Weekly News Review | 5 June 2017 | Automotive Purchasing and Supply Chain Automotive Purchasing and Supply Chain

Talking Point

The weakest link

The recent news that a shortage of components forced BMW to cut production of its 1- and 2-Series compacts, 4-Series coupe and 3-Series due to a shortage of parts from a major supplier put me in mind of a conversation I had with Tom Lake, Vice President for Purchasing and Cost Planning at Honda North America. I had asked Lake about dual sourcing - using two or more suppliers for critical parts supply. His opinion was that this could be divisive and he preferred to use one supplier, and to ask that vendor to itself source from more than one of its locations, for essential parts. In the case of the BMW shortage, the problem was with an unidentified lower tier supplier failing to deliver casings for electronic steering systems and thus the onus should have been on the tier one supplier to source from other lower tier providers.

The shortage resulted in full day suspensions of production at BMW’s plants in Germany, China and South Africa and while the carmaker will try to eliminate the manufacturing backlog by adding extra shifts and cancelling some holiday time that its workers have ‘banked’, it is a thankfully rare but very costly hiccup for the prestige OEM. Fortunately the stoppages did not affect the company's larger (and higher profit) models, such as the 7-Series, SUVs and crossover models but, as has been the case for many years, the 3 Series and increasingly, the 1-, 2- and 4-Series cars, are the high volume financial backbone models of the company.

The cost of such stoppages is eye-watering; BMW declined to give exact figures but it must be in the region of $30,000 per minute per halted production line.

BMW is the world's second-biggest producer of luxury cars and is locked into a battle with Mercedes-Benz for several premium segments; Mercedes recently overtook BMW in sales in several premium segments and the expense of this stoppage comes at a particularly unfortunate time, as the Munich carmaker spends large sums on revitalising its luxury car lines and re-introducing an 8-Series line of models. It is also, as with all carmakers, locked into the vast expense of keeping up with all the new connected car technologies, and continuing to ‘green’ its vehicle lines with more EVs, hybrids, and cleaner diesels.

While BMW will look for compensation from the supplier and that will help alleviate some of the pain but the cardinal lesson that comes out of this situation is that the automotive supply chain is only as strong as its weakest link.

Alex K

Simon Duval Smith

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