Conclusions and Future Model
The auto industry has been a global business for a long time. The last few years how much a problem in just one of those regions, however, can affect everyone in the industry. When assessing the strengths and the weaknesses the most prevalent issues arise around demand for the product and external factors.
Demand risk is the downstream equivalent of supply risk and is present on the demand/outbound side of the supply chain. It may be due to an unexpected increase or decrease in customer demand that leads to a mismatch between the firm’s forecast and actual demand. Increase in customer demand leads to depletion of safety stocks, resulting in stock-outs, back orders, and the need to expedite. A fall in customer demand leads to increased costs of holding inventory and, ...view middle of the document...
2. Eliminating sole-source suppliers, and developing the capabilities of additional companies. Having one supplier is probably too few, but having five suppliers is too many in terms of achieving economies of scale. One strategy would be to give 80% of the work to the primary supplier, and 20% to a secondary vendor that is located in another country. Part of contingency planning should include provisions for ramping up production of the second supplier, in the event of a calamity.
3. Analyzing where suppliers are located, and limiting the number of critical component suppliers that are geographically situated in a risky area. For example, an analysis of Volvo’s supply chain indicated “10% of their parts came from 33 Japanese suppliers, 7 of which were located in the catastrophe area,” according to the New York Times.
For automotive businesses in particular there are ways of addressing the threat not only through better supply chain design, but also contingency planning. An immediate solution would be to shorten the supply chain when possible. The shorter a supply chain, the less potential for disruption along its path. Shortening the supply chain may refer to number of tiers of suppliers, or distance travelled for various parts, components, and finished products. Where possible, reducing dependence on any one form of logistics model (e.g., air freight, rail, road transport) would have a significant impact. Although this is not easy for global sourcing, supply risk reduction can protect automotive organization by developing alternative sources of domestic supply to complement global ones.
The most value-add fix to the supply chain is sufficient contingency planning and managing the complexity of the supply chain. The development a risk management strategy that will work is necessary to create a shared organization-wide understanding of supply-chain risk.
Japanese Auto Supply Chain System