Abstract
Since the COVID-19 pandemic, the automotive industry which is regarded as a best practice considering its supply chain has experienced new threats which render its supply chain vulnerable. For instance, the many lockdowns, associated with collapsing of global distribution channels sunk vehicle sales dramatically. The purpose of this study is to identify capabilities to strengthen the resilience of automotive supply chains to pandemics. By using the supply chain resilience framework developed by Sytch et al. [4] we analyze the resilience of the automotive supply chain with evidence from the literature to a pandemic crisis with vulnerability factors similar to those of COVID-19.
We do find evidence that seven out of ten capabilities we looked for are present in the automotive supply chain. Capabilities to improve are i.e., multiple sources for tier 1 suppliers, improving risk pooling/sharing, and defining means of production postponement.
With the evidence on resilience factors for pandemics, we provide managers with a set of factors to focus on in pandemics. Thus, our study helps managers to better prepare their supply chain to resist global crises such as the COVID-19 pandemic. We used a methodology that can be applied with more secondary and also primary sources and therefore is interesting for researchers.
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1 Introduction
The COVID-19 pandemic, which started in China in December 2019 uncovered many vulnerabilities of global supply chains [1, 2]. Many countries closed their borders to travelers and goods transport – by air, land, or sea- to limit the spread of the virus on their territories [2]. Direct consequences are the collapse of global distribution routes, economic self-isolation, “consumers reduced income” and “production shutdowns” [3], which impacted both the demand and supply sides of supply chains worldwide [2].
Because of its heavy reliance on a fragmented and global supply chain, the automotive industry is a typical sector that got hit heavily by the COVID-19 outbreak [2,3,4]. Major disruptions, such as the COVID-19 pandemic, result in deep cuts in sales for production companies like the automotive industry (e.g. [5, 6]). For instance, vehicle sales sunk by almost 20% in February 2020 compared to the previous year Free and Hecimovic [2] relate that in the USA, 93% of all automotive production was stopped by late March 2020. In Europe, it is estimated that 1.1 million workers in the automotive industry lost their jobs because of the pandemic [7].
The automotive supply chain is highly vulnerable to a turbulent external environment, consequently to its complex and globalized supply chain which is associated with higher uncertainty than other sectors’ supply chains [8, 9]. Managers estimate that supply chain risks constitute the most severe threat to their company [10]. Consequently, managing risks and uncertainty of supply chains is an essential ability in the automotive industry [9], which can be understood as the resilience of supply chains.
Starting in the middle of the 1990s, researchers began to develop approaches to increase the resilience of supply chains to disruptions [11]. First, they identified resilience approaches to improve supply chain efficiency, such as just-in-time production [12]. Since the COVID outbreak, the focus of research on the resilience of the supply chain to various vulnerability factors grows strongly. A search conducted on 27th May 2022 on the Web of Science database with the terms “resilience” and “supply chain” results in eight publications for 2010 and 573 publications for 2021. Resilience in a general meaning is the ability to resist disruption. The resilience of supply chain research is segmented into at least five fields, namely: (1) types of disruptions, (2) resilience phases, (3) resilience strategies, (4) resilience methods and tools, and (5) capabilities for resilience. While research in each distinct field is abundant, research that crosses fields is less frequent. In the study of Sytch et al. [4], a framework is conceptually developed that bridges the research fields of type of disruption or vulnerabilities and the capabilities for supply chain resilience. We use a qualitative content analysis approach in combination with the framework of Sytch et al. focusing on capabilities for resilience to future pandemics based on information from scientific literature. To what extent are the capabilities of the automotive industry resilient to vulnerability factors related to a pandemic situation similar to COVID-19? The focus is on flexibility in sourcing, in order fulfillment, and production capacity of the automotive supply chain as main capabilities to be resilient to a pandemic.
The paper is structured as follows: After the introduction, we provide an explanation of the resilience of supply chains followed by remarks about the resilience of the automotive supply chain, recommendations for the automotive supply chain based on our analysis, and the conclusion.
