Supply chain resilience under long-term external shocks: the case of an international first-tier automotive supplier in Mexico

Publication Type:

Conference Paper

Source:

Gerpisa colloquium, Brussels (2023)

Abstract:

This study identifies challenges and strategies that automotive multinational subsidiaries adopted to face supply chain disruptions due to COVID-19. Through a case study of a first-tier supplier located in Mexico, we present an overview of its COVID-19-related supply chain shortages and the short- and medium-term strategies it deployed to mitigate the pandemic's effect. In doing so, we draw from -- and contribute to -- literature about supply chain resilience and digitalization.
Two years of social isolation, along with the temporary (and sometimes permanent) closure of businesses and a range of transportation and mobility restrictions under COVID-19, have exposed vulnerabilities within global supply chains. For example, the automotive industry was affected by COVID-19 to degrees and in manners not seen since the Great Recession (PWC, 2021). Indeed, the pandemic revealed supply-induced production interruptions at all tiers of the automotive industry's global supply chain (Guan et al., 2020; Hofstatter et al., 2020). Moreover, although large automotive multinationals have near-instant online visibility into their first-tier suppliers' status, their vision blurs as the supply chain moves to lower levels. The lack of visibility at lower tiers, combined with the fact lower tiers often experienced more acute challenges during COVID-19, exposed a significant weakness in the resiliency of automakers' supply chains.
The advent of COVID-19 compounded disruptions and adjustments automakers, and automotive suppliers were already experiencing (Hofstatter et al., 2020). For example, COVID-19 occurred amidst the introduction and/or proliferation of disruptive technologies and processes (e.g., electrification, autonomous driving, increasingly automated factories, and ridesharing). That said, such disruptions are not uncommon; the literature describing other post-2000 examples of automotive supply chain resilience and risk management [e.g., the 2008 financial crisis (Juttner and Maklan, 2011), volcano eruptions (Chopra and Sodhi, 2014), and even terrorism (Sheffi, 2001)]. Nevertheless, the worldwide scope and unknown length of the lockdowns imposed via COVID-19 brought new challenges, manifesting in disruptions that exposed the inadequacy of firms' pre-existing mitigation strategies.
Various COVID-19-related disruptions and obstructions, including frequent shutdowns and transportation and mobility restrictions, disrupt most industries' global supply chains. For example, many of its factories started to close in the automotive industry during the first quarter of 2020, causing significant difficulties across and throughout its supply chain's diverse and globally-integrated processes (Pato and Herczeg, 2020; Nemeckay, 2020).
In addition to site-specific restrictions, COVID-19 also profoundly affected automotive supply chains' logistic and transportation capacity. For example, air and rail are frequently used for the transport of automotive parts and components (Pato and Herczeg, 2020). However, during COVID-19, air cargo capacity preference was often given to the movement of Personal Protection Equipment (PPE) and ventilators, causing bottlenecks in transporting automotive parts and components, including semiconductors (Amsrud, 2020). Examples of the effects of worldwide automotive supply chain dislocations include the forced plant closures of GM plants in North America and Brazil and Ford plants across Europe due to the worldwide shortage of semiconductors (Williams, 2021). Fulthorpe and Amsrud (2021) estimate that these circumstances alone resulted in production delays of approximately one million vehicles.
Using a case study of a first-tier supplier and building from internal communications and interviews, this study identifies factors contributing to the shortage of automotive components and raw materials and the consequent closures of automotive factories and production facilities worldwide. We document and explain four key contributors: 1) a concentration of automotive suppliers in China, 2) the limited capacity of international logistic systems to operate or adjust under ongoing COVID-19 restrictions; 3) the unexpectedly long duration of the pandemic; 4) growing worldwide macroeconomic uncertainty (i.e., inflation, exchange rate fluctuations). Additionally, since logistic routes remained unreliable and expensive for an extended period, the industry anticipated additional shortages of materials, mainly electronics, plastic, and metal components. Consequently, they planned accordingly and implemented other contingencies.
This study also discusses adjustments that have occurred to the automotive supply chain in the aftermath of COVID-19. It describes the fact that firms continue to struggle, an outcome of previous shocks and COVID-19-induced adjustments. Ultimately, we believe this work will have implications for understanding key aspects of supply chains, including their resilience and digitalization.

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