Supply chain crises are the new normal<\/h1>\n\n Munich, May 2023<\/span>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t\n\t\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t\t\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\n \n\n\n \n \n\n T<\/span>\n he next crisis is inevitable, and stepping up risk detection and mitigation in order to deal with disruption fast may mean OEMs have to step outside their comfort zones<\/p>\n\n <\/div>\n\n \n\n <\/div>\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\tFor automotive supply chains, the past few years have been exceedingly volatile, with varied shocks overlapping. The impact of Covid-19 and the semiconductor crisis seem to have passed, however shortages of raw materials (particularly those used in battery-making) and geopolitical risks including the ongoing war in Ukraine, have not gone away.<\/p>
In addition to external shocks, the supply chain is also being fundamentally reshaped by the transformation of the auto industry itself. As vehicles become increasingly software-enabled and electric, the balance of power between OEMs and suppliers has shifted<\/a>. As we set out in previous articles in this series, true collaboration is essential<\/a> starting in the development stage, and selecting the right supplier can make the difference between success and failure.<\/p>Effective risk detection and risk mitigation strategies are therefore becoming increasingly critical for both OEMs and suppliers to ensure their long-term resilience and success. When the next crisis inevitably hits, how will the supply chain hold up? Too many mitigation strategies still address only short-term and obvious risks. Rarely do either OEMs or suppliers think more radically, taking steps such as buying a mine to ensure supply of a key mineral, acquiring lower-tier suppliers or designing more value-creating components in-house.<\/p>
Here, we look at how automotive companies can first harness the power of data to identify risks at every level of their supply chain. Armed with a clear and detailed picture of the risk landscape, they must then act to stop problems arising, typically in three categories: with the supplier, with their own product requirements, and with their own organizational processes.<\/p>
\u00a0<\/p>
Risk detection: Know your supply chain<\/a><\/strong><\/h2>As described above, risk has increased in automotive supply chains as companies have been simultaneously hit by external disruption and the industry\u2019s own technology changes. Electrification and a greater share of software in vehicles demand new suppliers, new raw materials and new types of supplier relationships.<\/p>
As the number of suppliers increases, the risk of production stoppages increases, because disruption to one link in the supply chain may bring the entire production process to a halt. At the same time, the increasing product and process complexity means automotive companies are working with new technology suppliers that enjoy a near-monopoly position in some technologies. This has created greater dependency by OEMs, which cannot reduce their risk by having multiple suppliers.<\/p>
The result of all these factors is that early risk identification and analysis is essential. Data holds the key: as Figure 1 below shows, there are eight steps across three layers to follow, starting with data collection (internal, external and historic), followed by analyzing and classifying the data, and lastly using it for risk assessment:<\/p>
\u00a0<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\t\tFigure 1: Collecting and preparing data for risk assessment<\/em><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t\t\t\t\t\t<\/span>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\tSUPPLY CHAIN RISK MANAGEMENT PROCESS<\/strong>
Our risk management process comprises 3 different layers with 8 steps to analyse and evaluate the risk landscape within the supply chain.
<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t![\"\"](\"https:\/\/www.berylls.com\/wp-content\/uploads\/2023\/05\/Bildschirmfoto-2023-05-23-um-12.33.19.png\")
\t\t\t\t\t\t\t\t<\/a>\n\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\n \n \n Source: Berylls Strategy Advisors\u00a0<\/p> <\/div>\n <\/div>\n\n\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t\t\t\t\t\t<\/span>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\tAs Figure 2 below shows, the first step in risk assessment is identifying the potential supplier risks that could impact the companies\u2019 objectives. The most critical suppliers will be analyzed in greater detail along an extended set of criteria and rated according to their criticality. A compound rating of the suppliers will result in a ranking according to their criticality.<\/p>
Once the risks are identified, the next step is to analyze their potential impact and likelihood of occurring. This means evaluating the consequences of each risk scenario and assessing the company\u2019s vulnerability to them.<\/p>
With a clear understanding of the supply chain risks they face and the potential consequences, companies must then evaluate their level of risk tolerance and acceptance. This enables organizations to determine which risks fall within acceptable thresholds, and where further risk mitigation measures are necessary.<\/p>
Effective risk mitigation strategies will minimize the likelihood of risks occurring or minimize their impact if they do materialize. Mitigation measures can include process improvements, staff training or contractual agreements with suppliers. Below we look in detail at the options open to OEMs and suppliers.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\t\tFigure 2: From risk assessment to mitigation strategy<\/em><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t\t\t\t\t\t<\/span>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\tACCESS RISKS OF CRITICAL SUPPLIERS<\/strong>
After identifying and ranking the most critical suppliers, risks are assessed in a risk matrix for further measure definition.
