The impact of Japan’s catastrophic earthquake and tsunami two months ago continues to reverberate well beyond the country’s borders as the ripple effect of supply chain challenges continue to make themselves felt.
Addressing a global webinar audience recently, Original Equipment Suppliers Association (OESA) head of industry analysis and economics, Dave Andrea, outlined some of the advice his organisation was providing to its 300 North American members.
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“It is unprecedented what we are facing today because there is disruption in every one of the variables,” said Andrea. “The supply chain shortages started after the great recession in 2009 in North America.
“We were short already on electronics, steel and other key components that were giving concern to vehicle manufacturers. Red flags right now as we rebuild the supply chain are verification of your sub-tier components and capacity ranges.”
Andrea made it clear the parts industry was already facing challenges coming out of the recession with many suppliers having “less than strong financial viability” and emphasised his concern that cashflow might start to fall back.
However, the OESA SVP reserved praise for vehicle manufacturers which he maintained “did an excellent job” in looking at which platforms to protect and prioritise but cautioned against “over-promises” by some suppliers in the chain.
Addressing supplier revenue recovery, Andrea estimated an average decrease of 3% for Q2, but noted some of his members were looking at 11%-15% or even 16%-20%. Despite the dramatic numbers, revenue should recover in Q3 and Q4 as members sought to be “over-plan to make up lost production.”
“Q2 will be about supply chain risk mitigation, Q3 about restoring capacity and capability [with] Q4 getting back on plan and recouping lost business,” he said. “Net, we will be down absolutely, probably about 1.5%-2%, but it will play out significantly different supplier by supplier.”
Andrea was at pains to note however that shutting down an assembly plant remained the “cardinal sin” but urged “reasonableness” in terms of increasing inventory buffers, adding unnecessary tooling and capital investment and reversing business relationships.
