Introduction
The automotive industry has been facing more and more supply chain disruptions at the global level in recent decades. As automakers have implemented just-in-time manufacturing principles and sourced components from every end of the earth to lower costs, their intricate supply chain network is vulnerable to risks such as natural disasters and geopolitical conflicts. For instance, the 2011 Tohoku seismic and tsunami wave blasting in Japan shook automotive supply chains by halting production globally because critical parts could no longer be delivered. In an industry that moves at a breakneck pace, transforming from internal combustion engines to electrification and self-driving capabilities, OEMs must ensure their supply chains are robust enough against disruptions. For that purpose, it will take a significant automaker to study its current risk exposure company’s BCP operations and data modeling applied in the supply chain and provide advice about resilience. The automotive industry landscape is moving forward, and such strategic importance for firms desiring long-term sustainability will only increase when building supply chain resilience. Some critical factors that distinguish industry leaders from others include practical risk assessment, continuity planning, and data analysis. This case study analysis will focus on global supply chain risk in the automotive industry and ways to address this threat.
Background Information
The automotive supply chain has become increasingly globalized and complex in recent decades. Because automakers have put all their effort towards lean manufacturing and cost efficiency, they outsource parts production to suppliers worldwide. The more comprehensive international network of multi-tier suppliers provides components to automakers’ assembly plants in low-cost and critical markets. Keith et al. (2022) opine that today’s automobiles include over 30 thousand separate parts acquired from numerous suppliers and coordinated through complex supply chain networks. Although this global spread-thin supply chain provides automakers significant cost advantages, it also makes them vulnerable to interruptions.
Shortages or bottlenecks can arise due to unexpected natural disasters, geopolitical conflicts, or supplier bankruptcies of critical automotive parts. For instance, in 2019, Renesas, which produces almost one-third of all microchips for the auto industry, shut down a Japanese fabrication facility after fires, resulting in months of huge chip scarcity that affected automakers globally. Some other risks, such as regional instabilities and trade tensions, can also limit supply availability. Further, a lack of supply chain transparency within these relatively long and complex multi-tiered supplier networks limits insight regarding potential disruption threats across tiers. Finally, suppliers tend to have a lower profit margin when compared with automakers and are thus vulnerable to insolvency in times of demand fluctuations and economic generations. The move of automakers to achieve lean and cost-optimized supply chains has increased operations efficiency but without building resilience. Supply chain disruptions have grown in recent years, pointing to the importance of having mitigation strategies.
Analysis of the Case
The fact that the automaker has an overreliance on Asia, with more than 50% of components being sourced from this region, is a significant risk facing it. For instance, it obtains about 35% of its parts from factories in China, Thailand, Japan, and South Korea for valuable cost savings resulting from their manufacturing capacities skills. Nevertheless, this focused outsourcing increases susceptibility to regional volatility. The trade tensions between the U.S. and China conflicts that have occurred in history between Japan and South Korea, and occasional political instability due to military coups leave Asia with unstable politics and trading environments. Geopolitical conflicts or policy changes disrupting the automaker’s trade could significantly lower supply availability from these significant source regions.
Moreover, approximately 15% of the sources come from Japan, constantly threatened by earthquakes, tsunamis, typhoons, and volcanic activity due to its position on the geologically active “Ring of Fire.” Past disruptions, such as The Tohoku earthquake in 2011, demonstrated how debilitating natural disasters can be for automobile supply continuation, as Wheatley (2019) notes. In addition, most automaker plants in Thailand producing main components are located within flooding zones during monsoon seasons, creating an annualized risk. Having limited visibility deeper into its complex supplier network, the automaker finds it challenging to thoroughly assess regional instabilities in Asia that could have supply constraints.
Automakers rely heavily on just-in-time principles that ensure low component inventory across their supply chain to minimize costs instead of building in buffers or slacks. It was estimated that the company averages 2-3 days of component inventories across the entire network, significantly lower than other industry competitors. Although this leanness of inventory creates significant economic efficiencies, it leaves the firm vulnerable to devastating disruptions. When added to long shipping lags from Asia as much as two weeks, the shortage of even minor components causes a systemic production freeze within only days before mitigation can be done. It also creates the issue regarding the financial viability of many suppliers since one pandemic year has given businesses a taste of whipsawing sales volumes, which have seriously hurt revenues and decimated profit margins. A more profound analysis of automakers’ supply-based finances reveals that up to 18% of suppliers are heavily bankrupt based on cash flow, working capital, debt obligations, and earnings performance. Several tier 2 and 3 suppliers are under surveillance; operational complications at a solitary distressed bottleneck supplier might lead to cascading shortages.
