How Automakers Can Avoid Supply Chain Disruption During Natural Disasters
Supply chain disruption has become a huge concern for the automotive industry. Suppliers operating in countries exposed to a higher risk of natural disaster face the fastest-growing business continuity risk when it comes to global sourcing, according to a report from BSI Supply Chain Solutions.
Some 53 percent of supply chains in the automotive sector are exposed to elevated, high or severe risk of natural disaster, BSI reported. That is due to the high proportion of manufacturing and raw materials sourced from politically and geologically unstable regions.
The automotive supply chain is particularly complex because the average car has tens of thousands of parts. Multiply that by the number of models a carmaker has, and suddenly the magnitude becomes compelling.
“You’re talking about millions of parts they have to control the flow of, and also do all the analytics of for usage and how to distribute,” said Bernie Donachie, global supply chain lead at risk consulting firm Protiviti, in an interview. He also pointed to identifying the first-, second-, third- and fourth-tier vendors in a supply chain as an additional area of complexity. “So the sheer volume of what they [carmakers] have to do to meet supply and demand is pretty significant.”
Having a Plan to Avoid Supply Chain Disruption
It’s human nature to be optimistic, and so we often tend not to think about natural disasters. Therefore, the potential for supply chain disruption often doesn’t get addressed. But as the March 2011 earthquake and tsunami in Japan painfully illustrated, it’s critically important to have a well-thought-out risk management and recovery plan in place when supply chain logistics are at the heart of how a business operates.
Approximately 80 percent of Japanese automotive plants suspended operations in the weeks following the disaster, according to a MIT Sloan School of Management report, “Nissan Motor Company Ltd.: Building Operational Resiliency.” Additionally, production across all auto manufacturers in Japan declined 24.3 percent in the six months following the earthquake.
Some carmakers were better prepared than others. “In contrast to the close supply chain control that is a hallmark of TPS [Toyota Production System], Nissan leveraged a regional, decentralized supply chain structure but imposed strong central control and coordination when crises affecting global operations occurred,” the report observed.
There’s little question that supply interruption of any kind causes a delay in operations. But the implications go much deeper. “This can trigger a cascading effect on supply to a customer and affect customer service levels, costs (due to expediting charges and inefficient production runs) and lead times,” Protiviti noted in “Managing Supply Disruptions.”
Assessing Exposure to Risk
Among the measures some automotive manufacturers are taking to avoid supply chain disruption is employing integrated manufacturing processes. That means having more common parts that can be used across car makes and models.
The elements of a good supply chain risk management plan include taking a more holistic approach to assessing vendors in terms of where they’re located, how much of your business is going to them, whether they have the right resiliency processes in place and ensuring you have other backup sources, Donachie said. You also need to consider geopolitical issues, such as how involved unions are with each vendor and how susceptible their location is to earthquakes or hurricanes.
Identifying your critical business functions and what needs to happen to keep them operational is of paramount importance. It’s also a good idea to test out your business continuity plans. Of course, make sure these plans are communicated to suppliers and staff. It could mean all the difference when disaster strikes.