Supplier performance controlling

Munich – Major automotive manufacturers require tens of millions of parts on a daily basis, and this at over 30 production sites across the globe. They procure parts from up to 2,000 Tier 1 suppliers and more than 10,000 sub-suppliers from several thousand sites in approximately 100 different countries. In turn, these suppliers also supply each other across n-tier levels and their production systems are closely interlinked. These figures serve to clarify the complexity of the entire supply chain. Monitoring supply chain performance without transparency of the dependencies within such a network is the most challenging task of all.

Interruptions in supply pose an operational risk

According to a KBC study, most manufacturing companies identify the increasing number of supply interruptions as their greatest operational risk. However, monitoring this risk is mainly focussed on Tier 1 suppliers, although these suppliers only accounted for approximately half of the supply interruptions in 2018. However, as there is usually no direct business relationship with the n-tier suppliers, there is also no in-depth monitoring of the supply chain and risk, which results in significantly less comprehensive risk prevention.

Risk classification

The risks along the supply chain can be distinguished into the four subject areas supplier locations, products, logistics chains and markets. Any supplier within a supply chain can pose a risk factor due to insufficient quality or supply capacities. This is why evaluating suppliers with key indicators is so important: For example, based on their adherence to delivery dates and quantities, the frequency with which they adhere to product and process specifications, or their pricing policy. The respective product or components also greatly impacts supply chain performance, with the possible risks posed by insufficient technical specifications, a large number of technical changes or the status of development maturity. Differences in logistical requirements and the geographical structure of the supply chains can also pose additional risks, caused, for example, by JIS or JIT delivery or by different specifications regarding the required containers. It must also be considered that customs duties, sea or air freight requirements and the respective routes have a major impact on the probability of supply chain failure. And finally, the respective customer and market requirements can pose additional risks: volatile requirements and a lack of order stability in the short to medium-term make accurate forecasts almost impossible and are further complicated by different decoupling points of individual components.

Collection of key indicators to identify risks

The four clusters mentioned above must be analysed for possible measurement, control and target variables so that significant risk accumulations can be identified. Our experience has shown that the resulting transparency allows the customer to identify supply chains with the greatest risk of supply interruptions or installation of faulty parts. The collected key indicators must be correctly located along the phases of the product life cycle (concept, supplier selection, industrialisation, start-up and serial production) in order to draw the right conclusions for the respective phase on the basis of the analysis results.

Regular monitoring of key indicators empowers our customers to identify any need for action with regard to risk prevention during each stage and to take the appropriate countermeasures.