Lower tiers of car supply chains need risk scrutiny

19 May 2011

19 May 2011 | Angeline Albert

Supply managers in the car industry have been urged to proactively deal with capacity risks at all levels of the supply chain.

ATKearney’s report on its 15th annual automotive study, published this week, reveals the sector’s supply managers have a good understanding of the risks associated with their tier-one suppliers but only have a limited understanding of threats to the lower tiers. 

Dan Cheng, partner and leader of AT Kearney’s automotive practice said: “Currently, supply-base monitoring is being delegated at each level of the supply chain, often to smaller suppliers who lack the resources to monitor risk properly.”

The report, which included input from car part suppliers, said risks still exist at tier two and three suppliers who slashed capacity during the downturn.

Cheng added: “The study also found that more than a third of the supplier participants said their capacity was below the requirements of manufacturers and that access to capital was a significant issue for suppliers with annual revenues of less than $100 million (£61.9 million).”

The research firm’s report said the car industry faces multiple supply base risks including financial, operational, reputational, natural hazard and economic threats. With trends including capacity constraints at lower tier suppliers and commodity price volatility, procurement staff must learn to manage an increasing number of factors, the document said.

To help supply managers, the report identified methods to reduce costs and increase value with suppliers. The need for supply managers and tier-one vendors to develop an early warning system to proactively monitor supply base risks was among the recommendations. This involved identifying all potential risks to the supply chain and connectivity across the supply base to quickly detect or predict potential problem areas and rapidly communicate key risks. The study said it was important to identify who the key tier one, two and three suppliers were that have been affected.

Consolidation of car manufacturers’ supplier base and collaboration with other manufacturers to achieve cost reduction were among other methods recommended.

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