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Business Interruption: A What-If Scenario

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Here’s a hypothetical situation for you to consider: imagine a tier 2 supplier that machines a certain part used in every single major automotive brand (also called original equipment manufacturer (OEM)) assembly plant in a region. Not too far-fetched, right? Now think about what would happen if that same tier 2 supplier had a fire, a strike, a transportation failure or even an IT meltdown. Because all production is dependent on that tier 2 supplier, now every assembly plant must stop the line…something that no plant manager wants to do, especially given the just-in-time nature of automotive production.

The Results of a Business Interruption

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The lines are stopped, and production has halted. The company is losing revenue in the millions as each hour passes. Plant workers are idle. Global OEMs are scrambling, unaware that they all share this same tier 2 supplier in the region. Tier 1 suppliers are frantically trying to identify another supplier that might be able to machine the part. Communication with the affected tier 2 supplier is erratic because of the business interruption. And above all else, the customers feel this pain further down the supply chain when the car they want isn’t available, leading them to look elsewhere.

Business Interruptions Top the List of Risks

Planning for such disruptions gets more critical as each week passes. According to the fourth Allianz Risk Barometer 2015, businesses are facing new challenges from a rise of disruptive scenarios. Allianz, a European financial services/insurance and asset management company, conducted a survey among more than 500 risk managers and corporate insurance experts in 47 countries. Almost half of survey respondents identified business interruption and supply chain risk as the top peril and the most important risk for companies in the global economy.

Past Supply Chain Disruptions

The automotive industry has only to look back at the 2011 tsunami in Japan, a major fire at a German chemical supplier, and the recent United States port labor disruptions to remember how quickly and suddenly these events can occur. Even severe weather in the United States has had strategic implications for automotive production.

From the unknown to the predictable, automotive manufacturers face the potential of natural disasters, labor disputes, material shortages, quality issues, transportation interruptions, IT challenges and more.

Planning Ahead for Business Interruptions

Risk management is so critical in the automotive industry that it is now included in standards for quality and delivery, including ISO 9001:2015 and MMOG/LE, with ISO/TS1649 adding it soon. Suppliers working with OEMs are required to address risk assessment and management. As a part of their risk management planning, tier suppliers must increase visibility with sub suppliers to assess risk and identify the level of exposure to mitigate against it.

How are your risk assessment and management plans?
Read more about risk management planning in the white paper Leveraging Risk Management throughout the Supply Chain.

Resources for Risk Assessment and Planning

QAD holds a leadership position in the global automotive markets for parts manufacturers. We offer tools to help reduce risk and provide support, consultation and resources to help suppliers implement the required business systems and prepare for internal reviews and customer audits. To find out more about QAD resources to support automotive organizations, visit our website or contact: mmogle@qad.com.

Original content was posted here: http://blog.qad.com/2016/01/business-interruption-a-what-if-scenario/

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