industry, we comb through annual reports to consolidate supply chain related
trends. This allows the reader to “hear the voice of the industry.” Significant trends for the period of
2014-2016 were the race for market share in the growing Chinese market, coping with globalization,
increasing regulation, and the management of suppliers. Note that no industry player during this
period made a significant improvement in building a value network with suppliers. Using portals, and
EDI documents for data sharing, the industry is ripe for change. Here we share relevant excerpts from
annual reports:
2014
Bayerische Motoren Werke AG (BMW)
The global automobile market continues to expand: from around 62 million new vehicle registrations in 2007 to
more than 80 million in 2014. We see no contradiction between participating in this growth and maintaining the
desirability of our premium brands. In 2014, we continued to create the conditions necessary for strategic
expansion of our global production network. In October, the first car rolled off the assembly line at our new
plant in Araquari, Brazil. This gives us a permanent presence in an important growth region.1
The primary focus of the BMW Group’s purchasing and logistics activities is to achieve an optimal balance of
quality, innovation, flexible supply structures and competitive cost. In this context, we therefore go to great
lengths to design the supply chain with our business partners, thus ensuring that we can react rapidly and
flexibly at all times to fluctuations in order volumes, even within a volatile environment.2
The BMW Group’s worldwide workforce had grown to a total of 116,324 employees at 31 December 2014
(2013: 110,351 employees; + 5.4%). The increase was attributable mainly to the expansion of our international
production network and the increased scale of development activities to generate innovations and new
technologies for the future. Engineers and skilled staff were recruited specifically for this purpose.3
The BMW Group improves resource efficiency by integrating environmental management in all of its production
processes. Since 2006 we have reduced both the volume of resources utilised and the emissions per vehicle
produced by an average of 45.0%.4
Fiat Chrysler
Net revenues for the year ended December 31, 2014 were €96.1 billion, an increase of €9.5 billion, or 10.9
percent (11.9 percent on a constant currency basis), from €86.6 billion for the year ended December 31, 2013.
1
Annual Report 2014, March 5, 2015, p. 17, https://www.bmwgroup.com/en/investor-relations/financial-reports.html, accessed
July 27, 2017
2
July 27, 2017
3
July 27, 2017
4
July 27, 2017

The increase in net revenues was primarily attributable to (i) a €6.7 billion increase in NAFTA net revenues,
related to an increase in shipments and improved vehicle and distribution channel mix, (ii) a €1.6 billion
increase in APAC net revenues attributable to an increase in shipments and improved vehicle mix, (iii) a €1.1
billion increase in Maserati net revenues primarily attributable to an increase in shipments, (iv) a €0.7 billion
increase in EMEA net revenues mainly attributable to an increase in shipments and improved mix, and (v) an
increase of €0.5 billion in Components net revenues, which were partially offset by (vi) a decrease of €1.3
billion in LATAM net revenues. The decrease in LATAM net revenues was attributable to the combined effect
of lower vehicle shipments and unfavorable foreign currency translation effect related to the weakening of the
Brazilian Real against the Euro, only partially offset by positive pricing and vehicle mix.5
The decrease in LATAM EBIT was primarily attributable to the combination of (i) an increase in industrial costs
of €257 million related to increased labor costs and price increases for certain purchases, as the weakening of
the Brazilian Real affected the prices of foreign currency denominated purchases, (ii) unfavorable volume/mix
impact of €111 million, driven by the combination of the previously described 3.0 percent decrease in
shipments, and an increase in the proportion of vehicles produced in Argentina, for which we have higher
manufacturing and logistic costs than in Brazil, (iii) a €96 million increase in other unusual expenses, (iv) the
impact of unfavorable foreign currency translation of €77 million related to the previously described weakening
of the Brazilian Real against the Euro and (v) an increase in selling, general and administrative costs of €37
million mainly due to new advertising campaigns in Brazil, which were partially offset by favorable pricing
impact of €64 million, supported by new product launches.6
General Motors Company
The automotive industry conditions in Europe remain challenging due to economic uncertainty resulting from
weak gross domestic growth, high unemployment and vehicle production overcapacity. Despite such
conditions, automotive industry sales to retail and fleet customers began to improve in the three months ended
December 31, 2013 compared to the corresponding period in 2012. This trend continued in 2014 with industry
sales to retail and fleet customers of 19 million vehicles representing a 1.8% increase compared to the
corresponding period in 2013. Our European operations are benefiting from this trend and continue to show
signs of improvement underscored by further improvement in our Opel and Vauxhall market share in the year
ended December 31, 2014, which builds on our first market share increase in 14 years in 2013. This market
share increase was partially driven by the success of the recently launched Opel Mokka.
We continue to implement various strategic actions to strengthen our operations and increase our
competitiveness. The key actions include investments in our product portfolio including the next generation
Opel Astra and Corsa, a revised brand strategy and reducing material, development and production costs,
including restructuring activities. The success of these actions will depend on a combination of our ability to
execute and external factors which are outside of our control.7
We view the Chinese market as important to our global growth strategy and are employing a multi-brand
strategy, led by our Buick and Chevrolet brands. In the coming years we plan to increasingly leverage our
global architectures to increase the number of nameplates under the Buick, Chevrolet and Cadillac brands in
China and continue to grow our business under the Baojun and Wuling brands. We operate in the Chinese
5
FCA Annual Report At December 2014, March 5, 2015, p. 56, https://www.fcagroup.com/en-
US/investors/financial_regulatory/financial_reports, accessed July 27, 2017
6
FCA Annual Report At December 2014, March 5, 2015, p. 71, https://www.fcagroup.com/en-
7
General Motors Company 2014 Annual Report, February 4, 2015, p. 32, http://www.gm.com/mol/shareholder-information.html,
accessed July 27, 2017

