Automotive Supply Chains Risks and Mitigation Strategies

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Automotive Supply chains risks and mitigation strategies
The auto industry has been a global business for a long time. This year has made it clear just how much a problem in just one of those regions, however, can affect everyone in the product chain (Miel, 2011)… Lall (2009) classified supply chains risk into different types depending on their origins. These include demand risk, internal risk, and external environment risk.

External Environment
These risk elements are external to and uncontrollable from the firm’s perspective. Examples include blockades of ports or depots, natural disasters such as earthquakes, hurricanes or cyclones, war, terrorist activity, and financial factors such as exchange rates and market pressures. These events disrupt the flow of material and may lead to plant shutdown, shortage of high-demand items, and price increases (Lall, 2009).

Natural calamities
The clearest lesson from Auto supply chains came in March, when the double disasters of earthquake and tsunami in Japan killed thousands and also impacted manufacturing for weeks. It was reported that GM had to halt production of vehicles at several plants, due to parts shortages from Japanese suppliers. Toyota has suspended production of parts in the mother country that were intended to be shipped overseas. Finally, most Japanese automotive assembly plants remain closed (Mojonnier, 2011)… Except that, there were floods in the northeastern United States that disrupted shipping and tornados throughout the Midwestern U.S. -- including one that damaged Toyoda Gosei North America Corp.’s Hopkinsville, Ky., plant, among other sites(Miel, 2011)… Miel (2011) also claimed that disasters can come in smaller versions when it comes to supply chain interruptions. A March 2 fire extensively damaged Magna International Inc.’s molding plant in Howell, Mich., forcing the company to scramble to make sure it could get parts to customers without forcing those customers to shut down. The company had the plant back at 80 percent of capacity within a week… Risk mitigation strategies

To deal with the large scale disruptions of global auto supply chains caused by the external environment, Mojonnier (2011) defined three avenues open to automotive OEMs , including: 1.Challenging suppliers to develop disaster plans so that they can make provisions to move to alternate sites for production, in the event that they are unable to produce product at their main plant. 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. 4.Review insurance policies and consider taking-out contingent business interruption insurance that protects against losses relating to the inability of suppliers to deliver. Although some of the OEM’s had this coverage, the WSJ suggested that there were so many limitations and exclusions attached to their policies that claims will probably be insignificant… Terrorism

An example can be seen from a series of car bomb went off in southern Thailand on April. The bombs were hidden in pickup trucks in two cities 140 kilometres apart, destroying shops and vehicles, engulfing buildings in flame and smoke and sending panicked shoppers and tourists fleeing (Bankok Post Business, 2012). Risk...
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