<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t![\"\"](\"https:\/\/www.berylls.com\/wp-content\/uploads\/2023\/05\/Bildschirmfoto-2023-05-23-um-12.36.56.png\")
\t\t\t\t\t\t\t\t<\/a>\n\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\n \n \n Source: Berylls Strategy Advisors\u00a0<\/p> <\/div>\n <\/div>\n\n\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t\t\t\t\t\t<\/span>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\t\u00a0<\/h2>Risk mitigation: Leave your comfort zone<\/strong><\/h2>Using the insights from their risk analysis, OEMs and suppliers must move quickly to create an effective risk mitigation strategy. The aim is clear: to establish transparency across all the tiers of the supply chain and develop rapid emergency plans to deal with shortages as, or before, they arise.<\/p>
Based on our experience working with OEMs and suppliers, Figure 3 below sets out a toolbox of mitigation measures for the three main areas where things go wrong: with suppliers, with the company\u2019s own product development, or the company\u2019s organizational issues.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\t\tFigure 3: Eleven key supply chain risk mitigation measures<\/em><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t\t\t\t\t\t<\/span>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t![\"\"](\"https:\/\/www.berylls.com\/wp-content\/uploads\/2023\/05\/Bildschirmfoto-2023-05-23-um-12.41.41.png\")
\t\t\t\t\t\t\t\t<\/a>\n\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\n \n \n Source: Berylls Strategy Advisors\u00a0<\/p> <\/div>\n <\/div>\n\n\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t\t\t\t\t\t<\/span>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\tThe 11 measures are assessed according to the timeframe for impact (Y-axis) and the likely capital tie-up (X-axis) in Figure 4 below. Our analysis shows that most measures fall at the lower end of capital tie-up. However, there is a wider distribution when it comes to how long they will take to have an effect on risk. This ranges from short-term measures, or quick wins, that happen in less than six months, to long-term measures that will take more than a year, which we define as “low-investment long-term plays.”<\/p>
This distribution signifies that time plays a critical role when it comes to implementing risk mitigation measures effectively. It emphasizes the need for companies to think beyond immediate gains and embrace a bolder and future-oriented approach. By moving away from the notion that more capital investment guarantees success, organizations can focus on recalibrating their supply chain risk management with sustainable and strategic decisions that may take longer to materialize but offer lasting benefits.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\t\tFigure 4: Measures mapped by Impact time \/ Capital tie-up<\/em><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t\t\t\t\t\t<\/span>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t\t\t![\"\"](\"https:\/\/www.berylls.com\/wp-content\/uploads\/2023\/05\/Bildschirmfoto-2023-05-23-um-12.43.08.png\")
\t\t\t\t\t\t\t\t<\/a>\n\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\n \n \n Source: Berylls Strategy Advisors\u00a0<\/p> <\/div>\n <\/div>\n\n\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t\t\t\t\t\t<\/span>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\tHere we take a more detailed look at how OEMs and suppliers can apply one of the key measures in each of the three action areas:<\/p>
Supplier: b(u)y passing the Tier-1 supplier<\/strong><\/span><\/h2>To ensure auto companies have adequate supplies of essential parts even in times of crisis, radical risk mitigation strategies must be on the table, even those which require a higher degree of capital tie-up and longer-term planning. These include buying critical Tier-n suppliers outright or taking a majority stake to gain direct to control. This may mean buying a raw material producer or a mine supplying a vital resource. Companies can also make non-cancellable and non-refundable committed purchase agreements to buy large quantities, of lithium for example, and act as a dealer by distributing the raw material to their Tier-1 and 2 suppliers. Contracting directly with the manufacturer of a high-value part for which a Tier-1 supplier usually does the integration, without an agreed purchase quantity, is another option. The overall aim is to be a priority customer for deliveries, with an increased level of confidence in securing the necessary components, even during times of crisis.<\/p>
