FOREIGN TRADE UNIVERSITY SCHOOL OF ECONOMICS AND INTERNATIONAL BUSINESS INSURANCE AND RISK MANAGEMENT REPORT Group TOPIC analysis of risk management in the automotive supply chain a case of ford mo.CHAPTER 1: INTRODUCTION ABOUT THE AUTOMOTIVE SECTOR AND THE RISKS IN ITS SUPPLY CHAIN 3 1.1. Overview automotive industry 3 1.2. Risks in the supply chain. 4 1.3. Risks in the automotive industry. 6 CHAPTER 2: THE CASE OF FORD MOTOR 9 2.1. Brief about Ford motor 9 2.2. Supply chain management of Ford before 2018 10 2.2.1. How Ford manage the automobile supply chain before 2018 10 2.2.2. How Ford motor managed risk after applying new supply chain management 12 2.3. The Case of Ford Motor: May 2nd 2018 fire accident 14 CHAPTER 3: PREVIEW OF FORDS CASE 21 3.1. Risk management assessment 21 3.2. Proposals for Ford Motor 24 CONCLUSION 26 REFERENCES 27
FOREIGN TRADE UNIVERSITY SCHOOL OF ECONOMICS AND INTERNATIONAL BUSINESS INSURANCE AND RISK MANAGEMENT REPORT Group TOPIC: analysis of risk management in the automotive supply chain: a case of ford motor Instructor: Dr Hoang Thi Doan Trang Class code: TMAE308(GD1-HK1-2223).1 Hanoi, 09/2022 TABLE OF CONTENTS CHAPTER 1: INTRODUCTION ABOUT THE AUTOMOTIVE SECTOR AND THE RISKS IN ITS SUPPLY CHAIN 1.1 Overview automotive industry 1.2 Risks in the supply chain .4 1.3 Risks in the automotive industry CHAPTER 2: THE CASE OF FORD MOTOR 2.1 Brief about Ford motor 2.2 Supply chain management of Ford before 2018 10 2.2.1 How Ford manage the automobile supply chain before 2018 10 2.2.2 How Ford motor managed risk after applying new supply chain management .12 2.3 The Case of Ford Motor: May 2nd 2018 fire accident .14 CHAPTER 3: PREVIEW OF FORD'S CASE 21 3.1 Risk management assessment 21 3.2 Proposals for Ford Motor 24 CONCLUSION 26 REFERENCES .27 CHAPTER 1: INTRODUCTION ABOUT THE AUTOMOTIVE SECTOR AND THE RISKS IN ITS SUPPLY CHAIN 1.1 Overview automotive industry It all started with the development of the first car by German inventor Carl Benz in 1886 Nearly 136 years later cars are the main way of transportation and the automotive industry has grown into one of the most important industry sectors of the world The global, total revenue of the industry accumulated to about $2,86 trillion in 2021 It’s also the sector with the highest R&D spending per company and is known for its highly automated production I think we have all seen the robot arms assembling car pieces on a conveyor belt Because the supply chain is a big complex system of suppliers many technological clusters arise around the big factories To the point where whole cities evolve around a company and a car plant like for example Wolfsburg, Germany, the HQ of Volkswagen Germany has been famous for its cars for many years However China has been the biggest car producer since 2009, with an output of about 26 Million cars in 2021 Global motor vehicle production in 2021 was around 80 Million units, an increase by 3% from 2020’s output but still 12 Million lower than pre-pandemic numbers Passenger cars made up the largest portion with 57 million units The biggest industry players are Toyota Motor Corp with $255.817 bn annual revenue in 2021, Volkswagen AG with an annual revenue of 250,2 bn € in 2021 and Daimler AG with 167,9 bn € revenue in the same year Other big automotive companies are Ford Motor, Honda Motor, BMW, General Motors and Hyundai Motor In recent years the industry has been prone to many internal and external changes and challenges The increasing concern about human made climate has led the European Commission to issue the european green deal Which only allows the registration of zero emission cars from 2035 and onwards With Tesla, BYD and Nio the industry has seen an increasing shift towards electric powered engines instead of conventional combustion engines In 2021 Tesla became only the 5th company, and the first automaker, to reach a company market value of trillion USD Nearly 10% of global car sales were electric in 2021 which is four times the market share of 2019 This has brought the total number of EVs (electric vehicles) to about 16,5 million Partly due to government tax reductions and subsidies for EVs But the complex automotive supply chain is increasingly dependent on China for rare metals and battery production China dominated the production of all lithium-ion batteries with a 79% share of worldwide output in 2021 This is an increasing concern for all other countries and automotive power houses which watch the debt crisis, the zero covid strategy, human rights concerns and international tensions about Taiwan with increasing concern Furthermore are the chip shortage, inflation and supply chain bottlenecks important growth inhibitors The future of cars as we know them today will heavily depend on the integration and implementation of new technologies like artificial intelligence (e.g autonomous driving), internet of things, smart mobility, blockchain and shared mobility 1.2 Risks in the supply chain There are various when it’s come to the supply chain In this report, we will illustrate some of the mentioned risks a) Scope of schedule risks Schedule changes are frequently caused by natural disasters such as hurricanes, fires, or floods, or by supplier noncompliance issues Scope risk can arise as a result of changes that are required when the initial statement of work (SOW) becomes unworkable, or as a result of market-driven technological changes b) Legal risks Legal and contractual risks are frequently associated with disputes or differing interpretations of contractual obligations, or with failure to meet the requirements outlined in the terms and conditions The use or misuse of intellectual property can also pose a legal risk, particularly when patent infringement is a possibility We can also include law violations and civil lawsuits in this category An example of legal risk in supply chain activities is: forced labor Modern slavery is a common compliance risk in global supply logistics that many companies face, with laborers, particularly in developing countries, being forced to work under unethical and illegal conditions As part of cost-cutting measures, much production is currently outsourced to these countries, adding to the risk The COVID-19 pandemic has highlighted the threats to workforce continuity posed by complex supply chains that rely on forced labor, as poor and overcrowded working conditions increase the rate of virus transmission exponentially This may result in factory closures, disrupting multiple stages of the supply chain and causing financial and reputational harm, as well as legal ramifications.There are numerous examples that show the importance of a transparent supply chain in addressing compliance risks For example, in the Rana Plaza disaster in 2013, over 1,000 factory workers were killed