OEM Customers: Definition

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 The fragile automotive supply chain

Internal and external disruptions, both severe and mild, constantly pressure the automotive supply chain and cause unanticipated reductions or stoppages of vehicle production. Internal disruptions include part quality issues, recalls, and supplier financial instability; external disruptions include fluctuating vehicle demand, shifting trade policies and tariffs, natural disasters, and unexpected global resource shortages. A seemingly unending wave of these “trigger” events exposed the fragility of the global automotive supply chain with alarming regularity (see sidebar).

Even before the COVID-19 pandemic, OEMs struggled with supplier delivery issues, as evidenced by poor supplier-delivery performance ratings on supplier scorecards. Ongoing supplier performance issues prompted the International Automotive Task Force (IATF), in conjunction with several OEMs, to pilot the IATF Red Supplier status program in mid-2019. This program seeks to correlate tier 1 supplier performance as experienced by OEMs with the supplier’s quality management system (QMS) certification status to IATF 16949 (the global automotive industry QMS standard). Notably, tier 1 suppliers are identified as “red states” just as often for delivery issues as for quality concerns.

Supplier delivery performance risks were identified in a 2019 OESA Supplier Barometer study in which more than half of the supplier concern scenarios were directly related to supplying chain topics such as capacity and logistics constraints and raw material shortages.

Service parts delivery delays have also been an ongoing problem for the automotive supply chain. With the average age of vehicles currently on the road in the United States closing in on 12 years, the demand for service parts is increasing. OEMs continually experience backlog status for service parts from suppliers, leading to consumer dissatisfaction when vehicle service repairs take weeks rather than hours to complete. Unfortunately, the priority for many automotive suppliers is series production part deliveries to their OEM customers. Additionally, service parts planning and management processes tend to be less mature to nonexistent at most automotive suppliers.

These issues highlight critical areas of concern for manufacturers up and down the supply chain:

1. The financial instability of suppliers impacted by an unanticipated, protracted production disruption

2. Uncertainty of suppliers’ ability to restart operations and recover production levels based on unpredictable and fluctuating vehicle demand

3. Accuracy and timeliness in communicating supply requirements from OEMs throughout the supply chain

4. The availability of reliable transportation networks for parts and vehicles

5. Understating potential risk and lack of resilience in the supply chain in the face of future disruptions.

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