Supply disruption has become one of the pressing issues for many industries including the automotive industry. What might be less obvious is the fact that supply issues concerning low-volume, special derivative parts suppliers - which often specialize in specific products or markets, providing high-quality, cutting-edge components - can cause as many issues for OEMs as their high-volume Tier 1 suppliers, including loss of vehicle production.
Even large global automotive OEM’s - with significant supplier quality and supplier development resources and capabilities - may encounter this issue, especially at times of new model introduction or product launch.
A major cause of this situation, in our experience, is a lack of investment in competent human resource within both the Tier 1 and 2 supply base and, with today’s increasingly competitive environment for the OEMs, we see ongoing rationalization of human resources within such areas as supplier development, supplier quality and technical assistance.
At the same time, and somewhat exacerbating the situation, OEMs demand that their direct suppliers adopt their standardized requirements for manufacturing suitability. The ability of low-volume suppliers to meet these standards, especially when producing components for more than one OEM, which is often the case, has become a critical-to-business success factor. However, this requires significant investment most low-volume suppliers simply cannot afford, particularly when competition is strong, and margins are so tight.
As a result, historically we have seen strategies whereby the low-volume or derivative suppliers are placed under the dominant Tier 1 supplier to whom they deliver their products where there is no added value, and in some cases, the responsibility for ensuring problem-free supply has merely been shifted from the OEM to the Tier 1. History has taught us that this practice creates less transparency and, ultimately, a greater negative impact further down the line that the OEM must deal with. Neil Endley, Consulting & Engineering global lead at TRIGO, has been discussing this situation with senior OEM leadership who assert that this practice is now largely being reversed. The low volume suppliers are being brought back into the Tier 1 space, where it is more likely that any issues arising will be detected sooner rather than later, thus minimizing the overall disruption to vehicle build volumes and quality.
Additionally, the situation can be more challenging for smaller, low-volume OEMs, which may not be able to create any leverage in their supply chain.
The economic situation of many suppliers has deteriorated in recent times, an issue largely due to the rise in energy and transportation costs, along with shipping difficulties. Over the same period, there has been little investment in technology, and continuous improvement initiatives have not been deployed as low-volume suppliers enter “survival mode”. The lack of resources, skill, and competencies to control processes and effectively solve problems come home to roost when product quality and delivery performance falls below the required standard. When this happens, the OEMs find that supporting these critical low-volume suppliers can take a disproportionate amount of time and resources.
The situation can be quite complex, and the answer is not simply to resource product to another supplier, even if it is feasible. Many such suppliers cannot be replaced without incurring further risk to supply and additional cost, and the OEM runs the risk of moving the problem from supplier A to supplier B with the same outcome. In any event, many low-volume suppliers of high-tech components own the intellectual property rights of their specialist product and associated technology. This poses the risk of business continuity for any OEM, making it difficult for the OEM to re-source the product to an alternative supplier, even if negative performance metrics warrant this approach.
Tim Parkin - at TRIGO, USA - an expert in automotive supply chain and with more than 30 years’ experience at key Tier 1 suppliers, analysed the situation for us:
“We are seeing more smaller and low-volume suppliers taking advantage of third-party experts to augment their own teams on a short-term basis. Companies such as TRIGO can provide resource experts in supplier development, auditing, new supplier assessment (NSA), materials and logistics planning, as well as quality and resident engineering. This allows both the efficient resolution of manufacturing, quality and supply issues, and the supplier to acquire valuable skills without incurring the costs associated with employment and development of additional permanent resources.”
OEMs are today under huge pressure to reduce their own costs and resources, and they are now developing much stronger relationships with competent third-party providers who can support low-volume suppliers in meeting the exacting standards of the OEMs. Such third-party support does not replace OEM supplier management and development activity but allows them to be lean and upscale / downscale as and when required e.g. at times of new product launch, model year changes or even in the series production phase when a supply chain constraint occurs.
This model has proven efficiency, especially with low-volume OEMs, which refrain from investing in sizeable STA/SD departments. They prefer this more flexible business model, whereby they adopt the support of an experienced third-party provider, utilising additional resources as and when required only - a “pay-as-you-go” type of service. The emergence of this model is becoming more prevalent as the automotive sector finds new ways to meet the historical and new challenges.