Mitigating Risk in Automotive Supply Chain

Anyone who works in the automotive business can attest the industry currently is enjoying a period of robust demand.

At the same time, there is an enormous amount of risk. The economic crash in 2008, followed by the greatest economic downturn since the Great Depression, had a disproportionately devastating impact on the lower tiers of the automotive supply chain.

With the industry’s severe financial restructuring, many small, niche suppliers have either left the auto business or simply closed their doors, eliminating their capacity and capability from the supply chain.

Now, five years later, we are faced with an unprecedented number of concurrent new-product launches. An industry of this size and complexity doesn’t just snap back to life to pre-2008 build rates without risk of some pain.

The sub-tier supply chain, Tier 2 and below, is a real strategic challenge for the global automotive industry. There are volume constraints for specific parts and components, and we are beginning to see industry segments facing parts shortages, both for new vehicles and for replacement parts for older models.

Many companies are running 24/7/365 to meet demand. While this works effectively in the short term, in the long term we know how this story ends, and it usually doesn’t end well.

The tool and die industry, for example, has a major capacity shortage. According to a Congressional Research Report last year, more than a third of tool and die companies have gone out of business since 1998.

With a dearth of capacity across a multitude of sectors and component lines, we must quickly backfill by either helping an existing supplier expand its output or bringing new, locally sourced suppliers online.

In doing so, companies must comply with the performance expectations the industry has established. That means ensuring suppliers have the systems skill set and employee acumen, along with access to world-class, industry-designed standards and processes with the knowledge of how to use them.

Expanding the capability of the sub-tier supply base also will reduce the exposure to the OEMs and Tier 1 manufacturers from potential quality, supply chain management and corporate responsibility issues. A failure to do so risks the reputation of the individual brands, compromises corporate image and threatens the continuity of the overall supply chain.

AIAG is taking the lead in accelerating development of the sub-tier sector. We are removing the barriers of access to the tools and training that were developed by the industry, for the industry, and driving more pervasive access and utilization of these tools to the lowest levels of the supply chain.

Suppliers now have access to complimentary self-assessments, education and other mission-critical information through AIAG. Through these assessments, they can benchmark themselves against current industry best practices and standards to better assess their actual performance improvement needs.

Two areas of focus are companies in the southeast U.S. and Mexico. IHS Automotive projects these regions to have the most manufacturing growth, both in capacity and manufacturing output, over the next three years. As we see this migration, there is not enough capacity or suppliers, to source locally.

Local groups such as automotive manufacturing associations in Alabama, Georgia, Mississippi and Tennessee, in addition to Mexico’s Industria Nacional de Autopartes (INA), will be critical to our success. AIAG has partnered with these organizations, providing each of their members the ability to learn and adopt auto industry best practices and standards.

Successful public-private partnerships help accelerate assimilation of the new generation of employees entering our industry. They can be a catalyst for the accelerated development of a local supply base to ensure companies have access to capital, influence local secondary educational curriculums to emphasize STEM (science, technology, engineering and mathematics) and work with regional, state and national governments to secure funding for both infrastructure improvements and personnel development.

Driving more pervasive access and utility of the collaboratively developed industry tools, best practices and standards is the most effective way to mitigate enterprise risk.

With a common language, common tool kit, aligned performance expectations, and the patience and discipline to both understand and use them correctly, we can help reconstruct small companies.

The sub-tier suppliers are the manufacturing foundation that supports our industry. They are the innovators, job creators and taxpayers that will sustain our industry’s economic recovery.

J. Scot Sharland is executive director of AIAG, a unique not-for-profit member-supported organization that works with a wide range of manufacturing companies and service providers to help them operate at peak performance. The members work collaboratively to drive down costs and complexity from the supply chain via global standards development and harmonized business practices. AIAG membership has grown to include preeminent original equipment manufacturers (OEMs) and many of their parts suppliers and service providers.