market through a number of joint ventures and maintaining good relations with our joint venture partners, which
are affiliated with the Chinese government, is an important part of our China growth strategy.8
Ford Motor Company
North America continued to benefit from robust industry sales, our strong product line-up, continued discipline
in matching production to demand, and a lean cost structure. For the full year, total U.S. market share was
down 1 percentage point, primarily reflecting lower F-150 share as we prepared for the all-new vehicle by
balancing share with transaction prices and stocks, as well as a planned reduction in daily rental sales. U.S.
retail share of retail industry was down 0.6 percentage points.9
In South America, we are continuing to execute our strategy of expanding our product line-up, including
replacing legacy products with global One Ford offerings. We also are continuing to manage the effects of
slowing GDP growth, lower industry volumes in our larger markets, weaker currencies, high inflation, as well as
policy uncertainty in some countries.10
We project global economic growth to be in the 3% range led by the United States and China. Global industry
sales are expected to grow to between 88 million and 92 million units after estimated sales of 88 million units in
2014. U.S. economic growth is expected to be in the 3% range. Consumer sentiment is improving, along with
lower fuel prices, which will boost consumer spending, providing support for growth. South America faces
continued market volatility and policy uncertainty. A weak recovery is expected in Brazil while Argentina and
Venezuela will remain in recession. In Europe, growth in the Euro Area slowed after the first quarter of 2014,
but is projected at just above 1% in 2015. Growth in the United Kingdom is projected to remain in the 2.5% to
3% range. In Russia, the combination of lower oil prices, geopolitical events, and ruble depreciation will lead to
a sharp decline in gross domestic product and higher inflation. In Asia Pacific, China’s economic growth is
projected to be in the 7% to 7.5% range; consumer income growth will support an increase in vehicle sales but
at a more moderate pace this year. With some encouraging signs of improvement, growth in India is projected
to rise above 6% in 2015, supported by a more favorable policy environment. Overall, despite challenges in
some key markets, we expect the global economy to grow in 2015 and be supportive of our projection for
higher global industry volume this year.11
2015
BMW
Worldwide registrations of passenger cars and light commercial vehicles grew by 3.3 % to 82.4 million units.
The two largest automobile markets, the USA and China, were once again the mainstays driving this outcome.
Registration figures in China, for instance, increased by 8.9 % to 20.5 million units. Although this number
points to a weaker performance than one year earlier, the Chinese market nevertheless increased the gap
between itself and the US market, which grew by 5.7 % to 17.5 million units.12
8
9
Ford Motor Company 2014 Annual Report, February 13, 2015, p. 43, http://shareholder.ford.com/reports-and-filings/annual-
reports, accessed July 27, 2017
10
11
12
Annual Report 2015, February 25, 2016, p. 25, https://www.bmwgroup.com/en/investor-relations/financial-reports.html,

