Three of the world’s leading car manufacturers have created a collaborative community. Here they talk about how it came about.
The impact on global automotive supply chains from two major natural disasters in 2011 – the tsunami that hit Japan in the March and the extensive flooding in Thailand the following October – highlighted to the world’s car manufacturers the weaknesses and vulnerability deep within their supply base. For many, the extent of the problem did not become apparent for some weeks as small, outwardly inconsequential, suppliers at lower tiers of the chain failed to supply the higher tiers. Quite literally, the OEMs could not see the tidal-wave of trouble heading their way.
A common problem for the industry was poor visibility of suppliers beyond tier 1. Prior to 2011 OEMs were reasonably content to leave responsibility for risk assessment of lower tiers to their tier 1 suppliers. That has all changed.
OEMs are now eager to map their supply chains down through the tiers to see where risk and vulnerability coincide. But for any individual car manufacturer this is a highly complex and onerous task, requiring the full co-operation and participation of each supplier at every level. Perhaps unsurprisingly, there are few, if any, signs of individual organisations achieving comprehensive success.
However, in recent weeks a collaborative initiative has been launched by three of the world’s leading car manufacturers that promises an ‘automotive community open to all’, aimed at creating ‘collective protection’ from risks in their supply chain. Aston Martin, Jaguar Land Rover and Toyota Motor Europe have been working with the owner of Goodwood, Lord March, and supply chain management company Achilles, to develop a three-stage process that identifies and manages potential risks in the chain by combining an online portal for supplier information, using a standardised set of questions, as well as a supply chain mapping tool, and a financial analysis model, which serves as a ‘financial health check’ on suppliers.
Toyota was one of the OEMs most affected by the natural disasters of 2011. Referring to the disruption caused by the Japan tsunami, Guillaume Jacques, purchasing general manager, projects and strategy planning at Toyota Motor Europe says: “It took us two months to find out what the full impact was to our supply chain and then another few months to find a total solution to the problems.
“So we made the decision to go with supply chain mapping. The problem is it’s quite a heavy process,” he says. “The opportunity that we saw in the Achilles solution is that it’s a collaborative approach, it promotes standardisation in the supply chain – therefore efficiency – and also, you have the weight of other parties, collectively.”
Gary Archer, purchasing director at Aston Martin and chairman of the Achilles automotive steering group, believes most of the automotive industry has a good measure of their tier 1 suppliers, but beyond tier 1 the information becomes diluted. “The supply chain mapping activity that we are now looking at will grow that knowledge for everyone concerned within the community. Today, largely it’s tier 1 knowledge, but over time this will grow to tier 2, 3, 4 and beyond,” he says.
The community is presently inviting tier 1 suppliers, deemed as being critical to production, to provide information. These suppliers will cascade the request for information down through the supply chain – creating a complete picture of supplier location, function and compliance across countries in a single database.
One of the features will allow automotive companies to map out which supplier manufacturing sites are potentially exposed to risks – including natural disasters, financial and CSR. The tool will also address potential bottlenecks, reliance on single suppliers, and companies with long lead-times which could impact production.
A number of OEMs may well be looking at developing their own independent mapping solutions, but according to Mike Mychajluk, purchasing risk manager at Jaguar Land Rover:?“The people around this table have quickly come to the conclusion that we can do this more effectively as a community than as individual companies.
“What we want from this community is a pro-active approach, to look and see where the pinch points are and when you identify those pinch points, we at Jaguar Land Rover would look at creating detailed business continuity plans. But at the moment we can’t see those pinch points in the system and where the high risk areas are,” he says.
Although supply chain mapping is an important part of the community model, there are two other essential elements that appear to work well on a collaborative basis – gathering supplier information and monitoring supplier risk. Achilles has a track record of running collaborative communities where information on suppliers is gathered and managed on behalf of buyers, and currently has 80,000 companies within their database across a number of industries, including oil and gas, utilities, transport and construction.
According to Luis Olivie, global business development manager for Achilles, much of the information asked of suppliers by buyers tends to be very similar. As with these other communities, the burgeoning automotive community understands the expediency in standardising on a common questionnaire. Archer sees the advantages to both OEMs and suppliers of cutting out repetitive and non-value adding activities. He says: “This is going to be the conduit for obtaining supplier information and reducing transaction activity, both for ourselves and for the community.”
Validation of data and supplier risk assessment go hand-in-hand with this process and enable members of the community proactively to identify and manage potential risks in terms of health and safety, compliance, financial stability, ethics and corporate social responsibility. The financial analysis model offers a financial health check on suppliers and allows buyers and suppliers to work together to address potential problems early.
But it is the supply chain mapping capability that adds an extra dimension – a global appeal – to the new collaborative initiative. Olivie offers an insight: “It’s interesting to see the response to the supply chain mapping concept from the different global players. I don’t think there has been a single large OEM that is not interested in supply chain mapping. In fact, everyone wants to learn more – they all recognise they have this opacity beyond tier 1.”
Olivie alludes to strong interest from other global OEMs in joining the community, “we have just reached an agreement to start piloting the solution with one of the largest manufacturers in the US,” he says.
Bringing suppliers into the community will also be key. The OEMs grouped around the table are confident that they have worked hard to develop the questionnaires and tools in a way that delivers value to suppliers too. There are obvious advantages to suppliers in the reduction of the number of questionnaires that need to be completed and in opening a shop window to a wider audience of potential buyers. But, in particular, there are strong reasons for suppliers to engage with the mapping tool, to use it to their advantage in understanding and managing risk at their own lower tiers.
“When we designed the supply chain mapping tool, we tried to always consider the supplier’s view point and supplier benefit. Part of it has been to make sure that they will be able to enjoy some of the functionality that we will enjoy as OEMs.
“For example, they can use the tool to manage their own supply chain – to know if they have a financial risk or CSR risk in their supply chain,” says Jacques. What is more, for suppliers joining the supply chain mapping module there is no charge. On one point all three OEMs are emphatic, and that is the rigor with which they have adhered to competition law. “We can not share competitive data,” says Archer. Only Achilles will have visibility of where OEMs share suppliers and all supplier information will remain confidential.
Jacques says, “Competition law is very important. But equally important in the eyes of the suppliers will be the confidentiality of their data. Supply chain data is rightly seen by suppliers as competitive information. So when we designed the solution we kept that in mind. Some of the information is community level and can be shared with OEMs, such as quality certifications, but some information is private and available only to companies that the supplier has agreed to disclose it to – and that is extremely important.”