how automotive supply chains can prepare for chennai like disasters

© Pure Research Private Limited | Insights & Viewpoint| www.pureresearch.co

How Automotive Supply Chains can

Prepare for Chennai-like Disasters

ANKIT KOHLI

Founder, Pure Research Private Limited

http://www.pureresearch.co/

1 © Pure Research Private Limited | Insights & Viewpoint| www.pureresearch.co

Insights & Viewpoint

How Automotive Supply Chains can Prepare for Chennai-like

Disasters

Supply chain disruptions due to extreme weather natural disasters such as floods and storms are

getting more frequent and more impactful. CPOs can no longer comfort themselves by assuming that

natural disasters happen once in decades, and will not have significant impact on their supply chains.

Chennai stopped by extreme rains and floods

Recently, Indian city Chennai witnessed incessant rains during November and December, which led to

flooding of areas in and around the city. The city is a major automotive hub, and an important part of

domestic and global automotive supply chains. Several international OEMs, tyre manufacturers, and

auto component manufacturers are based in the city and use Chennai’s facilities to export cars, tyres

and components to international markets.

As the floods intensified on December 2, the city was marooned and its inadequate infrastructure

including roads, railways, and airport were rendered useless. Many automobile and auto component

manufacturers had no option but to shut down their plants and stop operations, ranging from a few

days to more than a week in some cases. Indian industry body Assocham estimates economic losses

from these floods to be approximately USD 2.2 billion, and according to some news reports, the entire

automotive belt in Chennai will face losses of approximately USD 200 million. One of India’s largest

tyre manufacturer JK Tyre has already announced estimated production loss of 700 tonnes. Two

wheeler manufacturers Eicher Motors will suffer a production loss of 7,200 units, while TVS Motors

faces a sales loss of 15,000 units.

Automotive supply chains feel the ripple effect

Many Chennai-based auto component manufacturers, that supply to OEMs across India and export

components globally are also expected to face production and supply losses, resulting in production

losses for their OEM clients. Toyota Kirloskar Motor (the Indian subsidiary of Toyota) has around 50




tier I and many tier II suppliers in Chennai, and was forced to announce a one day shut-down on

December 6 due to shortage of components expected from Chennai.

We expect many large automobile players would have learnt from the 2011 Japanese earthquake-

tsunami disaster, which had a severe impact on global automotive supply chains. Chennai, though not

as bad, will still have a deep and long impact on global supply chains. Auto OEM’s typically have a large

base of tier one suppliers and most of these suppliers have a n-tier supply chains. The impact of such

disruptions is greater in today’s world due to increasing geographic footprints of supply chains and

lack of visibility into the n-tier supply chains.

Better supply chain management can help

While eliminating natural disasters is beyond the control of the automobile industry (or any other

industry for that matter), we do believe that organisations can adopt supply chain management best

practices in order to minimize the risks emanating from supply chain including events such as natural

disasters. A chronological flow of steps that can be taken is as follows:

Enhance visibility into your supply chain: This is the first step that organisations should take,

with an objective of identifying suppliers in its extended supply chain (suppliers of suppliers)

and determining inter-dependencies within its supply chain. This is important because

multiple higher tier suppliers may depend on common lower tier supplier, in which case the

lower tier supplier becomes critical to the overall supply chain. Example: A common steel

supplier maybe supplying steel to multiple tier one and tier two suppliers.

Map the key risks areas associated with your n-tier supply chain: Once an organisation gains

adequate visibility into its supply chain, it should try to identify common risk areas which

should be monitored. These risk areas can be change in commodity prices, macroeconomic

indicators in specific countries, geopolitical situation in sensitive countries, extreme weather

situations, among others.

Closely monitor identified risk areas and critical suppliers in your supply chain: The next step

is to closely monitor the above identified risk areas and critical suppliers on an on-going basis.

By doing this, organisation can spot early warning signals related to any risk emerging in the

supply chain, and can take proactive preventive action to minimise its impact.

Share best practices with your suppliers: Given that lower tier suppliers are normally smaller

firms, buying organisations should also seek to engage with them to understand how they




plan to deal with potential risk scenarios, and share global best practices to make sure they

are well prepared at all times. These best practices could include simple steps like introduction

and implementation of a business continuity plan, or strategic moves like diversification of

their manufacturing base to hedge against natural disasters or other risks.

The above framework is extremely useful to gather supply chain actionable intelligence and avoid

disruptions. It can be customized to each risk source and set of suppliers to spot early warning signals.

For example, to guard against natural disasters like the one that hit Chennai, procurement

organisations should be aware of the ability of their suppliers to face such adverse situations. An

indicative list of questions that purchasing managers should ask their suppliers to judge preparedness

(operational as well as financial) are:

Does the production facility have adequate infrastructure to deal with emergencies and

natural disasters? For examples, facilities in areas such as wetlands are prone to flooding, and

inadequate infrastructure can maximize damage and limit rescue operations in the event of

natural disasters.

Does your supplier have an emergency preparedness plan to minimize downtime and damage

emanating from natural disasters?

Does your supplier have a well-diversified production / delivery base? If the production base

is in a coastal area or a city with high probability of earthquakes or volcanoes, then

appropriate safeguards should be built-in before a calamity takes place.

Does your supplier have a plan in place to manage risks in its extended supply chain? If yes,

then what is it?

Is your supplier insured against damage caused due to natural disasters?

Bottom-line, supply chain managers need to realize that Chennai like disasters are here to stay, and

will likely increase in the future, given the global warming situation and changing ecological balance.

In such a scenario, secure supply chains can only be built by proactively adopting a risk management

framework that maps the entire supply chain, spots risk areas, monitors them regularly, and more

importantly, promotes buyer-supplier engagement aimed at minimizing risk and enhancing business

continuity.




Ankit Kohli is the Founder of Pure Research Private Limited, a procurement intelligence firm. Ankit and

his team work with procurement teams worldwide to create secure and sustainable supply chains,

based on actionable research on suppliers and categories.

Disclaimer: Although the information contained in this publication has been obtained from sources

believed to be reliable, Pure Research disclaims all warranties as to the accuracy, completeness or

adequacy of such information. Pure Research will have no liability for errors, omissions or inadequacies

in the information contained herein or for interpretations thereof.


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