when a garment factory collapsed Primark, one of the retailers, paid out millions of dollars in compensation to victims as part of a compensation scheme supported by the International Labor Organization, a UN agency In the chocolate manufacturing industry, class actions have brought popular brand names to court for allegedly selling cocoa farmed by children and slaves in West Africa while claiming it is "ethically" or "sustainably" sourced c) Financial risks These risks can range from an unexpected or unfavorable change in exchange rates to the bankruptcy of a supplier Budget overruns, discovering the limitation, constructive changes, and missed milestones necessitating additional funding are all examples of financial risks Unexpected cost overruns may be linked to other risk factors, such as changes in the scope of work required to successfully complete the activity This is also the case of: Hanjin Shipping Insolvency South Korean-based Hanjin Shipping Co., Ltd was a shipping company Hanjin, one of the top ten container carriers in the world, moved about 3.7 million containers annually It was made public that Hanjin was having a financial crisis in 2016 Ships were seized, and those at ports were not unloaded because the service providers were uncertain of their payment status Hanjin announced office closures, employee layoffs, and the dismantling of their service network after debt restructuring, asset freezing, and asset confiscation They were liquidated and declared bankrupt in 2017 The biggest bankruptcy in the container transport sector to date was Hanjin Shipping, which lost millions of dollars in revenue as a result of inventory that was stuck at sea d) Human - related risks A project or activity may be jeopardized due to an illness or injury, or the departure of key personnel It can also be the result of poor judgment or poor decisions In addition to the categories already mentioned, our assessment should determine whether the risks to be considered are internal (related to our own operations) or external (related to conditions outside of our organization, such as market factors, political climate, regulatory environment, economic circumstances, and so on) To be more specific: - Internal risks are those that you can influence or control Cost estimates, staff assignments, schedule delays, and product design are among them - External risks are those that you, as a contract manager, have no control over or influence over External risks include governmental tax actions that could affect a financial contract, construction contract delays, and currency rate changes that could affect the value of an international contract 1.3 Risks in the automotive industry a) Regulation The first risk is regulatory compliance Large regulatory swings could put pressure on automakers to rethink their supply base and manufacturing locations on short notice The automotive industry, for example, has a lot riding on the renegotiation of NAFTA, which could change North American content requirements and limit market access to Mexico, among other things Brexit is already causing major headaches for automakers in the form of unknown future duty rates for cars and auto parts entering and leaving the UK, as well as increased regulatory overhead Similarly, the Trans-Pacific Partnership (TPP), assuming it is implemented despite the United States' decision to withdraw from the agreement, may force companies to make rapid changes to their supply base, switching suppliers from one country to another to meet certain origin requirements or even reconsider the viability of existing manufacturing plants if they fall outside the scope of an FTA or are no longer viable in terms of duty and regulation The issue here is that regulation can and frequently does change overnight in many countries And in supply chains with a lot of manufacturing and thousands and thousands of suppliers tied to the design of individual automobile models, automakers and their suppliers find it difficult to react as quickly as regulators can change the regulations As the industry adjusts, all of this can result in painful dislocations b) Poor part visibility and routing An average car contains about 30,000 different parts Each of the components is either produced in-house or purchased from a different supplier One blip in the supply chain might slow down the production and delivery of vital parts, forcing the shutdown of the entire production line Any disruption to the efficient production and distribution of vehicles as the automotive industry transitions to just-in-time manufacturing results in inventory shortages and revenue loss To simplify the production and delivery of parts, automotive supply chain managers must be able to communicate effectively with thousands of manufacturers and supplier c) Effects of outside factors The automotive sector is very subject to external political, economic, environmental, market, and other variables due to its global character The cost of importing and exporting parts and automobiles can be considerably changed by tariffs, trade agreements, and political wrangling Large portions of the automotive supply chain can be disrupted by environmental catastrophes The change to more electrified vehicles and increased fuel efficiency is changing consumer preferences, which is disrupting purchase tendencies Managers of the automotive supply chain must be aware of these risks early so they can predict their effects and make plans accordingly One of the examples is the effects of Japanese earthquake and tsunami in March 2011 The most devastating natural disaster in modern Japanese history struck Japan's northeast coast in March 2011 with the Great Tohoku Earthquake and Tsunami The subsequent destruction of several nuclear reactors in the area, which provided electricity for homes and industry, added to the difficulty facing the Japanese government, businesses, and communities A large area was temporarily evacuated in addition to the lack of electricity, making it impossible for affected industries to quickly reopen Numerous manufacturing facilities that are essential to the global supply chain for motor vehicles are situated in the disaster area and are negatively impacted by these forces They consist of factories that put together cars as well as a large number of suppliers who produce automobile parts and accessories Some of the shuttered Japanese factories produce parts and chemicals that are difficult to find elsewhere This is especially true of automotive electronics, one of the major producers of which was situated close to the destruction's epicenter The impact of these catastrophes was primarily felt by Japanese automakers, who temporarily shut down many of their assembly plants while they evaluated their supply chain problems and the 10