The automotive industry is putting severe stress on its suppliers, which are already operating at higher than optimal capacity levels. As a result, OEMs face high risks of supplier disruptions at a time when suppliers can least afford them — while still recovering from launch and start-up costs.
Tracking supplier vulnerabilities in the context of worldwide geopolitical events and employing discrete financial metrics can help OEMs and Tier Ones buy time in advance of potential disruptions to plan mitigative action.
Part I in our series focused on the “lean and brittle” supplier environment. Part II describes newly realized potential to access and leverage data for supplier “risk sensing” tailored to individual OEM and Tier One needs.
Keeping an Eye on Supplier Vulnerabilities
Given the brittleness of the automotive environment and the ubiquity of potentially disruptive events around the world, it would make sense for OEMs and Tier Ones to apply the same types of sophisticated supply chain management tracking systems to supplier entities that they apply to parts and inventories. However, tracking a company is exponentially more complex than tracking a part.
As long ago as 2009, an IBM supply chain survey concluded that automotive supply chains “need fact-based intelligence to predict which future scenarios are most likely to occur — and the flexibility to get repositioned before they do.” However, it found that for 81 percent of OEMs, supply chain visibility was the most significant organizational challenge. Further, only 13 percent had implemented extensive real-time supply chain information transparency inside and outside the enterprise.
Supply chain visibility requires the sharing of data, but the IBM survey reported that “less than 30 percent of companies viewed their collaborative practices [that is, the sharing of information] as extremely effective,” citing organizational silos as the most significant barrier to visibility and collaboration. It quoted one supply chain executive at a U.S. OEM as saying, “Our company doesn’t share data, so suppliers won’t.”
A report by global P&C reinsurer SCOR four years later (2013) echoes the themes of the IBM survey. It then cites examples of “adaptive” businesses that rely on networking to “intelligently and effortlessly adjust to major shifts in market operating conditions.” According to the authors, the principles of adaptive business include “adopting a strategy promoting collaborative actions among network partners; establishing intelligent knowledge sharing with business partners; and deploying technology to enable the above.”
Focused Data Drives Intelligence
OEMs and large tier suppliers are experiencing a glaring need for an overlay of often closely held supplier data on a real-time grid of global events and crises. But that’s just the beginning. OEMs and Tier Ones also need that data analyzed for relevance and urgency, so they can quickly prioritize vulnerabilities and take action.
Advances in technology and analytics have created new opportunities to hone in on and overcome risks related to supplier disruption. Automotive companies can use these capabilities to take a progressive stance on third-party risk management, moving from merely reacting to disruption, to proactively hedging against disruption, to projecting threats and potentially avoiding disruption altogether, or securing more advance warning to prepare.
Technology solutions can complement human capital solutions by adding time to the third-party governance process. Such solutions have the capability to assess the nature of third-party threats earlier than ever before. This gives third-party governance business units and senior executives more valuable time to plan and act decisively in the face of disruption, with the ancillary benefit of freeing in-house resources charged with assessing third-party risk to focus on value-creating activities, such as strategic decision making.
When assessing solutions, organizations should consider whether they possess market-leading risk forecasting capabilities. The solution would ideally monitor multiple categories of risk data, such as financial and geopolitical, to anticipate when a disruption may impact an OEM or Tier One, giving it more time to prepare for and potentially avoid disruption.
Such solutions for monitoring third-party risk will help an organization become more progressive at managing risk overall — by establishing greater awareness of the risk factors at play in their third-party networks, providing better contingency planning, and enabling faster response to help ensure uninterrupted operations during the next disruptive event.