We expect strategic co-development partnerships, as well as co-investments and joint ventures, with critical subcontractors to become increasingly common as OEMs and large suppliers prioritize stable supply chains. These measures are out of the comfort zone of most automakers, which have established arm\u2019s length supply arrangements over decades in the search for ever-greater efficiency. But change is now unavoidable.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\t\t\u00a0<\/h2>Own products: establish a multi-source approach<\/strong><\/h2>OEMs and suppliers should be thinking of back-up plans for supply from the earliest stages of design, development and procurement. Dual- and multi-sourcing means building up more than one source for components from suppliers that ultimately source their raw materials or parts from different places. For critical components, identifying several suppliers is important.<\/p>
Working in this way requires flexibility on the part of OEMs and suppliers: by selecting standard products from their supplier that others can also provide rather than requesting a bespoke choice, or designing a component in two different ways so that two different suppliers can be used. Companies also need to look beyond their established suppliers to companies that don\u2019t yet have the right certification or technical processes in place, but which could acquire them. By building up a broader range of qualified sources, OEMs and suppliers give themselves options when shortages occur.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\t\t\u00a0<\/h2>Organization: revise incentives for risk mitigation <\/strong><\/h2>As well as the practical changes to sourcing, design and purchasing processes described above, a mind-set change toward established organizational structures and processes is also essential.
Internally, OEMs and suppliers must create a working environment that supports and encourages their supply chain teams to take more courageous and powerful decisions. In order to prioritize supply chain resilience in purchasing decisions, it is necessary for OEMs and suppliers to make changes to their incentive structures. This means adding metrics over and above cost savings, that incentivize leaders and buyers to consider factors related to supply chain risks. By doing so, they will not be penalized for taking measured risks that do not yield immediate benefits.<\/p>
Externally, the relationship with suppliers must become truly collaborative and based on mutual respect, rather than one-way communication from the OEM or higher tier supplier (see Collaboration is King<\/a> for further exploration of this subject).<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\n\t\t\t\n\t\t\t\t\t\t\n\t\t\t\t\n\t\t\tInsight download and author information\n<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\n \n \n \n\n\t Authors<\/h2> <\/div>\n \n \n \n Timo Kronen<\/p>\n
Partner<\/p>\n
timo.kronen@berylls.com<\/p>\n <\/div>\n
\n \n <\/div>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n\n <\/div>\n \n \n Fritz Metzger<\/p>\n
Partner<\/p>\n
fritz.metzger@berylls.com<\/p>\n <\/div>\n
\n \n <\/div>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n\n <\/div>\n \n \n Hendryk Pausch<\/p>\n
Associate Partner<\/p>\n
hendryk.pausch@berylls.com<\/p>\n <\/div>\n
\n \n <\/div>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n\n <\/div>\n \n \n Eren Duygun<\/p>\n
Senior Consultant<\/p>\n
eren.duygun@berylls.com<\/p>\n <\/div>\n
\n \n <\/div>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n\n <\/div>\n \n \n Fabian Dinescu<\/p>\n
Senior Consultant<\/p>\n
fabian.dinescu@berylls.com<\/p>\n <\/div>\n
\n \n <\/div>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n\n <\/div>\n \n \n\n <\/div>\n\n <\/div>\n\n\n\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t\n\t\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t\t\t\t\t\t\n\t\t\t\t\n\t\t\t\n \n \n\n \n\t\t\t\t\t \n\t\t\t\t\t\t \n \n\t\t\t\t\t\t\t\t\t \n Timo Kronen<\/p>\n\n
Timo Kronen (1979) is partner at Berylls by AlixPartners (formerly Berylls Strategy Advisors) with focus on operations. He brings 19 years of industry and consulting experience in the automotive industry. His focus is on production, development and purchasing as well as supplier management. Some of his recent projects include:
\n\u2022 Restructuring of the Procurement Function (German Sports Car OEM)
\n\u2022 Supplier Task Force for a HV battery cell (German Premium OEM)
\n\u2022 Strategy Development for the Component Production (German Premium OEM)
\nBefore joining Berylls, Timo Kronen worked at PwC Strategy&, Porsche Consulting Group and Dr. Ing. h.c. F. Porsche AG. He holds a diploma degree in industrial engineering from the Karlsruhe Institute of Technology (KIT).<\/p>\n<\/div>\n <\/div>\n
\n Contact us<\/a>\n More about Berylls<\/a>\n <\/div>\n <\/div>\n \n ![](\"https:\/\/www.berylls.com\/wp-content\/uploads\/2022\/07\/Kronen-Timo.png\")
\n <\/div>\n <\/div>\n\n\t\t\t\t\t\t \n \n\t\t\t\t\t\t\t\t\t \n Fritz Metzger<\/p>\n\n
Fritz Metzger (1986) joined Berylls by AlixPartners (formerly Berylls Strategy Advisors), an international strategy consultancy specializing in the automotive industry, in February 2021. He is an expert on automotive operations.<\/p>\n
