We recently outlined some of the challenges (courtesy of a fabulous guest contribution by AIAG Executive Director, J. Scot Sharland, to Wards Automotive) of sub-tier supply risk in the automotive supply chain. Yet the challenges and solutions outlined by Sharland are not just applicable to the automotive sector. They are relevant across just about all industries, and especially relevant for A&D and other diversified manufacturers (since the lower tier supply chain is often shared across industries).
Before talking solutions, it’s important to note how acute the current situation is. Sharland writes that there are currently “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.” Furthermore, as he observes, automotive sector quality practices (e.g., first article testing, PPAP, etc.) are stringent, making it costly in terms of both time and capital to qualify new and alternative supplier parts/components for a given production line.
Some of the recommendations Sharland makes in his article (which we recommend you read in its entirety) include exploring training and education across the entire supply chain, such as private/public sector partnerships aimed at expanding manufacturing skills and capacity. Given that the greatest new capacity is likely to come from southeastern states within the US and Mexico, Sharland writes that “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.”
We often jump to managing supply risk as a “data” and “analytical” challenge. The thinking goes, if we can predict whether a supplier will be in business based on looking at credit scores, balance sheets, and other factors, we can be successful in managing risk. But as Sharland emphasizes, what really matters is looking at the bigger picture of the broader supply chain and expanding the definition of supply risk to one of capacity, education, and skills development – at all tiers. And from these efforts come not only visibility and transparency, but also an insurance policy focused on creating the right environment for lower-tier suppliers to grow and thrive.
For further reading on risk management, download these free research papers: