Supplier Risk: Ford Is Caught Off Guard by Volatile Labor Conditions in India
Ford Motor Company may have learned this week that they need greater visibility into labor unrest at their offshore supplier’s factories. Today's WSJ reports that "A Canadian plant owned and operated by Ford Motor Co. will shut down temporarily next week because of labor strife affecting an auto-parts supplier in India ... [and] Shutting down operations was a direct result of a shortage of transmission parts from Rico Auto Industries in Haryana state in India, the site of recent labor unrest."
The article implies that Ford should be given a pass on this supply chain disruption claiming "The strike has offered another glimpse into India's mercurial manufacturing sector. Labor unrest can erupt quickly in India, leaving companies with little time to negotiate with disgruntled employees or adjust to a strike. The labor troubles, especially in India's lucrative automobile industry, have prompted warnings from foreign companies that they might consider shifting operations from the country if strikes continue to hamper production." The supplier "said the company had been updating its foreign customers about the unrest as it simmered over the past two months. He said no customer of the Indian parts supplier had severed its ties as a result of the strike, which the executive described as illegal because of the lack of prior notice."
Illegal or not, given that the disruption and subsequent "closure is expected to cost Ford 5,000 vehicles, according to a person familiar with the matter" it would obviously behoove Ford to employ far better -- if they had any to begin with -- labor intelligence on the ground and not rely upon "updates" from the supplier who has a clear incentive to down play the potential unrest in advance of a crisis.
- William Busch
TweetBacks
However there are structured ways of being prepared. Firstly one has to be aware of all the different kinds of risk that might hit you: disruption, financial, reputational or even major disasters like a tsunami. Probably nobody has the resource to cover every possible risk. During my time as global head of procurement of one of the top fast moving consumer goods companies we developed a risk segmentation prioritised by profit at risk. This way one can deploy moderate resource and protect the business where it matters most.
One cannot stress enough how important in such an approach solid, up-to-date supplier information is. So supply risk management and information based supplier management are two sides of one coin. You should not attempt one without the other. Fortunately today there are information provider and systems available to help with these tasks. This can however only help, if you got your spend management house in order and you know exactly how much you spend for what.
In the past many have shied away from what can appear a daunting task potentially devouring all your valuable resource. With structure, good base data and possibly some external help one can manage comfortably. This appears infinitely better than having to explain why 5000 cars could not been build and huge sales are being lost.