Early warning is key
In the end, it is imperative for OEMs and larger suppliers to have as early a warning as possible that a supplier might be heading toward a distressed situation in order to anticipate a short-term disruption. This analysis can help an OEM or tier 1 supplier make decisions on issues such as from which suppliers to accept a price increase, what is the likelihood of success for a distressed supplier’s turnaround and which suppliers they can trust to be strategic suppliers in the long-term.
Also, while the predictive analytics are helpful, they will not catch everything; therefore, it is a must to put in place a rapid response team (generally with both internal and external resources available on call) to respond to the unforeseen cases when they arise. In fact, in a situation such as COVID-19, predictive analytics may not be as useful, as they usually track issues that have a longer lead time.
In a crisis, tracking supplier behavior, such as rapidly drawing down credit lines, and setting up open, structured dialogues with key suppliers to have a good oversight of their financial situation is essential.
Other steps to take:
- Stress test the business against assumptions for different futures and develop a playbook for dealing with those situations, including being proactive in communicating with stakeholders and understanding what rapid steps can be taken to improve liquidity
- Constantly conduct portfolio reviews and have a list of which assets can be quickly divested if needed to raise cash
The road to the future
When the current crisis abates, the industry will still need to take the steps needed to serve the mobility needs of the long-term future. As production ramps up, as mentioned, companies will still need to determine whether the scale of their operations is necessary to meet lower demand. Suppliers that only support gasoline engines are among those under the most pressure. In the coming weeks, we will follow up with steps to take for managing investments in new technologies, developing ecosystems through joint ventures and scenario planning for different futures.