2 Resilience of Supply Chains
A generally agreed-on definition of supply chain resilience has not yet emerged in the literature [11]. It can be constructed from its elements “resilience” and “supply chain”. Resiliency in general is “…the capacity for an enterprise to survive, adapt, and grow in the face of turbulent change…” [13] and “…the ability of a system to return to its original (or desired) state after being disturbed” [14]. This system can be a company’s supply chain. It is defined as “…the network of companies involved in the upstream and downstream flows of products, services, finances, and information from the initial supplier to the ultimate customer” [15]. Thus, we do define supply chain resilience as the ability of the supply chain to return to its original state (measured in dimensions of performance) or a higher one after being disturbed. The literature on supply chain resilience is divided by a) phases, i.e., pre disruption, during disruption, and post disruption, b) strategies, which can be proactive, concurrent, or reactive, and c) the capabilities to anticipate, adapt, respond, recover, and learn. [16] This study focuses on capabilities. Companies can be resilient by developing capabilities (Ci) to overcome the vulnerability factors (Vj). In this case, resilience factors (Vj, Ci) are present as shown in Table 1 [4]. Vulnerability factors are turbulences, deliberate threats, external pressures, resource limits, sensitivity, connectivity, and supplier/customer disruptions. And capabilities factors can be flexibility in sourcing, flexibility in order fulfillment, capacity, efficiency, visibility, adaptability, anticipation, recovery, dispersion, collaboration, organization, market position, security, and financial strength [15]. This study’s focus lies on flexibility in sourcing which is “the ability to quickly change inputs or the mode of receiving inputs”, flexibility in order fulfillment meaning the “ability to quickly change outputs or the mode of delivering outputs” and capacity which is the “availability of assets to enable sustained production levels” [15] since flexibility and capacities have been found to be effective strategies for reducing the effects of disturbances [17].
3 Supply Chain Resilience of the Automotive Industry
3.1 Procedure
For the collection of data, the method of a systematic literature review is used for which the Search-Appraisal-Synthesis-Analysis (SALSA) framework of Booth et al. [18] is followed. To capture more relevant studies, two search levels are defined. First, one of the largest scientific databases, Web of Science, is systematically searched by using the following predefined keywords: [TS = Resilience AND automotive AND “supply chain”]. The search scope is limited to only peer-reviewed academic publications in English or German with no timeframe limitations. 38 papers are first found. Their appraisal is conducted through a streamlined deductive qualitative content analysis of the full-text versions. Thus, the main selection criteria is the availability of information to be extracted to fill the theoretical framework table. Since not all information is found in the selected papers, thus, a second search was conducted on the more inclusive scientific database Google Scholar. The aim is to find other secondary sources, such as industry reports or conference proceedings, to complete missing information of the theoretical framework. More papers are selected, which rises up the number of secondary sources selected for this study. The data from the secondary sources are summarized in a table. This table is the base for the analysis in this study. It shows the specific capabilities that are present or absent in the current automotive industry, with respect to flexibility in sourcing, order fulfillment, and production capacity.
Data analysis and recommendation generation are conducted by two researchers independently, based on the filled theoretical framework table. Both outcomes of the analysis and recommendations are then compared and discussed. Differences are argued and the consensus is reached. The results are presented in Sects. 3.3 and 4.
3.2 State of Art of the Automotive Supply Chain
The automotive supply chain produced 80 million cars including commercial vehicles in 2021 and results in a yearly turnover of 800 million € for only the top 100 suppliers [19]. It spreads over 67 countries and is therefore a global supply chain [4]. A global supply chain is to be understood as
“[r]aw materials and intermediate goods are now frequently shipped across the globe several times before final products are exported to final consumers around the world, coordinated by accounting technologies predicated on global labor arbitrage, cost minimization, lean inventory management, and tax avoidance” ([2, S. 2] based on a literature review).