Sustainability criteria are not only a vital aspect of inhouse production, they also play a major role in the
selection and assessment of suppliers as well as in the field of transport logistics. The active management of
sustainability risks along the supply chain mitigates compliance and image risks. With this in mind, the BMW
Group has integrated a comprehensive system of sustainability management in its purchasing processes. The
amount of energy required for transportation worldwide has continued to rise sharply in recent years. In order
to keep CO2 emissions to an absolute minimum, the principle “production follows the market” is applied. In
addition, the proportion of CO2-efficient modes of transport is being increased continually.13
Increased globalisation, the interconnected nature of supplier markets and the widespread expansion of BMW
Group sales and production operations around the world mean that the distribution of purchase volumes is
changing continuously. In the coming years, the NAFTA region in particular will be the focus of growth, given
the increasing volume of production planned for the Spartanburg plant in the USA. The addition of the BMW
Group’s new plant in San Luis Potosí, Mexico, which is scheduled to open in 2019, will reinforce this shift. The
BMW Group remains committed to achieving globally balanced growth in terms of sales, production and
purchase volumes. This strategy also makes an important contribution to natural currency hedging.14
Fiat Chrysler
Due to a continued shift in consumer preference towards utility vehicles and pickup trucks in the NAFTA
region, we intend to realign our installed capacity in the region to better meet demand for Ram pickup trucks
and Jeep vehicles within our existing plant infrastructure by discontinuing production of our Chrysler 200 and
Dodge Dart passenger cars. Due to a continued shift in consumer preference towards utility vehicles and
pickup trucks in the NAFTA region, we intend to realign our installed capacity in the region to better meet
demand for Ram pickup trucks and Jeep vehicles within our existing plant infrastructure by discontinuing
production of our Chrysler 200 and Dodge Dart passenger cars.15
U.S. automotive market sales have steadily improved after a sharp decline from 2007 to 2010. U.S. industry
sales, including medium- and heavy-duty vehicles, increased from 10.6 million units in 2009 to 17.8 million
units in 2015, an increase of approximately 68 percent. Both macroeconomic factors, such as growth in per
capita disposable income and improved consumer confidence, and automotive specific factors, such as the
increasing age of vehicles in operation, improved consumer access to affordably priced financing and higher
prices of used vehicles, contributed to the strong recovery.16
Automotive industry volume continued to grow in North America primarily driven by the U.S. market. In 2015
U.S. industry light vehicle sales were 17.5 million units, up 1.0 million units from 2014. Based on our current
cost structure and variable profit margins, we estimate GMNA’s breakeven point at the U.S. industry level to be
in the range of 10.0 — 11.0 million units. In the year ended December 31, 2015 our U.S. vehicle sales totaled
3.1 million units for a U.S. market share of 17.3%, representing a decrease of 0.1 percentage points compared
13
14
15
FCA Annual Report At December 2015, February 29, 2016, p. 34, https://www.fcagroup.com/en-
16
FCA Annual Report At December 2015, February 29, 2016, p. 41, https://www.fcagroup.com/en-
US/investors/financial_regulatory/financial_reports, accessed July 2017