Since 2011, his focus has been on strategic alignment and operational efficiency improvement of automotive manufacturers and suppliers. He also advises top management in critical situations, including R&D and industrialization task forces and relocation and restructuring initiatives of plants and complete suppliers. The challenges of e-mobility are always in focus.<\/p>\n
Before joining Berylls, he was a director at international strategy consultants PwC Strategy&, as well as a sales and project manager at a medium-sized supplier and mechanical engineering company.<\/p>\n
Fritz Metzger is a trained industrial engineer with a degree from ESB Business School Reutlingen. He also holds an MBA from the University of Salzburg.<\/p>\n<\/div>\n <\/div>\n
he next crisis is inevitable, and stepping up risk detection and mitigation in order to deal with disruption fast may mean OEMs have to step outside their comfort zones<\/p>\n\n <\/div>\n\n \n\n <\/div>\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
For automotive supply chains, the past few years have been exceedingly volatile, with varied shocks overlapping. The impact of Covid-19 and the semiconductor crisis seem to have passed, however shortages of raw materials (particularly those used in battery-making) and geopolitical risks including the ongoing war in Ukraine, have not gone away.<\/p>
In addition to external shocks, the supply chain is also being fundamentally reshaped by the transformation of the auto industry itself. As vehicles become increasingly software-enabled and electric, the balance of power between OEMs and suppliers has shifted<\/a>. As we set out in previous articles in this series, true collaboration is essential<\/a> starting in the development stage, and selecting the right supplier can make the difference between success and failure.<\/p> Effective risk detection and risk mitigation strategies are therefore becoming increasingly critical for both OEMs and suppliers to ensure their long-term resilience and success. When the next crisis inevitably hits, how will the supply chain hold up? Too many mitigation strategies still address only short-term and obvious risks. Rarely do either OEMs or suppliers think more radically, taking steps such as buying a mine to ensure supply of a key mineral, acquiring lower-tier suppliers or designing more value-creating components in-house.<\/p> Here, we look at how automotive companies can first harness the power of data to identify risks at every level of their supply chain. Armed with a clear and detailed picture of the risk landscape, they must then act to stop problems arising, typically in three categories: with the supplier, with their own product requirements, and with their own organizational processes.<\/p> \u00a0<\/p> As described above, risk has increased in automotive supply chains as companies have been simultaneously hit by external disruption and the industry\u2019s own technology changes. Electrification and a greater share of software in vehicles demand new suppliers, new raw materials and new types of supplier relationships.<\/p> As the number of suppliers increases, the risk of production stoppages increases, because disruption to one link in the supply chain may bring the entire production process to a halt. At the same time, the increasing product and process complexity means automotive companies are working with new technology suppliers that enjoy a near-monopoly position in some technologies. This has created greater dependency by OEMs, which cannot reduce their risk by having multiple suppliers.<\/p> The result of all these factors is that early risk identification and analysis is essential. Data holds the key: as Figure 1 below shows, there are eight steps across three layers to follow, starting with data collection (internal, external and historic), followed by analyzing and classifying the data, and lastly using it for risk assessment:<\/p> \u00a0<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t Figure 1: Collecting and preparing data for risk assessment<\/em><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t SUPPLY CHAIN RISK MANAGEMENT PROCESS<\/strong> Source: Berylls Strategy Advisors\u00a0<\/p> <\/div>\n <\/div>\n\n\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t As Figure 2 below shows, the first step in risk assessment is identifying the potential supplier risks that could impact the companies\u2019 objectives. The most critical suppliers will be analyzed in greater detail along an extended set of criteria and rated according to their criticality. A compound rating of the suppliers will result in a ranking according to their criticality.<\/p> Once the risks are identified, the next step is to analyze their potential impact and likelihood of occurring. This means evaluating the consequences of each risk scenario and assessing the company\u2019s vulnerability to them.