On the one hand, the automotive industry is seen as “the leader in supply chain management” [20, S. 704]. This results in automotive supply chains being well researched (for instance [6]). We find research about the automotive supply chain and its resilience in Japan, Thailand [21], China [22], Iran [23], Brazil [24], Turkey [25], Portugal [17], and Germany [26]. On the other hand, the automotive supply chain has been hit heavily by the Covid-19 pandemic. “…automakers’ supply networks are not nearly as robust […] to global disruptions [like the] pandemic” [4, S. 129]. Reasons for the vulnerability of the automotive supply chain lay in the focus on cost reduction and efficiency [17] as a goal reached by lean management, just-in-time delivery, and outsourcing [27, 28]. The analysis of automotive supply chains generally results in the structure of an OEM, 1st-tier suppliers, 2nd-tier suppliers, and more entities. General Motors counts 193 unique tier-1 suppliers, 899 unique tier-2 suppliers, and 2,875 unique tier-3 suppliers. For Volkswagen, the numbers are 213, 1,026, and 2,901 ([4] with data from Bloomberg). More specifically companies in the automotive supply chain act as supplier of parts and materials, are assemblers, logistic service providers or specialize in research or testing. Additionally, regulatory bodies are included [26]. Thus, it can be considered complex [17] providing also complex products compared to other global supply chains [29] (see Fig. 1).
3.3 Sourcing and Fulfillment Capabilities of the Automotive Supply Chain
In summary, only seven of the ten capabilities we focus on in this study are found in the current automotive supply chain (see Table 2).
We did find evidence for most of the resilience capabilities belonging to flexibility in sourcing, flexibility in fulfillment, and capacity in the literature on automotive supply chains. Starting from the beginning of automotive production until now parts, e.g. axles or wheels are used partly as standards for different products to cut costs [6, 30]. Thus, we do find evidence for the capability part and input commonality. Considering the modular product design which is meant to keep control of the growing variety of products [31]. The supplier contract flexibility can be found in the automotive supply chains for the quantity of supply, e.g. of engines [32, 33]. The use of multiple sources is not really found for the tier-1 suppliers. Toyota, as an example, “interacts directly and closely with the first-layer suppliers […] [s]ince such key components are customized, only a few pre-selected vendors are in its first layer…” [6, S. 219]. The other layers with less specialized components tell a different story. Here we do find cases in which “[i]f one supplier fails […] still at least one [will be available] ensuring the delivery of parts” [26, S. 245]. Going further with the attributes for flexibility in fulfillment cases of alternative distribution channels can be found. One exemplary company “…has a nationwide network to facilitate the customers. This network includes 349 dealers and their workshops, 1541 authorized service centers covering 897 cities and towns” [34, Abs. 3.2]. Additionally, the means of transportation have been changed in one case after the attacks on the twin towers [35]. For risk pooling or sharing as another resilience capability and delayed commitment and production postponement, we did not find evidence in the literature. Lastly, the elements of capacity, reserve capacity, and redundancy are generally found present according to examples from literature, such as safety stocks [24, 26] and “…manufacturing presence in multiple countries…” [4, S. 125].
4 Status Quo and Recommendations
Based on the COVID pandemic, four subfactors are defined to describe the vulnerability that can result from a pandemic crisis, namely: barriers to import and export, lockdowns, the unpredictability of demand, and fluctuations in currencies and prices. The effect of the current capabilities of the automotive supply chain (see Table 2) on the mitigation of vulnerabilities subsequent to a pandemic is evaluated. The results are summarized in Fig. 2 and detailed in the text hereafter. Based on these findings, a recommendation for a higher resilience of the automotive supply chain is drawn.
Parts/components commonality (C1) and modular product design (C2) have similar effects on the resilience of the automotive supply chain. The capability of the automotive industry of using parts and components from more than one product or product families decreases the resilience of its supply chain to a barrier of import and export in which the delivery of parts by global suppliers is interrupted. Furthermore, lockdowns, in which workers are not allowed to go to factories, lead to the interruption of the production of parts. When parts are common to many products, such is the case with the automotive industry, by ripple effect the supply chain is disrupted. Similarly, Modular product designs decrease automotive supply chain resilience to barrier of import and export and lockdowns. Especially in European and USA, the automotive industry tends toward a modular product design, in which they outsource car modules from 1st-tier suppliers [6]. The resilience of their supply chain is highly reliant on suppliers of modules (i.e., 1st-tier suppliers). Modular product design and parts commonality increase the resilience of the automotive supply chain to the unpredictability of demand, as they increase their flexibility in adapting their production lines to fluctuating demand. No discernable effects on the resilience of the automotive supply chain to fluctuations in currencies and prices could be identified.
