During the global financial crisis insolvencies of all types of businesses increased by almost 35% (led predominantly in North America and Western Europe). Tier 1 suppliers to the German automotive industry were especially impacted with orders drying up, competition from lower-cost sourcing countries, and the years of price cuts and concessions taking their toll.
Fast forward to 2021 - we have seen a deeper impact on production (Figure 1 below) than during the financial crisis, followed by further volatility in production demand, yet bankruptcies have remained surprisingly low as shown in Figure 2. This is a direct result of state aid and furlough protections provided around insolvency filing.
Well, just as the German car industry parts manufacturers were a cautionary tale of the global financial crisis, they may well become a bellwether for the impacts of withdrawal of government support during Q3/Q4. Furthermore, whilst global value chains struggle with highly inflated freight costs, uneven recoveries and the gradual withdrawal of fiscal stimulus measures, organizations need to focus more than ever on supplier health monitoring and risk management.
To do so, companies can:
Fully understanding supplier base and bill of materials: recognizing the criticality of the components, size of supplier, alternatives, and degree of risk relative to production or delivery.
Evaluate sourcing options: global for alternatives and supply chain considerations for reliability, agility, and cost.
Define an engagement strategy: investing and engaging more deeply with suppliers that are considered key to building longer-term value cases and resiliency.
Utilizing systems and processes to protect intellectual property: streamline communication and create forward visibility required for financial and capacity planning.