<\/p> With a clear understanding of the supply chain risks they face and the potential consequences, companies must then evaluate their level of risk tolerance and acceptance. This enables organizations to determine which risks fall within acceptable thresholds, and where further risk mitigation measures are necessary.<\/p> Effective risk mitigation strategies will minimize the likelihood of risks occurring or minimize their impact if they do materialize. Mitigation measures can include process improvements, staff training or contractual agreements with suppliers. Below we look in detail at the options open to OEMs and suppliers.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t Figure 2: From risk assessment to mitigation strategy<\/em><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t ACCESS RISKS OF CRITICAL SUPPLIERS<\/strong> Source: Berylls Strategy Advisors\u00a0<\/p> <\/div>\n <\/div>\n\n\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t Using the insights from their risk analysis, OEMs and suppliers must move quickly to create an effective risk mitigation strategy. The aim is clear: to establish transparency across all the tiers of the supply chain and develop rapid emergency plans to deal with shortages as, or before, they arise.<\/p> Based on our experience working with OEMs and suppliers, Figure 3 below sets out a toolbox of mitigation measures for the three main areas where things go wrong: with suppliers, with the company\u2019s own product development, or the company\u2019s organizational issues.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t Figure 3: Eleven key supply chain risk mitigation measures<\/em><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t Source: Berylls Strategy Advisors\u00a0<\/p> <\/div>\n <\/div>\n\n\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t The 11 measures are assessed according to the timeframe for impact (Y-axis) and the likely capital tie-up (X-axis) in Figure 4 below. Our analysis shows that most measures fall at the lower end of capital tie-up. However, there is a wider distribution when it comes to how long they will take to have an effect on risk. This ranges from short-term measures, or quick wins, that happen in less than six months, to long-term measures that will take more than a year, which we define as “low-investment long-term plays.”<\/p> This distribution signifies that time plays a critical role when it comes to implementing risk mitigation measures effectively. It emphasizes the need for companies to think beyond immediate gains and embrace a bolder and future-oriented approach. By moving away from the notion that more capital investment guarantees success, organizations can focus on recalibrating their supply chain risk management with sustainable and strategic decisions that may take longer to materialize but offer lasting benefits.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t Figure 4: Measures mapped by Impact time \/ Capital tie-up<\/em><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t Source: Berylls Strategy Advisors\u00a0<\/p> <\/div>\n <\/div>\n\n\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t Here we take a more detailed look at how OEMs and suppliers can apply one of the key measures in each of the three action areas:<\/p> To ensure auto companies have adequate supplies of essential parts even in times of crisis, radical risk mitigation strategies must be on the table, even those which require a higher degree of capital tie-up and longer-term planning. These include buying critical Tier-n suppliers outright or taking a majority stake to gain direct to control. This may mean buying a raw material producer or a mine supplying a vital resource. Companies can also make non-cancellable and non-refundable committed purchase agreements to buy large quantities, of lithium for example, and act as a dealer by distributing the raw material to their Tier-1 and 2 suppliers. Contracting directly with the manufacturer of a high-value part for which a Tier-1 supplier usually does the integration, without an agreed purchase quantity, is another option. The overall aim is to be a priority customer for deliveries, with an increased level of confidence in securing the necessary components, even during times of crisis.<\/p> We expect strategic co-development partnerships, as well as co-investments and joint ventures, with critical subcontractors to become increasingly common as OEMs and large suppliers prioritize stable supply chains. These measures are out of the comfort zone of most automakers, which have established arm\u2019s length supply arrangements over decades in the search for ever-greater efficiency. But change is now unavoidable.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t OEMs and suppliers should be thinking of back-up plans for supply from the earliest stages of design, development and procurement. Dual- and multi-sourcing means building up more than one source for components from suppliers that ultimately source their raw materials or parts from different places. For critical components, identifying several suppliers is important.