Supply Chain Risk Management practices in automotive industry
Michał Kaczmarczyk
kaycher@wp.pl
Krzysztof Drachal
krzysztof112@vp.pl
ABSTRACT
Supply chain risk management has increasingly becoming a more popular research area recently. In this paper, we will review various quantitative models for managing Supply Chain Risks. We also relate various supply chain risk management strategies examined in the research literature with actual practices. There have already been used conceptual and empirical approaches to Supply Chain Risk Management. From analyzing conceptual papers and empirical studies, an integrative summary of the previous research is developed in order to identify the main principles of Supply Chain Risk Management and evolutionary steps for its implementation in automotive. The one objective of this paper is to provide the reader with a state of the art on the Supply Chain Management. Markets globalization and global supply chains have to be regarded as business opportunities of economic development for each supply chain actor, but at the same time, they introduce a number of risks and vulnerabilities that affect the capability of the supply chains to maintain equilibrium states over long period of time. In this paper we would like to introduce You to Supply Chain Risk Management. First we will show the main ideas about this issue. Then we will indicate its strength, weaknesess and current manufacturers strategies. Then will show some methods which can help to manage the risks.
Risk management practices, techniques and tools have been used extensively in the financial community for years. For decades, automotive executives have searched for ways to cut costs. One of the more popular methods has been to demand price breaks from suppliers. The thought behind this approach seemed logical, putting efficiency into the supply chain by making suppliers reduce costs, and thereby reduce costs for automotive companies and allow them to stave off the competition and make a better margin. For the most part, this technique has worked to reduce costs for automotive companies. Concepts such as just-in-time, virtual inventory, supplier rationalization, and reductions in the number of distribution facilities have reduced total supply chain costs, but the result has been increased risk.
In today’s world, supplier margins have been stretched as thin as they’ve ever been as piece prices and volumes continue to fall. Now, suppliers are being asked to do even more - engineering and product development, systems development and delivery as well as invest in people, processes and new technologies to better serve their customers and stay competitive. And if that isn’t enough, suppliers are also being asked to source products from emerging countries and follow their customers into those markets. This often requires suppliers to carry additional inventory to ensure product delivery, as well as bear the burden of added cost to carry the inventory from the emerging markets to the supplier. Add into the mix the fact that some of the products coming over are not up to supplier’s specifications, which causes costly rework and risks to product delivery.
Today’s automotive industry supply chains face risks from many factors, including:
• Increased globalization through outsourcing, which makes supply chains longer.
• Shorter product lifecycles and rapid rates of technology change.
• Transportation with its potential to bring just-in-time supply chains to an abrupt.
• Demanding customers who have created additional pressures by requiring better on-time delivery, order fill rates and overall service level efficiencies.
• Additional regulatory compliance imposed by government entities, further complicating international trade.
• Increased levels of economic uncertainty, which create additional variability in demand and supply and make it more difficult to accomplish demand supply balancing.
• Natural disasters and external environmental events, which can wreck global supply chains.
The above list includes operational and catastrophic risks because they are both important for companies to consider. From an operational perspective, complex networks of suppliers, customers and third party service providers as well as large interdependencies among multiple firms, making inter-organizational coordination of risks an important issue. In addition, the leaner and more integrated supply chains become, the more likely it is that uncertainties, dynamics and accidents in one link will affect other links in the chain.
Risk management is the process whereby decisions are made to accept a known or assessed risk and/or the implementation of actions to reduce the consequences or probability of occurrence. Typical risk management aims are to avoid, reduce, transfer, share or even take the risk. To avoid is to eliminate the types of event that could trigger the risk. To reduce risk applies both to reduction of probability and consequences.
Risk can be defined in two ways. If related to the causes of risk, concentration is on the deficits of information by a decision making unit concerning future situations and events (Miller 1992). A decision under risk is one where there is objective or subjective uncertainty with regard to the outcomes of a specified path of action.
