The March 31st explosion at Evonik Industries in Marl, Germany is likely to have the same effect on worldwide automotive production as last year’s Tsunami and reactor accidents in Japan.
We remember the first time we got a letter from an automotive supplier in the 1980′s “awarding us sole supplier status” for a couple of items, followed immediately by a fire and security survey to assure that we would not shut down our customer in the event of a “problem” in our shop.
“I think that we should tell them that in order to give them the low price they wanted, we had to cut somehere, and fire protection at our one truck loading area was what we chose,” suggested a young member of the commercial team who even then couldn’t abide the bankrupt thinking of the great Detroit automotive industry.
That young man has matured, and understands that sole sourcing reduces variation for all downstream processes.
But he still wonders how business men can make “Business Plans” that fail to intelligently manage risk of failure at sole supplier facilities of critical, essential, non- substitutable materials?
The economists will insist that there is a loss to society if backup stocks are held any where in the supply chain.
The geniuses in finance and purchasing will strut how they have eliminated every bit of waste by maintaining “lean inventory” thus maximizing profits- without any understanding at all about supply-chain implications and risk factors.
And the finance boys are right, as the sales team will surely raise the price of autos in light of strong demand but greatly reduced supply due to the supply chain’s failure to have adequate -dare I say it- safety stock?
The loss to society will be the sum of the costs of the damages at the plant that was destroyed, as well as the lost wages of workers who will NOT be building autos due to this accident, and the increased price paid by buyers who must pay the price demanded because they need to replace their car. Plus the cost of a gazillion PPAP’s and material trials for the substitution / replacement of Nylon 12, knowing the automotive industy’s love of and addiction to documentation.
Yes, that sole sourcing lean inventory business strategy that is unthinkingly accepted throughout the automotive industry is perfect- for a world in which accidents don’t happen, chemical plants don’t explode, and tsunamis and nuclear plants don’t lay waste to entire districts of manufacturing.
Sole sourcing and Lean inventory is perfectly calibrated to a world where those things don’t happen.
Unfortunately, that is NOT the world we live in.
Instead of minimizing stock at each and every inventory in the supply chain discretely, perhaps it is time for the “businessmen” to do some supply chain contingency planning to assure that adequate stocks are distributed throughout the supply chain to mitigate the possibility of a single source failure.
The OESA Original Equipment Suppliers Association is doing yeoman duty to fact find, manage this, and help their members understand the impact to their business.
You can find their sensemaking on their home page here. Look under the OESA HEADLINES for the latest developments.