to 2014. The decrease in our U.S. market share was primarily driven by lower fleet market share, partially
offset by higher retail market share. U.S. retail market share, which is generally more profitable than U.S. fleet
market share, increased by 0.4 percentage points, primarily driven by Chevrolet and GMC.
In November 2015 we entered into a collectively bargained labor agreement with the International Union,
United Automobile, Aerospace and Agriculture Implement Workers of America (UAW). The agreement, which
has a term of four years, covers the wages, hours, benefits and other terms and conditions of employment for
our UAW represented employees.
As a result of moderate economic growth across Europe (excluding Russia) this trend continued in the year
ended December 31, 2015 with industry sales to retail and fleet customers of 17.7 million vehicles representing
a 9.3% increase compared to 2014. In Russia industry sales to retail and fleet customers decreased 36.1% to
1.6 million vehicles compared to the corresponding period in 2014. Our European operations are benefiting
from this trend and, despite seasonally weak vehicle sales in the second half of 2015 compared to the first half
of 2015, continue to show signs of improvement underscored by further improvement in our Opel and Vauxhall
market share in the year ended December 31, 2015, which builds on our market share increases in 2013 and
2014.
In China we are experiencing a moderation of industry growth and pricing pressures higher than we initially
anticipated due primarily to macroeconomic volatility, softening consumer demand particularly in the
commercial vehicle segment, increasing competition and a complex regulatory environment. This has resulted
in 4.2% growth in industry sales to 25.1 million units in 2015.
Ford Motor Company
We expect continued benchmark profitability in North America in 2016 as we launch important high-volume
products, such as Escape, Fusion, and Super Duty, and pursue emerging opportunities through Ford Smart
Mobility. In South America, we expect losses to be higher in 2016 as industry volumes reduce further and
regional currencies weaken. We expect Europe’s profit to grow in 2016 as we take further actions on costs to
improve Europe’s breakeven volume, help offset increasing regulatory costs, and invest in profitable, growing
product segments and mobility services. We expect Middle East & Africa to deliver results in 2016 that are
equal to or higher than 2015 as we continue to implement the growth strategy we developed in 2015. We
expect Asia Pacific’s profits to be higher in 2016 and we expect industry growth in China, partially as a result of
the purchase tax reduction introduced in 2015.20
17
18
19
20

2016
BMW
New production records were set in 2016, with a total of 2,359,756* BMW, MINI and Rolls-Royce brand
vehicles manufactured (2015: 2,279,503* units; + 3.5%), comprising 2,002,997* BMW (2015: 1,933,647* units;
+ 3.6 %), 352,580 MINI (2015: 342,008 units; + 3.1%) and 4,179 Rolls-Royce brand vehicles (2015: 3,848
units; + 8.6%).21
The German plants play a leading role within the Group’s international network. For the sixth year in
succession, the BMW Group produced over one million vehicles at its German plants in Munich, Dingolfing,
Regensburg and Leipzig.22
In 2016, the joint venture BBA opened a new engine plant in Shenyang (China) to produce the latest
generation of BMW TwinPower Turbo 3- and 4-cylinder petrol engines.23
Purchasing risks relate primarily to supply risks caused by the failure of a supplier to deliver as well as risks
associated with the quality of bought-in parts. Production problems incurred by suppliers could have adverse
consequences for the BMW Group, ranging from increased expenditure through to production interruptions and
a corresponding reduction in sales volume. The increasingly complex nature of the supplier network, especially
at the level of lower tier suppliers, whose operations can only be indirectly influenced by the BMW Group, is a
further potential cause of downtimes at supplier locations. Purchasing risks, if materialised, could have a high
earnings impact over the two-year assessment period. The risk level attached to purchasing risks is classified
as medium.24
Fiat Chrysler
In May 2014, we announced our 2014-2018 Business Plan, which focused on: strengthening and differentiating
our portfolio of brands, including the globalization of Jeep and Alfa Romeo; volume growth; continued platform
convergence and focus on cost efficiencies, as well as enhancing margins and strengthening our capital
structure. In 2016, we continued to make significant strides toward accomplishing these objectives, including
by: Improving our capital structure by completing the separation of Ferrari by the spin-off of our remaining
interest to our shareholders, eliminating the ring-fencing of FCA US cash and reducing Net industrial debt to
€4.6 billion; Strengthening our brand portfolio through the launch of nine all-new products, which included six
additions to the Group’s portfolio (Fiat Tipo, Toro, Fullback and 124 Spider, Maserati Levante and Alfa Romeo
Giulia) to address vehicle segments and offerings for which we had not previously had a vehicle, as well as the
Chrysler Pacifica, Jeep Compass and Fiat Mobi; Continuing to grow global Jeep volumes, with over 1.4 million
vehicles sold worldwide in 2016; and Ending production of the Chrysler 200 and Dodge Dart passenger cars
and beginning the process of re-purposing this installed capacity to produce higher margin Ram pickup trucks
and Jeep vehicles.25
21
22
23
24
25
FCA 2016 Annual Report, February 14, 2017, p. 36, https://www.fcagroup.com/en-