A risk definition related to effects centres on the consequences of a decision. Risk may be understood as a threat that arises due to an incorrect decision or as ‘‘variation in the distribution of possible outcomes, their likelihoods and their subjective values’’ (March 1987). This definition allows considering risks as a speculative component of corporate actions.
Taking risks is not automatically negative. It can also offer opportunities and chances that might be beneficial for the company. While the approach related to effects interprets the risk as not making the goal, chance can be more specifically defined as the possibility to make that goal. A more comprehensive perception considers chance as a positive miss of the goal. The goal is more than satisfied.
Gaonkar and Viswandaham define supply chain risks according to the definition of risk by March and Shapira. as ‘‘…distribution of the loss resulting from the variation in possible supply chain outcomes, their likelihood, and their subjective values’’ (2007).
Supply chain risks involve risks that can be attributed to disturbance of flow within the goods, information and financial network, as well as the social and institutional network. They may have negative effects on the goal achievement of single companies and the whole supply chain, respectively, with regard to end customer value, costs, time, or quality.
Not only the defining supply chain risk is difficult, but also the categorization of various kinds of supply chain risks. One attempt to categorize considers three types of risks: risks within a focal company, risks outside of this company and within the supply chain, and risks outside of the supply chain that affect the focal company from their respective place of origin (Waters 2007).
Risks that originate within a main company can be defined as either process risks or control risks. Process risks specify disturbance within a company’s activities with regard to increase in value, e.g. production delay or failing operating resources. Consequently, the desired performance cannot be created. Control risks come from disturbance in management systems or due to imprecise or wrong decision rules, which an organization uses to coordinate their own, supplier’s and consumer’s processes.
Badly planned batch sizes and even missing or not feasible work assignments for employees are counted among those (Christopher 2004).
Risks outside of the company and within the supply chain are distinguished between supply risk and demand risk (Juttner 2005). Supply risks are based on disturbance of flow among the supplier. The breakdown of a key supplier is an example for supply risks. Demand risks involve disturbance by the consumer. Demand risks indicate e.g., fashionable or seasonal fluctuations in demand.
Risks outside of the supply chain are described as environmental risks. They include e.g., natural disasters, terrorist attacks, or changes in legal regulations.
A short overview of closely related terms follows:
• Disturbance: Risks might lead to disturbance within the supply chain. Literally, disturbance can be defined as ‘‘the interruption and breaking up of tranquility, peace, rest, or settled condition’’ (Wehmeier 2005). Those might manifest themselves by fluctuation in demand, default of delivery or quality changes. They usually lead to negative impacts for a limited period and parameter only and can be prevented by measures such as buffers.
• Disruption: Literally, disruption is defined as ‘‘the action of rending or bursting asunder; violent dissolution of continuity; forcible severance.’’ (Wehmeier 2005). Sphere of action and duration of effect are graver than in the case of disturbance. Examples are strikes at key positions of international trade, alterations of political circumstances or natural disasters, which are interconnected with considerable financial damage.
• Security: Security emphasizes the security of companies, systems, and the public sector with regard to maintaining a desired condition. Supply chain security can be characterized as the protection of the supply chain against attacks and disturbance with a criminal intent or as an aftermath of juridical consequences in the case of liability and perpetuation of the companies under those kinds of circumstances.
• Safety: In contrast, literally, safety is defined as ‘‘the state of being safe; exemption from hurt or injury; freedom from danger’’ (Wehmeier 2005). In this context, it is more about the personal safety of a person or unit against a distinct threat in the sense of operating safety. Examples refer to process safety, environment and health, or emergency stocks. With regard to transport, transport safety in the sense of ‘‘safety’’ can be characterized as protection against threats that originate from transport itself and affect transported goods, means of transport, as well as the environment.
• Resilience: Resilience refers to the ability of an
organization to quickly go back to a functioning initial state after disturbance (Christopher 2004), namely the ability ‘‘to bounce back from hardship’’ (Coutu 2002).
