Today’s automotive suppliers face a wide range of business-critical issues, including shortages of raw materials, catastrophic property losses from unforeseen events, supply chain disruptions and computer system outages and failures. For Tier 1 automotive suppliers, lack of transparency and control with sub-suppliers adds yet another layer of risk. Now, and certainly well into the future, smart strategic planning is imperative to mitigate these concerns and extends to compliance.

Risk-based thinking and management is a new area of focus in IATF 16949:2016 and the Materials Management Operations Guideline/Logistics Evaluation (MMOG/LE), two key automotive industry standards. ISO/TS 16949 is one of the automotive industry’s most widely used international standards for quality management. The updated version, IATF 16949, published in October 2016, supersedes and replaces the existing ISO/TS 16949 standard and redefines requirements for automotive industry quality management systems. MMOG/LE defines industry wide best practices and is used for assessing and measuring supply chain efficiency and risk.

There are thousands of automotive suppliers globally that must address the IATF and MMOG/LE requirements. The clock is already ticking: Suppliers must transition to IATF 16949:2016 by Sept. 18, 2018. Non-compliance could limit an organization’s access to new business opportunities and put its existing operations in jeopardy.

As a part of risk-based thinking, senior management, going forward, must identify and address both risks and opportunities. When determining risk, management must consider factors that could cause a process to deviate from planned results. A risk needs an action plan if it has both a high probability of disrupting the organization and a high likelihood of occurring. Examples of risk that will require action plans include significant business growth, fires, cyber-security, late shipments, new product launch, natural disasters, product recalls, financially unstable suppliers, and labor strikes. So how can top management ensure identification and mitigation of risk throughout the enterprise?

There are thousands of automotive suppliers globally that must address the IATF and MMOG/LE requirements. The clock is already ticking: Suppliers must transition to IATF 16949:2016 by Sept. 18, 2018. Non-compliance could limit an organization’s access to new business opportunities and put its existing operations in jeopardy.

Plans need to ensure all steps required to return to normal operations. To illustrate, most organizations have a plan in the event of a fire. The plan typically includes contacting the fire department, evacuating personnel and testing the procedure by organizing fire drills. Most action plans, however, fail to address getting the facility back to full operation by including steps to recover should the fire cause damage to the facility or harm key personnel. It is important all plans go beyond containing the issue to full recovery.

Plans should also include all key aspects of risk such as sections for training, testing, validating, reviewing and incorporating lessons learned. Imagine an already late premium freight shipment from China to the United States where the sites are unable to communicate due to a language barrier or a fire on the roof of a plant where materials manager doesn’t know the location of the fire alarm. These are real examples, which had a significant cost impact on these organizations. Simply ensuring training and testing were considered would have uncovered that the plans needed improvement and saved both companies thousands of dollars.

All organizations should have a map of all sub supplier locations and a plan on how to recover from sub supplier issues such as bankruptcy, quality and delivery issues. Following the 2011 tsunami, it took six weeks for a major automotive original equipment manufacturer (OEM) to locate all suppliers in area. Because of the lessons learned from this event, the OEM implemented a risk management solution, which allowed them to monitor events and assess risks in their supply chain. Fast forward to the earthquake in Japan in April 2016, within six hours this same OEM understood the supplier impact in the region.

Organizations should consider leveraging an automated quality management system (QMS) to proactively monitor risks. For example, when information is contained in spreadsheets and spread out all over the enterprise, it makes it difficult to make a good decision regarding new business contracts with existing suppliers. An organization might decide to award new business based on good performance at one supplier site without the ability to see the same supplier has many issues, such as failed audits, poor performance, or corrective actions at other sites. In addition, the QMS makes it easy to demonstrate how top management stays on top of risk by, for example, being able to respond quickly and accurately to audits.

In summary, no supplying organization or department is immune to risk. Top management should have a multidisciplinary approach. There is considerable effort to identify and address risks, which many companies have not yet begun to yet address in detail. The key is to assess risk plans and to begin to act now or as soon as possible. Effective risk plans take time to develop. Sept. 18, 2018 is already less than two years away.

 

About the author

Terry Onica is Director, Automotive of QAD. Prior to joining QAD, Terry worked at GM, Ford and Johnson Controls. She has been immersed in the automotive supply chain and technology space throughout her 25-year career.

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