Moreover, the automaker is exposed to further risk because of large blind spots concerning the activity budgets of lower-tier suppliers and, consequently, less awareness when bottlenecks arise. Although it keeps reasonably good track of tier 1 suppliers using digital integration and transactional data sharing, its visibility into other tiers could be better. Initiatives to map the network topology reveal that visibility starts plummeting much below T2 suppliers; recent estimates suggest only 50% of tier two and less than a fifth are even identified – let alone with enough data to assess their operational stability adequately. Alternatively, international supply chains tend to centralize customized production and value-add at these lower-tier suppliers specializing in specific parts. These ‘invisible suppliers’ often manifest disruptions since they focus on risks because of their niche capabilities that cannot easily be substituted. It creates immense exposure when the automaker struggles to map and assess sustainability risks deeper in its supply ecosystem. In all, although quantifying an exact amount of vulnerability is difficult because of multidimensional uncertainties, the automaker has significant supply chain risk that spans geopolitical catastrophe financial and network visibility domains; mitigation across a costoptim
Recommendations
As a response to heavy dependence and exposure on Asia, the car manufacturer requires an appropriate strategy of diversifying its suppliers’ framework. It should apply procurement and scenario planning strategies to find other suppliers in less risky regions, such as North America or Europe, offering similar parts. Redistribution targets should also be set in a 3-5 year outlook, which would support the realistic movement of sourcing mix. The balance will not be attained via a complete overturning but through gradual rebalancing of economies of scale and local supplier knowledge in Asia. The firm should also extend exchange programs with suppliers to broaden cross-training and skills building, allowing for more substitutability of components after disruptions. In areas where Asian outsourcing is still vital, intensive contingency planning around modified transportation corridors and logistics will have to take place to bypass chokepoints. Another way the automaker can prepare for and react to political tensions affecting business is by increasing involvement with government Trade stability entities.
The lean inventory model and financial issues have to be addressed in a data-driven way. The automaker must balance the just-in-time principles and selective buffer stock expansion for suppliers whose disruption is evident. Zamani et al. (2022) posit that using AI for advanced analytics should provide information regarding the best places to increase inventories based on supplier criticality, financial feasibility, cash flow variance, and other predictive factors. Some degree of redundancy could be done if distress hits by having duplication on the high-impact suppliers. On the financial side, increased analytics on supplier balance sheet data and macroeconomic trends may enhance predictive intelligence about bankruptcy probability while deeper liaisons with distressed firms facilitate stability. The financial instability of suppliers can also be a basis for developing contingent business continuity plans that allow quicker action if solvency further deteriorates. Given that many lower-tier suppliers are outside the automaker’s vision, funding digital integration projects as a shared investment goal could improve access to data for developments in lower-level tiers to illuminate emerging bottlenecks.
In the end, new-generation mapping technologies should close network visibility gaps. Emerging blockchain solutions can enable component tracing to improve visibility that reaches tier 1 through tier 3 and every element source. According to Abderahman Rejeb et al. (2021), AI-powered satellite imagery can identify substitute supply locations and monitor logistical movements if necessary. Automakers should sponsor pilots and development partnerships to test such revolutionary visibility solutions. But even robust tracking instruments lose their potency if the buy-in of lower-tier participants remains weak. Since the company requires technical innovation and closer supply chain relations, this can be achieved through financial aid, operational synchronization, and two-way data sharing to strengthen transparency with smaller partners in its global network. Automakers can only build supply chain resiliency for increasing disruption risks through a comprehensive resilience plan covering sourcing, planning, technology, and collaboration.
Conclusion
With the automotive industry making significant changes due to electrification, autonomous driving technologies, and changing customer demands, building supply chain resilience is increasingly essential for continued success. The research tried to unveil the risks that faced a leading car producer and provided control measures. It exposed a strong dependence on Asian suppliers, capital sicknesses that cripple component vendors, lean inventory at the brink of fragility, and severe visibility gaps driving critical risk exposure to stop production while vaporizing profitability. The required answer comprises supplier base diversification, enhanced data integration and analytics, inventory optimization model calculations, contingency planning, network mapping technologies, and closer supply chain collaboration. These initiatives need a lot of strategic initiative and capital investment but are necessary for competitive sustainability amid constant disruptions. In addition, automobile manufacturers must be proactive in designing resilience features early on during creation and development rather than dealing with vulnerabilities after they have occurred. They also have to strike a balance between efficiency and stability, being ready for minor cost growths in order not only to maintain production continuity but also customers’ confidence during unavoidable crises. This analysis showed that successful global supply chain risk management in the automotive industry requires data-driven and relational strategies at all hierarchy levels of these intricate systems. Instead of treating suppliers as production sources to squeeze on margins for every nano-economy, they must go in interdependent fortunes, and their harnessing should be considered partners. By undertaking proactive risk assessment and collaborating actively, automakers can prepare in advance to meet the challenges before they strike again.
References
Abderahman Rejeb, Karim Rejeb, Simske, S., & Horst Treiblmaier. (2021). Humanitarian Drones: A Review and Research Agenda. Internet of Things, 16, 100434–100434. https://doi.org/10.1016/j.iot.2021.100434
Keith, D. R., Naumov, S., Rakoff, H. E., Lars Meyer Sanches, & Singh, A. (2022). The effect of increasing vehicle utilization on the automotive industry. European Journal of Operational Research. https://doi.org/10.1016/j.ejor.2022.10.030
Wheatley, M. (2019). After the disaster in Japan. Automotive Logistics. https://www.automotivelogistics.media/after-the-disaster-in-japan/7408.article
Zamani, E. D., Smyth, C., Gupta, S., & Dennehy, D. (2022). Artificial intelligence and big data analytics for supply chain resilience: a systematic literature review. Annals of Operations Research, 327(2), 605–632. https://doi.org/10.1007/s10479-022-04983-y
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