Using Supply Chain Modeling to Mitigate Risk in the Automotive Industry

Balancing Supply Chain Efficiency and Risk Reduction
In a typical car there are approximately 3,500 parts, and there are typically three to five levels in the automotive supply chain, which could be comprised of thousands of suppliers. In such an intricate inbound supply chain with thousands of vendors and parts, a critical problem in any node of the supply chain can cost millions of dollars in damage and delays.

This could include a single-sourced supplier shutdown, quality issues with a critical part, a machine going down, a part stock-out in the production process or strikes at one of the component plants. These risks are even more severe considering that much of the automotive industry operates on a JIT (just-in-time) lean manufacturing policy, which requires having the right parts for every vehicle ready as it rolls down the production line.

Manufacturers know that they need to protect their supply chains from serious and costly disruptions, but obvious remedies such as adding capacity and suppliers, shifting to low-cost foreign manufacturing facilities and increasing inventory can significantly increase supply chain risk and costs. How can automotive manufacturers balance supply chain efficiency and risk reduction?