Have you ever considered a supply scenario where a key supplier to multiple industry brands encounters a significant or troubling quality problem?

Could that scenario be greatly magnified with a highly sensitized regulatory environment?

That scenario is currently playing out across certain automotive supply chains and reflects that even the smallest part or component failure has far greater brand implications.

According to an exclusive published report from Reuters, product recalls involving airbags supplied by Japan based Takata Corp. will expand and involve millions of affected vehicles. According to the Reuters report, this week, Toyota recalled an additional 1.6 million previously recalled vehicles outside of Japan, as well as 650,000 within Japan because of a believed Takada manufactured airbag defect that has the potential to cause personal injury due to faulty inflators within these airbags. The additional recalled vehicles brought the total number of Toyota branded vehicles subject to airbag recall to more than 7 million over the last five years. 

Reuters further reports that Honda is considering a recall involving more than one million additional vehicles with potentially defective air bags, citing a source familiar with the matter. Last year Honda recalled over a million vehicles because of airbag inflation concerns. The Honda announcement could come by the end of June pending further information from Takata regarding specific inflator component information.  The report additionally indicates that U.S. auto industry regulator, the National Highway Traffic Safety Administration (NHTSA) has this week opened a probe involving an estimated one million vehicles made by Nissan, Mazda and Fiat, in addition to Toyota and Honda. That probe is focused on six reported incidents of airbags not deploying properly in Florida and Puerto Rico.

This news comes in the wake of the increasing high visibility being placed on General Motors and its associated brands due a series of prior product defect awareness and recall snafu’s involving certain ignition switches.   The initial GM incident has prompted additional product recalls involving a multitude of components and millions of vehicles. The entire industry is now highly sensitive to increased  regulatory sensitivity with significant potential monetary fines if known consumer safety issues are not reported on a timely basis. The result has been an explosion of product recall announcements because of such increased scrutiny and regulatory concern with industry supply chains scrambling to provide necessary modified repair parts.

Automotive OEM’s have fostered component product innovation strategies among a key set of lower-tiered component system suppliers, and OEM’s leverage such innovation across multiple vehicle and brand platforms.  As an example, prior Toyota airbag related product recalls involved both the Toyota and luxury Lexus brand. GM’s current wave of product recalls involve many of its brands including Cadillac.

These strategies were put in place to foster both faster product innovation cycles as well as to be able to leverage volume supply costs across multiple global platforms. The objective of leveraging lower component costs has never gone away, at least for certain OEM’s.

According to the Takata web site, the firm serves as a supplier of automotive safety systems and products including airbags, seat belts, restraint systems and other safety related components. This supplier operates 56 plants among 20 countries and is obviously a key supplier for many brands in many production geographies.

From our lens, the current mix of developments at play across multiple automotive brand supply chains provides keen reminders for the needs for more early warning awareness related to component failure trends, the ability to sense and share such information across and among both functional and product design teams with the ability to more adequately identify and trace specific components with their production lots.

Certainly within the automotive industry, supplier management and early warning is no longer the sole purview of procurement teams.  It is fast become a cross-functional, cross-business responsibility led by procurement with the active support and involvement of product design and management. When all the dust settles concerning GM’s ongoing investigations and response plan, much of this learning will be evident.  While automotive has its unique challenges, other industry value-chain teams can also apply similar learning. The product focused and post-sale service focused supply chain are additionally now highly information dependent.

Worst case scenarios involving a product brand and perceptions of quality and safety are not out of the realm of possibility. Speak to procurement, supply chain and product management team members in automotive and you will probably get a clear sense of how distributed product innovation is highly dependent on higher levels of information awareness and product quality measures.

Bob Ferrari

© 2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog.

All rights reserved.