Supplier contract flexibility (C3) and reserve capacity (C6) have similar effects on the resilience of the automotive supply chain. In a flexible supplier contract, it is agreed that a predefined amount of an order can be revised up or down. Currently, flexible supplier contracts are used by defining a corridor in which the volume to be supplied can vary [32]. Such flexibility increases undeniably the automotive supply chain’s resistance to all vulnerability sub-factors associated with a pandemic situation. According to the literature, automotive firms use different tools to define safety stock levels to mitigate crises [24, 36]. This capability increases the automotive supply chain’s resilience to a pandemic situation in all four aspects.
Multiple sources for tiers 2 and 3 suppliers (C4), alternate distribution channels (C5) and redundancy (C7) have similar effects on the resilience of the automotive supply chain. In general, the capabilities of flexible sourcing through alternative suppliers of parts mitigates disruption from the barrier of import and export, lockdowns, and fluctuations in currencies and prices. Similarly, the capability to use flexible ways of transportation and to switch transportation means, when necessary, allows the automotive supply chain to mitigate barrier of import and export, lockdowns, and fluctuations in currencies and prices. Finally, redundancy, such as by establishing manufacturing facilities in many countries [4], increased the resilience of the automotive supply chain to the barrier of import and export, lockdown, and fluctuations in currencies and prices. The effect of multiple sources, alternate distribution channels, and redundancy is not discernable on the unpredictability of demand.
Based on the results of this paper, we recommend the following. First, to increase the resilience of the automotive supply chain, the three capabilities that do not exist in the current automotive supply chain should be developed, namely: (1) multiple sources for tier 1 suppliers, (2) risk pooling/sharing, and (3) production postponement. As tier 1 suppliers produce and supply more critical parts of a car than tier 2 and 3 suppliers, the effect of relying on multiple sources would be more pronounced on supply chain resilience. It is recommended that automotive assemblers should have more than 1 tier supplier to increase supply chain resilience to the barrier of import and export, lockdowns, and fluctuations in currencies and prices. Furthermore, risk pooling and sharing is a key capability to mitigate vulnerability due to fluctuating demand and prices, supply and demand uncertainty [37], such as the barrier to import, export, and lockdowns. Moreover, the capability of production postponement allows to shift manufacturing activities across different products [37], thus allowing companies to be resilient to all four vulnerability aspects associated with a pandemic situation.
When taken apart, two capabilities render the automotive supply chain more vulnerable to pandemics which are parts commonality and their modular product design. At the same time, these capabilities are a cornerstone of the high efficiency of the automotive supply chain. The recommendation is to find a balance between high efficiency and high resilience of the automotive supply chain, by considering key capabilities in connection with each other. For instance, parts that should be common to many product lines should have multiple suppliers and redundancy in their manufacturing and storage. In that way, the capability of parts commonality (C1) is moderated by multiple sources (C4), reserve capacity (C6), and redundancy (C7).
5 Conclusion
The pandemic shows vulnerabilities in the automotive supply chain which can be regarded as one of the best. Parallelly, the complementary interest in research in supply chain resilience has been growing in the last years. The literature presents us with concepts, simulations, and with some empirical studies about supply chains being disturbed by vulnerabilities. Our study provides evidence from the literature that the automotive supply chain could improve its resilience by finding multiple sources for tier 1 suppliers, improving risk pooling/sharing, and finding possibilities for production postponement. These recommendations are based on a single literature study. Thus, they offer orientation but need to be weighed carefully by managers. Further research can be done with different secondary or new primary data.
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Gebauer, M., Tangour, C. (2023). Resilience to Pandemics through Flexibility in Sourcing, in Order Fulfillment, and Production Capacity of the Automotive Supply Chain. In: Kiefl, N., Wulle, F., Ackermann, C., Holder, D. (eds) Advances in Automotive Production Technology – Towards Software-Defined Manufacturing and Resilient Supply Chains. SCAP 2022. ARENA2036. Springer, Cham. https://doi.org/10.1007/978-3-031-27933-1_34
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