An article on CNNMoney.com validates what many auto industry participants already know, that supplier disruption is going to get worse before it gets better within the U.S. auto supply chain.  Some weeks ago, when national debate was raging about potential bailouts of any of the U.S. Big Three, I penned a post indicating my view that the biggest concern for this industry would be the cascading effects to the supply base, in addition to the failure of any one of the big three OEM’s.

Multiple failures among Tier 2 and Tier 3 automotive suppliers have to have broad impacts, not only to the U.S. OEM’s but Asia and European automakers as well.  The CNNMoney article points out that the primary problem of supplier failure lies in both a lack of bank credit, as well as depressed volumes.  I’ve read other articles, including one in the Wall Street Journal, that concerns are not only with the smaller suppliers, but certain Tier 1 suppliers as well.  Suppliers like Visteon and Delphi experienced some form of financial crisis before this latest severe downturn, and business is just getting worse.  Ford has already indicated that it cannot assist Visteon. GM and Chrysler are in similar situations.

The takeaway for automotive-related and all other supply chain professionals is to build better intelligence in your supply base, and expand assistance programs with key suppliers in any way you can. In today’s tough economic environment, supplier viability may rank higher than contract performance.  Monitor early-warning signs and be prepared to extend a helping-hand either operationally or financially.

An especially difficult challenge facing the U.S. automotive sector will be investing in innovation toward more fuel-efficient or alternative fuel vehicles.  An investment in time, effort, and resources among high quality and responsive suppliers will be key to insuring supply continuity and future innovation.

What about your industry?  Is your company monitoring the supply base for risk?

 Bob Ferrari