SEG Automotive has turned away from just-in-time production and started stockpiling goods in response to the coronavirus pandemic.
Nina Bomberg, director global indirect purchasing at SEG, makers of starter motors and electrical components, said the cost of “good old stock keeping” was less than the “ridiculous” logistics costs firms were facing as a result of the pandemic.
Speaking at the CIPS Global Conference, Bomberg said: “We have moved from not having any stock to having a certain amount of days’ stock, in some cases even weeks. We said we will spend money here because we will save it in ridiculous logistics costs in the end.”
She said the automotive value chain was not set up to hold inventory but this had to be re-evaluated.
“It’s just steel and plastic and copper. We can stick this on a shelf for a month, it’s not going to perish,” she said.
“We just don’t have the warehouses nor does this value chain have the cash to be honest. Just-in-time went into the automotive industry decades ago and that is how it is financed, by the fact it doesn’t keep stock.”
During a panel discussion on near-shoring and reshoring, Bomberg said the pandemic had provided an opportunity to introduce new suppliers. “The automotive industry is not very quick at changing its supply base. Customers are also not willing to accept new suppliers on the spur of the moment, although they have been fairly flexible over the last 12 months, if you tell them it’s coming from elsewhere or not at all.
“We’ve tried to use this opportunity to introduce new sources into the system but if you have committed to a product for the next six, seven years you will be stuck with the supply base you have.”
She said consumers were not willing to pay extra for cars built with components with less carbon footprint.
“For consumers it is a smaller step to pay 50 cents more for a pack of blueberries coming from Portugal [rather than further away], but if someone wants a couple of thousand euros more for a car you’ll be thinking twice whether you want to nearshore,” she said.
Bomberg said SEG was using second sourcing to reduce risk. “The strategy is building up second sources and then being able to shift the supply base as we need it and being more flexible in our reactions.”
Patrick Dunne, CPO at Sainsbury’s, said: “I think there’s a bit of a post pandemic negative reaction but over time I think the real rationale for reinventing your supply chain is the carbon footprint and bringing stuff closer to the consumer to try and alleviate that.
“There’s an economic point where consumers are not yet prepared to pay. Onshoring or nearshoring will be economically less competitive than other products.”
Peter Munckton, chief economist and head of market strategy at the Bank of Queensland, said global supply chains had been set up to deliver “maximum efficiency” and low prices for consumers. “If we have to diversify, that increases costs and someone needs to pay for that, whether that’s the consumer or the company. If the consumer doesn’t want to and the company’s unable to because of its profit margins, then it’s going to be very hard.”
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