Throughout our manufacturing operations, we have deployed World Class Manufacturing (“WCM”) principles.
WCM principles were developed by the WCM Association, a non-profit organization dedicated to developing
superior manufacturing standards. We are the only OEM that is a member of the WCM Association. WCM
fosters a manufacturing culture that targets improved safety, quality and efficiency, as well as the elimination of
all types of waste.26
After a sharp decline from 2007 to 2010, the U.S. automotive market sales steadily improved through 2015 and
have remained stable in 2016. U.S. industry sales, including medium and heavy-duty vehicles, increased from
10.6 million units in 2009 to 17.9 million units in 2016. The strong recovery in automotive sector in 2015 was
supported by robust macroeconomic and automotive specific factors, such as growth in per capita disposable
income, improved consumer confidence, the increasing age of vehicles in operation, improved consumer
access to affordably priced financing and higher prices of used vehicles. While these contributing factors
remain relatively strong, some of them have begun to moderate in 2016, which has resulted in a plateauing of
auto sales, albeit at high levels on a historic basis.27
Governmental agencies in both the U.S. and Canada continue to introduce new regulations and legislation
related to the selection and use of automotives or substances of concern by mandating broad prohibitions,
green chemistry, life cycle analysis and product stewardship initiatives. These initiatives give broad regulatory
authority to ban or restrict the use of certain automotive substances and potentially affect automobile
manufacturers’ responsibilities for vehicle components at the end of a vehicle’s life, as well as automotive
selection for product development and manufacturing. Automotive restrictions in Canada are progressing
rapidly as a result of Environment Canada’s Automotive Management Plan to assess existing substances and
implement risk management controls on any automotive deemed toxic. In June 2016, the U.S. enacted the
Automotive Safety for the 21st Century Act that grants the EPA more authority to regulate and ban automotives
from use in the U.S. and is expected to increase the level of regulation of automotives in vehicles. These
emerging regulations will potentially lead to increases in costs and supply chain complexity. We believe that we
are materially in compliance with substantially all of these requirements or expect to be materially in
compliance by the required date.28
Any disruption in our suppliers’ operations could disrupt our production schedule. Our automotive operations
are dependent upon the continued ability of our suppliers to deliver the systems, components, raw materials
and parts that we need to manufacture our products. Our use of “just-in-time” manufacturing processes allows
us to maintain minimal inventory quantities of systems, components, raw materials and parts. As a result our
ability to maintain production is dependent upon our suppliers delivering sufficient quantities of systems,
components, raw materials and parts on time to meet our production schedules. In some instances we
purchase systems, components, raw materials and parts from a single source and may be at an increased risk
for supply disruptions. Financial difficulties or solvency problems with our suppliers, including Takata, which
may be exacerbated by the cost of remediating quality issues with these items, could lead to uncertainty in our
supply chain or cause supply disruptions for us which could, in turn, disrupt our operations, including
26
27
28
2016 Form 10K General Motors, February 7, 2017, p. 9, http://www.gm.com/mol/shareholder-information.html, accessed July 27,
2017