It is known that Supply chains tend to increase in complexity. The fact that numerous suppliers, service providers, and end consumers may be involved in a network of relationships causes risks and vulnerability for everyone. It is not sufficient to just analyse the risks with regard to one focal company, but potential domino effects upon all partners and relations have to be examined.
Companies in the supply chain differ in risk attendance and risk acceptance level. It is therefore necessary to aim for mutual goal setting and planning across the entire supply chain network. With regard to Supply Chain Risk Management, this means mutually identifying and communicating problems in order to neutralize information asymmetries and prevent negative effects on firm performance.
Systematic risk management may be conceptualized as a process that consists of risk identification, risk assessment, risk mitigation strategies and risk control (Kajuter (2003).
For the following arguments, consequently, a definition of Supply Chain Risk Management is applied as suggested by Kajuter: ‘‘Supply Chain Risk Management is a collaborative and structured approach to risk management, embedded in the planning and control processes of the supply chain, to handle risks that might adversely affect the achievement of supply chain goals’’.
A subcomponent of Supply Chain Risk Management is Supply Chain Security Management. Supply Chain Security Management can be defined as ‘‘the application of policies, procedures, and technology to protect supply chain assets from theft, damage, or terrorism and to prevent the introduction or unauthorized contraband, people or weapons of mass destruction into the supply chain’’ (Closs 2004).
Two familiar sets of theories are useful in providing a theoretical basis for systematic considerations of Supply Chain Risk Management:
Capital market theory assumes perfect markets with equal conditions for all agents, perfect information, and no transaction costs. A distinction is made between systematic risks and non-systematic risks. All market participants are equally exposed to systematic risks. They depend on external factors and cannot be prevented by internal risk management. Non-systematic risks are different for every single company. Due to the assumption of a perfect competition, non-systematic risks might be entirely eliminated by diversification. Systematic risk can be shifted to some extent to third parties through the utilization of appropriate financial instruments. In perfect competition, risk management on company and supply chain level therefore becomes irrelevant, since investors are able to control risks on their own. However, risk management by implication becomes reasonable in real-life conditions of an imperfect market with changed assumptions, such as taxes and subsidies.
New institutional economics does not act on idealized assumptions. It assumes that companies act rationally only in a restricted manner, as soon as information asymmetries and transaction costs occur on the market. The relation between company’s management and its shareholders is consistent with a principal-agent-situation. Information is distributed unequally. The management is the agent. It holds more information on the risky situation than the shareholders. The latter are not involved in immediate business processes. The shareholders act as principals. This situation might lead to advantages for the management due to profiting from investments that the shareholders would distance themselves from if they knew about the risky situation to a larger range. On the other hand, the management depends on success and consistency of the company and is not able to diversify its own risk. It is therefore used to make opportune decisions and to handle
investments in a more risk opposite way than the shareholders want them to. A risk management system may serve to reduce deficits of information by a reporting in order to increase the faith in an investment. Besides, a concrete decision scope can be applied, concerning which risk position the company aims at and how it deals with risks. New institutional economics can also be applied to supply risks where the purchasing organization refers to a principal and the supplier as an agent (Zsidisin 2003).
The studies reviewed so far are important contributions to the foundation of a field of systematic research on Supply Chain Risk Management. However, they focus primarily on issues of problem definition and systematization of Supply Chain Risks, or on the transfer of general view on risk management to the specific context of supply chain management.
Comprehensive conceptualizations of Supply Chain Risk Management with broad practical applicability are found only at a preliminary stage of development (Harland 2003):
Cranfield University’s ‘‘Self-Assessment Workbook’’ (Christopher 2004) offers an approach to managing supply chain risks.
The underlying four stages of risk management include: description of the supply chain, vulnerability self-assessment templates, evaluation of implications, and identification of actions. However, the workbook barely offers advice on cross-company exchange of information.
