Technical article
Tracking the performance of the entire supply chain
Munich– Major automakers have a daily parts requirement in the tens of millions, across more than 30 production sites worldwide. They source parts from up to 2,000 Tier 1 suppliers and over 10,000 sub-suppliers at several thousand locations in approximately 100 different countries. Furthermore, suppliers across the n-tier levels in turn supply each other, and the production systems are closely interlinked. These figures are intended to illustrate the complexity of the entire supply chain. Monitoring supply chain performance while lacking transparency regarding dependencies within such a network is a supreme challenge.
Service interruptions are an operational risk
According to a KBC study, the majority of manufacturing companies identify the rising number of supply disruptions as their greatest operational risk. However, when monitoring this risk, they focus primarily on Tier 1 suppliers, even though only about half of the supply disruptions in 2018 originated from Tier 1 suppliers. However, since there is usually no direct business relationship with n-tier suppliers, no in-depth supply chain and risk monitoring is conducted here, resulting in significantly less comprehensive risk prevention.
Classification of Risks
Risks along the supply chain can be categorized into four areas: supplier locations, products, logistics chains, and markets. Any supplier in a supply chain can be a risk factor due to poor quality and insufficient supply capacity. For this reason, it is important to evaluate suppliers using key performance indicators: for example, based on their on-time delivery rates, the frequency with which they meet product and process specifications, or their pricing policies. The specific product or component also has a major influence on supply chain performance. Potential risks here include inadequate technical specifications, a high number of technical changes, or the level of development maturity. Furthermore, differences in logistical requirements and the geographical structure of supply chains can pose additional risks.
The causes of this include, for example, JIS or JIT delivery, or differing requirements regarding the containers needed. It is also important to note that customs duties, sea or air freight requirements, and the distance involved have a significant impact on the probability of supply chain disruptions. Finally, additional risks arise from specific customer and market requirements: the volatility of demand and a lack of order stability in the short to medium term make accurate forecasts nearly impossible and are further complicated by varying decoupling points of individual components.
Collection of key performance indicators for risk identification
The four clusters mentioned must be analyzed in terms of potential metrics, control variables, and targets so that significant risk concentrations can be identified. Our experience shows that the resulting transparency enables customers to identify supply chains with the highest risk of supply disruptions or the incorporation of defective parts. The collected metrics must be correctly mapped to the phases of the product lifecycle (concept, supplier selection, industrialization, ramp-up, and series production) so that the analysis results can be used to draw the right conclusions for each phase.
By regularly monitoring key performance indicators, we enable our clients to identify areas where action is needed to prevent risks at every stage and to take appropriate measures to address them.