production of certain of our higher margin vehicles. Where we experience supply disruptions, we may not be
able to develop alternate sourcing quickly. Any disruption of our production schedule caused by an unexpected
shortage of systems, components, raw materials or parts even for a relatively short period of time could cause
us to alter production schedules or suspend production entirely.29
Ford Motor Company
We purchase a wide variety of raw materials from numerous suppliers around the world for use in production of
our vehicles. These materials include base metals (e.g., steel, iron castings, and aluminum), precious metals
(e.g., palladium), energy (e.g., natural gas), and plastics/resins (e.g., polypropylene). We believe we have
adequate supplies or sources of availability of raw materials necessary to meet our needs. There always are
risks and uncertainties with respect to the supply of raw materials, however, which could impact availability in
sufficient quantities to meet our needs.
Our Automotive segment frequently has expenditures and receipts denominated in foreign currencies,
including the following: purchases and sales of finished vehicles and production parts, debt and other
payables, subsidiary dividends, and investments in foreign operations. These expenditures and receipts create
exposures to changes in exchange rates. We also are exposed to changes in prices of commodities used in
our Automotive segment and changes in interest rates.
Many components used in our vehicles are available only from a single supplier and cannot be re-sourced
quickly or inexpensively to another supplier (due to long lead times, new contractual commitments that may be
required by another supplier before ramping up to provide the components or materials, etc.). In addition to the
general risks described above regarding interruption of supplies, which are exacerbated in the case of single-
source suppliers, the exclusive supplier of a key component potentially could exert significant bargaining power
over price, quality, warranty claims, or other terms relating to a component.
29
2016 Form 10K General Motors, February 7, 2017, p. 15, http://www.gm.com/mol/shareholder-information.html, accessed July
27, 2017
30
Ford Motor Company 2016 Annual Report, February 9, 2017, p. 3, http://shareholder.ford.com/reports-and-filings/annual-reports,
31
32

Recommendations
In supply chain benchmarking it is important to look at performance and improvement of peer
companies over time. Here we look critically at the automotive industry for the period of 2010-2016. In
these sectors, a focus on historic continuous improvement and believed best practices made the
industry slow to shift to market dynamics. As a result, the industry is stuck and even going backwards
in important metrics like growth, and inventory. As companies study supply chain excellence and
corporate performance, we recommend that supply chain leaders:
1) Build a Guiding Coalition to Drive Improvement Based on Industry-Specific Data.
Organizations should benchmark companies within an industry. Each industry has unique rhythms
and cycles. As a result, supply chain excellence analysis needs to be within an industry.
2) Understand Supply Chain Potential and Orchestrate Trade-offs on the Effective Frontier. The
supply chain is a complex system, with interrelated metrics, with nonlinear relationships. Supply
chain leadership teams should analyze the total portfolio of metrics and study progress at the
intersections of the Effective Frontier. Companies with higher performance are using more
advanced analytics to plan outcomes and design the supply chain.
Figure 7. The Supply Chain Effective Frontier
3) Apply Systems Theory. Teams should evaluate performance over time to understand
improvement, while realizing they are managing a complex system. The functions should be
aligned to a balanced portfolio of metrics representing the Effective Frontier, while functional
metrics should be focused on improving reliability (e.g., first-pass yield, hands-free orders, and
supplier quality, etc.).
4) Focus on Building Value Networks. While many of these companies could be a powerbroker in
the industry to redefine outside-in processes, all companies are accepting the limitations of the

inside-out supply chain. They operate functional silos with a traditional supply paradigm. The
traditional focus of Lean is not sufficient. This is an opportunity for the industry.
5) Learn from Other Industries. Use a Steady Hand/Focused Leadership to Drive Improvement.
To make the necessary improvements, companies today must move past an “ERP-centric view”
and build outside-in processes with a focus on value-based outcomes. Network design, supply
chain planning, and revenue management are opportunities for process excellence. The
automotive industry should turn to the high-tech industry to benchmark and drive innovation.
Conclusion
Post-recession, the automotive industry made the most progress of any manufacturing sector. In
general, European manufacturers post the best performance and North American companies the
worst. With a strong focus on supply, the automotive value chain is based on traditional buy/sell
relationships and enterprise automation. There is an opportunity to redefine demand, outside-in, and
build/operate effective value networks.
While Audi, BMW and Fiat posted positive performance trends, Fuji Heavy Industries, now known as
Subaru, rose above and made the 2017 Supply Chains to Admire awards list (driving improvement
faster than competitors while outperforming the industry).

