I recently came across a great article in Wards Auto. The piece focused on the challenges automotive companies are facing in mitigating risk with lower tier suppliers. In framing his observations and analysis, the author, J. Scot Sharland, Executive Director of AIAG, wrote: “The sub-tier supply chain … 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 shortages.”
The automotive sector is in a somewhat precarious position at the moment, having come off a tremendous Q3 in terms of volume, yet at the same time, facing uncertainty and reduced volume expectations in the coming years, according to some economists. One of these was William Strauss, an economist at the Fed in Chicago, who shared his reduced 2014 volume outlook for automotive at the Spend Matters/MetalMiner conference a month back.
Amidst this backdrop, Sharland observed that “with the industry’s severe financial restructuring [following the last downturn and credit crunch], 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.”
Yet one could argue there is at least some good news, including a Big 3 who are enjoying better supplier relations than before, thanks to supplier development strategies that are truly kinder and gentler than the Ignacio Lopez years at GM. Yet significant risk factors remain, which I’ll explore in upcoming posts.
In the meantime, I invite you to explore supply risk in more detail on Spend Matters PRO:
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