The latter is the main aspect in the Supply Network Risk Tools by Harland, Brenchley and Walker, which derives from various case studies. Their six-step process aims at the management of procurement risks: map the supply network, identify risk and its current location, assess risk, manage risk, form collaborative supply risk strategy and implement supply network risk strategy.
An integrated framework for global Supply Chain Risk Management with the aid of linked tables was created (Manuj 2008). The five-step approach includes a mix of multiple risk assessment tools and contains risk identification, risk assessment and evaluation, selection of appropriate risk management, implementation of Supply Chain Risk Management strategies, and mitigation of supply chain risks. It refers to supply risks, operational risks, demand risks, and security risks but also to macro risks, policy risks, competitive risks, and resource risks. This approach distinguishes itself by its high particularization level. In dependence on supply and demand uncertainty, it differentiates between four supply chain types, which it assigns the respective seven risk management strategies: avoidance, postponement, speculation, hedging, control, transferring/sharing risk, and security.
Hauser (2003) suggests a business case framework to assess and manage risk in an organization. The framework consists of process/risk identification, vulnerability identification, redefinition of the model, creating a complexity/risk portfolio, finalized model, developed initiatives, and performance measurement.
A comprehensive framework to categorize various managerial actions that take risk into account was suggested, for example arrange Supply Chain Risk Management by three dimensions: Risk handling focus (risk analysis, risk assessment, risk management), type of risk (operational accidents, operational catastrophes, strategic uncertainties), unit of analysis (single logistics activities, company logistics, dyads logistics, supply chain logistics).
An extensive Supply Chain Risk Management framework from requirements to implementation was presented later. Principles of the Supply Chain Risk Management process (supply chain design and structure, visibility, cooperation, communication) are based on this philosophy. The process orients itself by the framework developed by Norrman and Lindroth (2004). We’ve come full circle with realized risk and retroactive processes (business continuity management, learning). Process continuity (performance measures, continuous updating, monitoring) is seen as fundamental for Supply Chain Risk Management.
A conceptual framework that contains specification of sources and vulnerabilities, assessment, and mitigation was also developed. They categorized their proposed strategies in two dimensions: actions and necessary conditions for effective implementation. With a set of ten principles, they guide practise. Addressed risks may arise from natural disasters, from strikes and economic disruptions, and from acts of purposeful agents, including terrorists.
The analysis of the approaches presented here reveals that in many cases only single risks or risk categories such as procurement risks are taken into account within the Supply Chain Risk Management process. Sometimes the demand side is also considered.
Number and details of the process steps vary, as well as availability of standardized templates and checklists, which support an implementation on supply chain level. In many cases, there is a lack of definition how to integrate partners into cross-company Supply Chain Risk Management and how to implement Supply Chain Risk Management.
Supply Chain Risk Management does not work simply by applying a number of methods. It rather is a philosophy that is supposed to be deeply rooted within the company and the supply chain. In order to do so, companies and supply chains have to pass certain developmental steps which will be presented in the following.
A growing number of businesses today are outsourcing their manufacturing, and purchasing parts and services from outside companies, using techniques such as just-in-time inventory strategies and relying on sole or single-source producents. While the financial benefits of outsourcing are obvious, the consequences and risks associated with today’s supply chains are often overlooked. When transferring a
significant portion of the day-to-day operating risk to an outside supplier, your business is vulnerable to the financial consequences of a major supplier disruption. According to a study commissioned by FM Global in 2006, supply chain disruption is one of the biggest risks to corporate revenue. Conducted by Opinion Research Corporation, the study included interviews with 500 financial executives from companies with at least US$500 million in revenue.
A failure to assess and manage suppliers’ property and business interruption risk can have a negative impact on product quality and reliability, as well as your company’s market share, reputation, and even shareholder value.