<\/p> Working in this way requires flexibility on the part of OEMs and suppliers: by selecting standard products from their supplier that others can also provide rather than requesting a bespoke choice, or designing a component in two different ways so that two different suppliers can be used. Companies also need to look beyond their established suppliers to companies that don\u2019t yet have the right certification or technical processes in place, but which could acquire them. By building up a broader range of qualified sources, OEMs and suppliers give themselves options when shortages occur.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t As well as the practical changes to sourcing, design and purchasing processes described above, a mind-set change toward established organizational structures and processes is also essential. Externally, the relationship with suppliers must become truly collaborative and based on mutual respect, rather than one-way communication from the OEM or higher tier supplier (see Collaboration is King<\/a> for further exploration of this subject).<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t Timo Kronen<\/p>\n Partner<\/p>\n timo.kronen@berylls.com<\/p>\n <\/div>\n Fritz Metzger<\/p>\n Partner<\/p>\n fritz.metzger@berylls.com<\/p>\n <\/div>\n Hendryk Pausch<\/p>\n Associate Partner<\/p>\n hendryk.pausch@berylls.com<\/p>\n <\/div>\n Eren Duygun<\/p>\n Senior Consultant<\/p>\n eren.duygun@berylls.com<\/p>\n <\/div>\n Fabian Dinescu<\/p>\n Senior Consultant<\/p>\n fabian.dinescu@berylls.com<\/p>\n <\/div>\n Timo Kronen<\/p>\n\n Timo Kronen (1979) is partner at Berylls by AlixPartners (formerly Berylls Strategy Advisors) with focus on operations. He brings 19 years of industry and consulting experience in the automotive industry. His focus is on production, development and purchasing as well as supplier management. Some of his recent projects include: Fritz Metzger<\/p>\n\n Fritz Metzger (1986) joined Berylls by AlixPartners (formerly Berylls Strategy Advisors), an international strategy consultancy specializing in the automotive industry, in February 2021. He is an expert on automotive operations.<\/p>\n Since 2011, his focus has been on strategic alignment and operational efficiency improvement of automotive manufacturers and suppliers. He also advises top management in critical situations, including R&D and industrialization task forces and relocation and restructuring initiatives of plants and complete suppliers. The challenges of e-mobility are always in focus.<\/p>\n Before joining Berylls, he was a director at international strategy consultants PwC Strategy&, as well as a sales and project manager at a medium-sized supplier and mechanical engineering company.<\/p>\n Fritz Metzger is a trained industrial engineer with a degree from ESB Business School Reutlingen. He also holds an MBA from the University of Salzburg.<\/p>\n<\/div>\n <\/div>\n Risk detection: Know your supply chain<\/a><\/strong><\/h2>
Our risk management process comprises 3 different layers with 8 steps to analyse and evaluate the risk landscape within the supply chain.
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After identifying and ranking the most critical suppliers, risks are assessed in a risk matrix for further measure definition.
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Risk mitigation: Leave your comfort zone<\/strong><\/h2>
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Own products: establish a multi-source approach<\/strong><\/h2>
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Organization: revise incentives for risk mitigation <\/strong><\/h2>
Internally, OEMs and suppliers must create a working environment that supports and encourages their supply chain teams to take more courageous and powerful decisions. In order to prioritize supply chain resilience in purchasing decisions, it is necessary for OEMs and suppliers to make changes to their incentive structures. This means adding metrics over and above cost savings, that incentivize leaders and buyers to consider factors related to supply chain risks. By doing so, they will not be penalized for taking measured risks that do not yield immediate benefits.<\/p>Insight download and author information\n<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
Authors<\/h2> <\/div>\n \n
\n\u2022 Restructuring of the Procurement Function (German Sports Car OEM)
\n\u2022 Supplier Task Force for a HV battery cell (German Premium OEM)
\n\u2022 Strategy Development for the Component Production (German Premium OEM)
\nBefore joining Berylls, Timo Kronen worked at PwC Strategy&, Porsche Consulting Group and Dr. Ing. h.c. F. Porsche AG. He holds a diploma degree in industrial engineering from the Karlsruhe Institute of Technology (KIT).<\/p>\n<\/div>\n <\/div>\n \n <\/div>\n <\/div>\n\n\t\t\t\t\t\t
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