Powering Performance

Survey Reveals Where Industry Concerns Lie in Current and Future Risk

Posted by Carla Kalogeridis on Nov 27, 2016 1:00:00 PM

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To continue a lively discussion on automotive corporate responsibility and risk management, OEM panelists at this year’s AIAG Corporate Responsibility Summit called for conference participants to respond to a follow-up Corporate Responsibility OEM Risk Survey, with results to be shared with the AIAG membership.

The survey results show that the auto industry is concerned with compliance, meeting customer requirements, and their ability to prepare for and respond to risk in general.

Current Risk: Compliance and Customers
Regulatory compliance and customer requirements top the list of CR Summit participants’ concerns regarding current risks. In particular, survey respondents point to government and industry regulations that are poorly vetted and executed, as well as a general inability to keep up with local, state, and regional challenges — not to mention global legislative changes.

“OEMs have been seeking harmonized regulatory approaches, but more can be done in this space,” says David Tulauskas, director, sustainability at General Motors Corp. Noting that the survey points out there remain many opportunities for OEMs to harmonize their supplier requirements, Tulauskas adds, “It’s clear suppliers are being stressed with the lack of harmonization from both directions.” Specific challenges mentioned by respondents include product and process chemical compliance, Proposition 65 in California, and the incongruence between fuel economy mandates and gas prices.

Respondents say that from the supplier’s viewpoint, it can be challenging to accommodate varied customer requirements within a global supply chain, highlighting the need for collaboration. “Increasing transparency of multi-tiered supply chains from an effective and efficient cost basis has led to unreasonable expectations from customers to pass down individual requirements,” says one Summit participant.

Current Risk: Corporate Culture and Ethics
Supply chain transparency concerns were echoed in the culture and ethics portion of the survey as well, with respondents voicing concerns over “not having full transparency in their supply chains” and “not knowing our suppliers below Tier Two.” One respondent notes that it is hard to have a strong internal organization that is properly trained to identify sustainable risks and how to react properly if the company’s entire supply chain isn’t united under a common CR culture.

“Supply chain transparency continues to be a substantial risk and opportunity for improvement, not only in our industry but in many others,” says William Hall, director, sustainability and business continuity, FCA US LLC, and an OEM panelist at the Corporate Responsibility Summit.  A good starting point, says one participant, would be a comprehensive evaluation of supply chain risk from a CR perspective. Supply chain mapping, for example, can identify areas of concern before an event like a natural disaster occurs.

Another area of concern regarding transparency and trust impacts technology and product development. "Though much improved culturally, OEMs and Tier Ones can still find transparency and trust difficult to overcome,” says one respondent. “This slows the adaptation of new technology, including those that have been tested and proven to be lighter weight, equal performing, and equal or lower cost into the market place.”

Transparency and trust are particularly important, this respondent continues, because “Tier Ones won't invest heavily without commitments, and OEMs are unable to commit without it having been adapted by others.” Without trust, the “fall back is to stick with established technology — no risk, no harm, no foul.”

Furthermore, several respondents said, excessive risk aversion in adaptation of new technologies can hinder technological progress and speed to market — two things that OEMs and suppliers are pursuing. “Both the OEMs and Tier Ones need to find ways to adapt technology even more quickly,” writes a survey participant.

Current Risk: Environment, Economics, Talent Retention
Environmental factors such as water stress in local areas and climate change, global economics, the future of mobility, and talent acquisition and retention round out the key group of current risk concerns identified by survey respondents. Auto sales, sub-tier supply chain uncertainty, the price of oil, and rising costs are all top of mind. One respondent worries about the future of the industry in general due to changes in mobility and the diminishing role of cars.

Attracting the right talent to the auto industry was a discussion that started at the Corporate Responsibility Summit and continued afterward in the survey. “Acquiring a capable workforce and employee retention is getting more difficult,” comments one respondent. “We have an aging workforce and a lack of industry interest among younger people.” This is particularly troublesome, the respondent says, because “new talent with new skills and attitudes are needed to drive change.”

Emerging Risks: More of the Same
Respondents expect many of their current risks to continue to emerge and grow. In the areas of compliance and customer requirements, they are concerned about biocides, proposed changes to the ELV (End-of-Life Vehicles) exemption list, and increasing legislation on forced labor. Regarding the labor issue, one respondent notes that “without a preemptive and united position, we continue to get laws from every state and country.”

Just as in current risks, water conservation and material availability show up in participants’ lists of emerging environmental risks. One respondent suggests that the industry organize around material categories versus supply chain segmentation, and that assistance is needed to identify key companies in each area.

“OEMs and suppliers have done a good job to date managing issues such as water scarcity and water quality within the walls of their operations,” says GM’s Tulauskas. He adds that as these risks grow, a new approach will be needed to mitigate or eliminate the potential of future disruption. “In order for companies to provide maximum value in the future, the communities in which they operate will need to be flourishing. This can’t happen if companies continue to only find solutions to systemic issues within their fence line. They must collaborate with external stakeholders and together find community-wide solutions to mitigate or eliminate future risks.”       

Another area where respondents voice concerns is in talent acquisition and retention and worries about education. “Our students have to go into debt to get educated, and yet, they are taking college courses with no guarantee that there are jobs available once they graduate,” says one respondent. The future could see “demands of the work load on non-educated people.”

Finally, survey respondents express a common concern about cyber threats against their companies and supply chains as well as cyber security issues in the vehicles they produce.

Emerging Risks: Corporate Culture and Ethics
While respondents expect that the full extent of human rights issues will continue to emerge deep within the supply chain tiers, they believe that climate change will be a much bigger challenge.

“The collection of greenhouse gas data is not taking the proper proactive approach,” writes one survey respondent. “What will the auto industry do with the data it collects? Right now, it appears, very little from an industry perspective. Some OEMs seem to be setting reduction targets and supporting suppliers, but other OEMs seem only to be interested in gathering the data.”

The answer, some respondents note, is vertical collaboration through to the customer as well as horizontally across supplier sections. “OEMs and the industry are unable to acknowledge that their leadership is needed in developing public opinion, addressing consumer education, and clearly informing the public that cooperation is needed in addressing and solving the problem of global climate change and depleted resources,” writes a CR Summit participant.

Although the respondent recognizes the concern about investment backlash, he points out that the industry acknowledges these problems internally, but is skeptical about its role in educating and influencing public opinion and decision making. “If the market wants 12 miles to the gallon, who are we to influence that decision?” the participant asks. “That's the responsibility of government. The consumer uses 64 percent of the GHG energy consumption created by automobiles. Long-term, the consumer will deplete the rare materials and resources because they have been taught to not believe GHG and climate change.”

Summing up the survey results, FCA’s Hall says it’s important to recognize that taking the right risks in each of these areas of concern can lead to advancement. “Effective risk management is not only about minimizing potential losses, but also entails the process of taking chances — educated choices — that can lead to business value and market growth.” Hall concludes that the industry can “create substantial value” through collaborating on risk management solutions “jointly among OEMs and also within the multi-tiered supply chain.”

Carla Kalogeridis is AIAG’s e-news editor.

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