As a result, nowadays companies must assure themselves that:
• their suppliers manage risk as carefully as they do,
• a disruption at one of their supplier locations won’t impact their customers or their reputation in the marketplace,
• they have taken reasonable steps to protect their ability to meet their business obligations
• they can replace one supplier by another
and many more.
Identifying key suppliers is the first step toward understanding your exposure to supply chain risk. The next step is to develop an awareness of the fundamental threats to those key suppliers and manage the associated risk.
Figure 1
A supply chain is a special instance of a supply network in which raw materials, intermediate materials and finished goods are procured exclusively as products through a chain of processes that supply one another.
Understanding your supplier network provides the basis for knowing your potential vulnerabilities (see Fig. 1). Your company may have only a few suppliers, hundreds or even thousands. Your organization may also be the supplier in another company’s supply chain. How will a disruption along that chain impact the profitability of your business? Each supplier has a unique connection to your operations and to each other. No two may be alike. You may have a good understanding of the suppliers at level 1 and be aware of your vulnerabilities to disruption. However, what do you know about the next level and beyond? There may be a weak link that can spell disaster to your bottom line.
Figure 2
Risk factors affecting your suppliers may ultimately affect you. Once you’ve identified your key suppliers, the next step is to conduct an accurate risk assessment. The risk factors (see Fig. 2) apply to virtually any company. The risks are described here as they relate to a supplier:
• Environment – These risks are typically related to economic, social, governmental and climate factors. Recently, there has been no shortage of these issues,
as witnessed by terrorist attacks, tsunamis, hurricanes and earthquakes.
• Market Influence – Is your supplier resilient under adverse conditions?
If not, disturbances to the supply of product within your supply chain could have a devastating impact to your bottom line. And, what do your suppliers
know about the market resilience of their suppliers? Their exposures could be your exposures.
• Business Practices – The supplier’s financial and management stability, as well as its internal processes and corporate governance practices, should be
understood for the risk they represent. Specifically:
- Disruptions to internal operations of a supplier can easily ripple through to your organization if not mitigated properly.
- Changes in key personnel, management and business processes within a supplier’s organization can have a negative impact on your organization if not fully understood by you.
- If your suppliers do not have appropriate programs in place to address major threats to their activities, you may reasonably assume your interests have not been fully considered.
• Physical Plant – Loss prevention measures are as critical to your supplier’s facilities as they are to your own. The difference is you don’t manage your
supplier’s facilities. Issues such as natural hazards, construction materials, automatic sprinkler protection, and general interest in property loss prevention
are often overlooked, yet can be major contributing factors in a possible disruption scenario.
This trend presents purchasing departments in the automotive industry with some major challenges. “Price fluctuations, limited resource availability, or at least availability that does not match booming demand, rising exploration costs and supplier oligopolies must be defused by supplier agreements and finance strategies. The automotive industry will be competing for raw materials with companies from other industries who adapted their supply chains to these materials many years ago.” (Marlinghaus 2007). Another problem is the supply risk posed by geopolitical factors. Most of the suppliers are from countries in critical regions e.g. only a small proportion of tin and cobalt is mined in stable countries, when more than 85% of other metals like niobium and platinum are controlled by the three biggest suppliers. If product development is based only on technology aspects, there is a danger of becoming massively dependent on uncontrollable factors. It is essential to involve purchasing while still in the development phase in order to manage the financial and supply risks effectively.
A company’s outsourcing a service from outside the organization can improve the performance and may also bring some risks at the same time. There are some risks might be carried by the outsourcing service:
• Complex process between two companies
The process to work a project is continuously step by step, but there is always the unexpected situation happens when they are operating the actual work. The company may have the proper contract and plan with the outsourcing company. That is hard to predict what will happen later in the next steps. When the changes have to be made in order to face the different emergency problems, those changes will definitely occur a series of documentation changes and operation changes. The process to rearrange the work between two companies is not as easy as to rearrange inside the organization. The complexity will take time and cost money.
