Recently I set out to acquire a new Ford Bronco. Ford Motor Company’s marketing department had done a masterful job at whetting the appetite for pre-orders of the vehicle, and making the launch a draw for thousands of potential buyers. But could it deliver on the wish fulfillment?
In December, I received the following e-mail from Ford: “As a result of the unprecedented effects of the COVID-19 pandemic on our suppliers, we have updated timing news to share with you. While we originally communicated that your Ford dealer would begin reaching out in December 2020 to schedule an order consultation and place your order, this process will now begin in mid-January 2021 and extend through mid-March. As a reminder, your order cannot be placed online; however, you are encouraged to spec your Bronco using the Ford.com Build & Price tool ahead of your dealer consultation and save a copy to help when you place your order.”
Subsequently, Ford also clarified with their dealers that, due to supply-chain problems:
While my Bronco has been ordered, I have no firm idea when I’ll be able to get it, so my attention (and appetite) has started to drift elsewhere. It’s a refundable deposit and maybe I’ll find something more interesting before I fully commit, but I hope not. I really want the Bronco.
Yet Ford was very clear in its messaging: the pandemic is to blame for any delays and, as a result, my wandering consumer eye.
I empathize with auto makers like Ford, given the current state of strained supply chains that many industries are currently experiencing (of which the global pandemic is an undeniable catalyst).
Anyone who has seen a bill of materials or parts explosion for a vehicle is aware of the thousands of components, sub-assemblies and sophisticated electronics that go into today’s modern vehicles. Disruption for both automakers and their extensive ecosystem of Tier 1 and Tier 2 suppliers presents a considerable challenge, one that must take into account certain undeniable (pre-pandemic) conditions.
Fact: The automotive industry brings together some of the most globally complex supply chains in modern commerce.
Fact: Vehicles are many things. They’re not only systematized transportation machinery, but also recreational chambers, fortified shelters, computers, style statements, and appliances.
Each of these aspects is heavily dependent on global fulfillment chains. An exogenous shock such as COVID-19 can make it extremely hard to react and manage end-customer happiness.
Supply-chain disruptions are metastasizing. What’s more, it’s not even the tires or large-scale fabricated metals but the tiniest parts, such as semiconductors, that are creating the biggest delays.
The Biden Administration has ordered a 100-day review of critical supply chains. It includes the private companies that supply materials for the chips making today’s vehicles. But that’s just one solution to the many exposures that enterprises around the world will need to identify and mitigate.
Financial risk isn’t just the purview of government. The clients of strained suppliers (semiconductors included) need to pay close attention to how those companies will impact their own operations. Financial deterioration can cause disruptions in the event of bankruptcy or default, and weakening financial conditions of a supplier might cause it to cut corners in production quality, delivery methods, safety procedures and cybersecurity protection. Add to that longer-term issues such as investments in R&D and environmental, sustainability and governance initiatives.
Large public carmakers need to have transparent and collaborative views into the financial health of their suppliers, both local and international. Every decision a supplier makes is ultimately reflected in its financials. The only true way to know the strength of these companies is to discreetly and securely obtain that information, straight from the source: the supplier themselves.
Modern automakers don’t have it easy. Their supply chains are exceptionally complex, and there are cascading, cyclical, and potentially devastating impacts when it comes to delays, beyond loss of interest or even sales.
For company leadership:
For the end customer:
Without fully understanding the financial health of critical suppliers, businesses can suffer from myriad follow-on problems, including detriment to the brand, decreased working capital, and diminished safety nets that are necessary to buffer against continued delays.
There is, however, a way forward.
Carmakers need to implement risk-mitigation strategies across the global supplier ecosystem. It begins by mapping spend analysis to the financial health and viability of both public and privately held suppliers, as part of an overall supplier risk strategy.
That’s followed by the creation of risk profiles for different business lines, identifying and triaging which categories need to be addressed first, to generate action plans that allow the business to move from a reactive to a proactive (and predictive) state.
Collaboration must be strengthened among multiple functions, including procurement, compliance, marketing and even public relations. All should be discussing foreseeable risks and where they can build stronger relationships with suppliers.
Carmakers need scalable and actionable information based on a common data language. Predictive capabilities will allow them to take advantage new market opportunities. Otherwise, they can become subject to an unending parade of adverse events.
Pete Tantillo is chief financial officer and chief operating officer of RapidRatings.
Timely, incisive articles delivered directly to your inbox.