The automotive industry has a lot of balls in the air when it comes to managing risk in their supply chain—so we took a look at riskmethods data to understand what kind of risk events most commonly affect them. The answer was clear: The real problem for the automotive industry is supplier viability. Of all the riskmethods alerts sent to automotive customers in a 12-month period, almost half (44.6%) are related to the viability of a supplier.
I’ve spent years working with automotive companies to reduce their supply chain risk, and I know that supplier viability is already a top concern for them. I’d venture to guess that no one would argue the importance of supplier viability to a supply network—and, indeed, many automotive companies do some kind of work to monitor their suppliers for exactly this kind of concern. However, the important question to ask here—especially in the face of this statistic—is the following:
What decides whether a supplier is viable?
Lots of automotive companies will nod their head along with the statement that monitoring supplier viability is essential, and many of them will even claim that they’re doing it. But there’s a very wide spectrum of “monitoring” that can be done when it comes to this risk factor. If you’ve got some financial data from ratings providers, that’s a great start. But what about other leading indicators that suggest a supplier is struggling with viability?
At riskmethods, we use a number of factors to determine whether a supplier’s viability should be a concern.
Bankruptcy
Okay, this one is a no-brainer. If your supplier goes bankrupt, you’ve got a problem. riskmethods alerts on bankruptcies, of course—but we also alert on signs that suggest a supplier is heading toward bankruptcy, as well other factors that might indicate a supplier is in trouble.
Key Employee Stability
Has your supplier recently undergone some changes at the C- or board-level? Maybe the CFO stepped down, or the CEO was ousted? This is a great example of a leading indicator that suggests a supplier might be headed toward trouble.
Ownership Structure
Is your supplier selling off parts of the business, or acquiring other companies? Moves like this can often signify that a big change is in the works. You should definitely be keeping an eye on any suppliers making these kinds of motions.
Site Relocation or Closure
Is your supplier closing sites or moving operations to different locations? Make sure you’re paying attention. This could be indicative of a decrease in production or cost-cutting measures, which are never things you want to see happening at a key supplier.
Bankruptcy, key employee stability, ownership structure and site relocation or closure are just a few examples of the kind of indicators we keep an eye on for our automotive customers. (Yes, it’s a lot! Fortunately, we have artificial intelligence to help us out.) If you’re only taking a look at some of these, it’s time to consider expanding your coverage so that you have a much more well-rounded picture of how your suppliers are doing.
Automotive companies are especially affected by supplier viability due to their global and complex supply networks. However, in the end it’s every company—not just automotive companies—that have to be concerned about supplier viability. And in the end, supplier viability is just one big piece of the supply chain risk management puzzle.