• Unstructured team work
When outsource a service, it means two companies will work together as a team. The different companies have different organization culture; the combined team might not harmonic enough. Two companies have their cooperation strategy, but consider about the actual work is implementing by the employees who do not know each other; the work might not operate as smooth as before. Because of the unfamiliar relationship between team members, they will spend time to communicate and always consider a lot before the operation. In that case the time might be waste in the new team.
• Uncertain value
The outsourcing service provider could introduce and promise their service as the advertisements of all products in the market. Even though they have a certain contact, the value of the service is still uncertain. As the two risks mentioned above, the performance of the work is hard to measure beforehand, which the different situations will occurs different problems. Further, the outsourcing company’s performance will affects on the whole performance of the company, this uncertainty is a big risk for the company.
• Security problem
When the two companies are working together for a project, the information sharing is necessary and important. Even they always have the agreement which includes the security issues, it is still unsure for the information flow. The security problem is potential during the business. Risk management is necessary for the company no matter for their outsourcing operation or supply chain management. When company realized the risks, they need to reduce the risks as much as possible by strategies. The process to overcome the risk is: 1) Identify the risks; 2) Analyze the risks; 3) Define the options; 4) Decide the resolution;5) Implementation.
According to the risk management, the company can achieve the better performance from the outsourced company and force the outsourced company provides the better service.
In regard to the “green” challenge, the focus on the environment might reshape this supply chain scenario even more radically. Rising oil costs, regulation concerns, and the demands of conscientious customers require automakers and their suppliers to reduce the carbon footprint of their entire operations including supply networks and fuel consumption of cars.
Most manufacturers agree that their supply chain risk has increased in recent years. Natural disasters, terrorism, workforce issues, and level of dependence on partners and suppliers are just some areas that require strong capabilities in risk management. Just to mention, Toyota was forced to shut down 18 plants for almost two weeks following a fire in February 1997 at its brake-fluid proportioning valve supplier. Costs caused by the disruption were estimated to be $195 million and sales loss was estimated to 70,000 vehicles ($325 million). This emphasized the problems of single sourcing and partnerships for the supply of critical parts. Manufacturers and their suppliers must account for supply chain alternatives in their overall supply chain strategy. Increased transparency based on real-time allows them to identify risks early and to manage them.
Man-made problems like the fuel price protests of September 2000 caused by government decision, recent transportation infrastructure failures – e.g. rail disruptions, terrorist attacks of 11th September 2001.
Today’s business world also faces challenges and pressures on an unprecedented scale from customer’s demand and competition (Christopher 2004), (Haywood 2003), many of these obstacles have the potential to severely affect the continuity of a commercial enterprise, in particular, through disruption to the wider supply chain.
In a highly competitive environment, an effective and efficient global supply chain is a must for automotive manufacturers and their suppliers. The industry landscape is exposed to a set of critical challenges and trends that lead, if not accelerating, the need to improve supply chain strategies and operations even further. The increasing requirement for real-time information and effective communication across the supply network is critical for managing and optimizing the supply chain on a flexible basis, while keeping costs under control.
While most global car manufacturers and suppliers are in the process of addressing these requirements, smaller auto suppliers have a long way to go.
Here are some of the techniques recommended to avoid Supply Chain Risks.
Model the supply chain so that you have a clear understanding of what it looks like and how it works. Unlike other complex manufacturing businesses, automotive supply chains are deep and broad. It is essential to understand the composition of all levels along with potential weaknesses and risks of supply interruption and quality problems.
Determine the relative “health” of each of the suppliers within the chain to determine where the highest risks exist.
Create a corrective action plan that will affect a breakdown in the chain and avoid the expensive cost of crisis management. Suppliers with financial problems can often be returned to stability through process improvement, pricing revision or by reducing the cost of capital. In addition, customers may be able to guide troubled suppliers to other stronger auto suppliers or to private action in order to strengthen balance sheets and improve management.