Appendix
The Supply Chain Index is a measurement of supply chain improvement. We find that supply chain
leaders are usually above their peer group in performance, in the upper 2/3 of the Supply Chain
Index. Companies with low Supply Chain Index scores are usually driving improvement, but are new
at the journey; as a result, the rate of change on Supply Chain Improvement is quicker than that of a
more mature company.
Table A. Performance Factor Analysis on the Supply Chain Index

Other Reports in This Series:
Supply Chain Metrics That Matter: A Focus on the Automotive Industry
Published by Supply Chain Insights in November 2012
Supply Chain Metrics That Matter: A Closer Look at Automotive Companies
Published by Supply Chain Insights in May 2014
Supply Chain Metrics That Matter – A Focus on Automotive Companies – 2015
Supply Chain Metrics That Matter: A Focus on Consumer Products – 2015
Published by Supply Chain Insights in August 2015
Supply Chain Metrics That Matter: A Focus on the High-Tech Industry – 2015
Published by Supply Chain Insights in January 2016
Supply Chain Metrics That Matter: A Focus on Pharmaceutical Companies – 2016
Supply Chain Metrics That Matter: A Focus on Medical Device Companies – 2016
Supply Chain Metrics That Matter: A Focus on Food and Beverage Companies-2016
Published by Supply Chain Insights in June 2016
Supply Chain Metrics That Matter – A Focus on Chemical Companies
Published by Supply Chain Insights in July 2017
Supply Chains to Admire 2014
Published by Supply Chain Insights in September 2014
Published by Supply Chain Insights in September 2015
Published by Supply Chain Insights in July 2016
Published by Supply Chain Insights in June 2017
These reports, and additional information on the Supply Chain Metrics That Matter methodology, are
available at our Supply Chain Insights website and in the Beet Fusion community.

About Supply Chain Insights LLC
Founded in February 2012 by Lora Cecere, Supply Chain Insights LLC is beginning its fifth year of
operation. The Company’s mission is to deliver independent, actionable, and objective advice for
supply chain leaders. If you need to know which practices and technologies make the biggest
difference to corporate performance, we want you to turn to us. We are a company dedicated to this
research. Our goal is to help leaders understand supply chain trends, evolving technologies and
which metrics matter.
About Lora Cecere
Lora Cecere (twitter ID @lcecere) is the Founder of Supply Chain Insights LLC and
the author of popular enterprise software blog Supply Chain Shaman currently read
by 15,000 supply chain professionals. She also writes as a Linkedin Influencer and
is a a contributor for Forbes. She has written five books. The first book, Bricks
Matter, (co-authored with Charlie Chase) published in 2012. The second book, The
Shaman’s Journal 2014, published in September 2014; the third book, Supply
Chain Metrics That Matter, published in December 2014; the fourth book, The
Shaman’s Journal 2015, published in September 2015, and the fifth book, The Shaman’s Journal
2016, published in September 2016. A sixth book will publish in September 2017.
With over 14 years as a research analyst with AMR Research, Altimeter Group, and Gartner
Group and now as the Founder of Supply Chain Insights, Lora understands supply chain. She has
worked with over 600 companies on their supply chain strategy and is a frequent speaker on the
evolution of supply chain processes and technologies. Her research is designed for the early adopter
seeking first mover advantage.
About Sam Borthwick
As a Research Associate, Samuel Borthwick analyzes balance sheet and income
statement data for the Supply Chains to Admire Report along with the monthly
Metrics That Matter series. A recent graduate of Purdue University, majoring in
Supply Chain Management, Sam loves data. He lives in Indianapolis, Indiana
where he enjoys playing tennis and spending time with his family.

Endnotes
i
Supply Chain Index, Supply Chain Insights, http://supplychaininsights.com/portfolio/launch-of-the-supply-chain-index/, July 17,
2017

Supply Chain Metrics That Matter – A Focus on Automotive Companies 2017

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Supply Chain Metrics That Matter – A Focus on Automotive Companies 2017