In recent years, supply chain risks have increased dramatically as companies operate “long-reach” systems across international boundaries whilst simultaneously seeking to reduce costs. Much of the cost reduction effort has involved automakers passing more responsibility down the chain to lower-tier suppliers, who often have neither the experience nor the capability to perform the tasks they are being assigned. As a consequence, instances of supply chain failure are rising driven by lack of communication on such key issues as demand signalling and the effect of constraints in the system. We are now seeing commercial failures as a direct result of these supply chain developments.
In the automotive industry, failures in lower tier supply can be critical, resulting in line stoppages and significant financial loss. The major OEMs are beginning to realise that many of their Tier 1 suppliers, to whom they have devolved supply chain responsibility, are unable to control sub-suppliers on their own and need the OEMs’ direct involvement and support. This support can simply entail better scheduling and demand signalling to enable the sub-supplier to respond efficiently to demand changes. However, it is also likely to include other kinds of support such as engineering assistance, process support and in extreme cases, financial support for inventory positions or new capital investments.
Through careful supplier selection and supply chain/system architecture design, PwC can assist both OEMs and their suppliers to avoid the most serious supply chain problems. Our SecureSource product is aimed at helping companies to source products and support from low cost countries, notably China. SecureSource uses our global network of business professionals to conduct effective due diligence of new suppliers in far off countries and to verify their commercial and product capabilities. In combination with SecureSource, we can assist in the design of real-time, supply chain signalling methods that enable an OEM to pass timely demand information to suppliers without the need for cumbersome schedules or costly MRP runs. Together, these two approaches enable supply chains to become both dynamic and low cost whilst avoiding the more risky aspects of complex supply chain operation.
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