Establish a proactive monitoring function that gathers information from suppliers, customers and independent third parties. It should check the members of the supply chain state and objective measurements to produce predictive information. A well designed monitoring function can provide management with an enterprise-wide measure of the company’s supply chain risk profile. Such a measurement technique can be used to monitor progress in reducing overall supply chain risk.
Information technology plays an increasingly important role, effectively turning IT from an “operational delivery” function into a “strategic, differentiating” valuable thing. The underlying IT network plays a critical role by enabling the integration of different endpoints (e.g. RFID sensors, bar-code readers, and notebooks), communication technologies (fixed-line, wireless), IT assets (servers, databases), and applications in a secure manner. For specialized supply chain management providers, these trends represent significant opportunities to grow their businesses and expand their value-added offerings.
It is the most common approach for reducing supply chain risks. It is recommended to use multiple suppliers as a way to manage supply chain operational and disruption risks. For example, spreading multiple suppliers in multiple countries would enable a firm to manage operation risks such as normal exchange rate fluctuations efficiently. In addition, having multiple suppliers in multiple countries can make a supply chain more resilient during a major disruption.
In many cases, the buyer does not have the luxury to shift production among different suppliers because of the very limited number of suppliers available in the market but not in automotive.
Demand management strategies that would enable a supply chain to shift demand across products are very important. By having such capability company can make a supply chain more efficient and resilient but it is hard in automotive industry.
When facing uncertain demand, present a responsive pricing strategy that would enable a firm to increase profit by shifting demand across products, for example offering different prices in different countries.
Besides the responsible pricing strategy the demand postponement strategy can be a solid demand management strategy that would improve supply chain. Under the demand postponement strategy, a manufacturer may offer price discounts to some retailers to accept late shipments.
By having the capability to shift some of the demands to a later period, it would certain help a firm to manage both operational risks and disruption risks.
Revenue (or risk) sharing contracts are known to be efficient because it can coordinate the channel partners when facing uncertain demand. In addition, revenue sharing contracts could make a supply chain more resilient. Risk can also be transferred to insurance companies by moving liability or changing delivery times of suppliers (just-in-time deliveries).
With vehicles staying in use longer, the demand for spare parts is rising, along with it the incidence of fake and gray market parts. It’s a trend that threatens one of the industry’s most profitable segments. The smarter supply chain mitigates these risks with smart tags that allow parts to be authenticated and traced throughout the supply chain.
At any given time, more than 15 million containers are traveling through international waters or waiting to clear customs. These deliveries face many risks: delays, diversion, even physical damage. For traditional supply chains, cross-continental transit typically means loss of visibility. But the smarter supply chain can track its cargo containers anywhere in the world. Instrumented containers collect information and report on their physical locations, environmental factors such as temperature and humidity, as well as signs of tampering.
The supply chain has become increasingly more global and complex which presents greater challenges and risks for automotive companies. Customers present ever-changing requirements and emerging market penetration often requires a completely different organization approach – not only to products and services, but also to associated cultural, environmental, and governmental influences.
With sophisticated demand planning, variable cost structures and better integration with suppliers, the smarter automotive supply chain is more capable of flexing supply up and down with demand. Greater visibility along with closer customer and supplier collaboration help maintain the right mix of vehicles and products in stock. Stronger build-to-order capabilities also reduce the risk of having dealer lots full of unwanted inventory.
To help identify and prepare for the unknown, the smarter automotive supply chain must equip itself with advanced business analytics
Supply Chain Risk Management offers improved focus on risk and therefore, more effective risk mitigation. Other benefits include the elimination of potential and unexpected costs, reduced disruptions and time to recovery. Controlling and managing supply chain events, with a view to potential, predictable and even uncertain risk elements, generally proves an improvement in overall supply chain performance. And finally, avoiding or at least confronting risks in nowadays complex supply chain ecosystem, can strengthen competitive advantage and even financial longevity.
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