Seven Questions OEMs Should Ask Suppliers as the Economy Reopens

SOURCE: AEM | August 15, 2020

As the United States attempts to move toward recovery, original equipment manufacturers may face a new challenge: Many suppliers have experienced partial shutdowns and employee layoffs that have disrupted productivity. The effect on the materials pipeline may mean OEMs will have difficulty accessing parts or manpower quickly as the economy gains strength and demand rises.

Supplier-partners should be allies that help OEMs meet product demands and schedules now and throughout the economic uncertainty of the months ahead. That said, OEMs cannot assume that key suppliers are positioned to adequately provide such support. To make sure they can avoid production stalls, OEMs should ask their suppliers these seven questions:

1. What percentage of sales and employee reductions has your company experienced because of the COVID-19 pandemic – and what are you doing to address these issues?

The question seeks clarity on the supplier’s fiscal stability and how quickly it could ramp up to meet increased demand. The initial response may open further discussion into cutbacks by product lines or work centers. Suppliers that have made reductions in areas specific to the OEM’s needs may have trouble meeting the OEM’s supply requirements as the economy improves.

2. How are you managing resources to ensure enough manpower to accommodate OEMs’ demands when the economy recovers?

Suppliers that terminated employees will face stiff competition for labor as the economy recovers. The need to hire and train new workers will further slow their production capabilities. Supplier-partners that have maintained their skilled workers – through rolling furloughs rather than layoffs, for example – will have the right manpower available for projected demand.

 3. How are you managing your own supply chain to prevent delays and interruptions?

Supplier-partners should be communicating consistently with their own supply chains, receiving assurances that these suppliers can continue to meet standards for quality, availability and timing. Some raw materials are fairly easy to get right now, but if a COVID-19 vaccine becomes available later this year, lead times could increase drastically. OEMs can have confidence in supplier-partners who have taken measures to hedge against anticipated market delays and interruptions by expanding their usual inventory of parts for mature products.

Because the coronavirus creates almost-daily economic and supply chain shifts, suppliers also should be maintaining regular communication with customers to keep their fingers on the pulse of change in the OEM’s marketplace.

4. If we experience an upsurge in COVID-19 fatalities again this year, as some health care and political leaders suggest will happen, what effect will this have on your company?

A dramatic spike in COVID-19 cases and fatalities could lead to shutdowns of suppliers that have not secured government exemptions allowing them to continue production. Ask suppliers if they have exemption clearances and whether they have in place the right personal protective equipment (PPE) – masks and hand sanitizers, for instance – to ride through such a surge. Does the supplier have a reliable sanitization strategy and a plan that allows it to maintain production when an exposure happens or an employee tests positive?

 5. There are a lot of unknowns around the novel coronavirus. What is your company doing to manage through these unknowns?

While it would be impossible to anticipate every challenge the industry will face in the months ahead, suppliers should have identified as many scenarios as possible and developed actionable (but flexible) plans to mitigate those situations. It is, in fact, prudent for OEMs to regularly review the risk mitigation and business continuity plans of its Tier 1 supply base. Without these plans, suppliers won’t be ready to respond to whatever comes next.

6. What changes has your company made or will your company make as a result of the recent coronavirus-related economic shutdown?

After months of quarantine, suppliers should be able to prove they can maintain production levels with non-essential employees working remotely. As they bring employees back to the workplace, they should be able to explain steps they’re taking to keep everyone safe and to describe other long-term changes they’ll implement. If suppliers can’t offer definitive answers about how they’ve addressed the challenges presented by COVID-19, that’s a red flag.

 7. What effect will these changes have on OEMs?

Changes suppliers have executed or plan to execute should have as little negative impact on OEMs as possible – or, in some cases, even a beneficial effect. Answers that tell OEMs otherwise may indicate it’s time to truncate the supply base, reducing reliance on weaker suppliers. A smaller, stronger supplier group may be able to better manage logistics, control inventory and provide other services that alleviate OEMs’ production concerns.

When the coronavirus finally loosens it grip, customers will want equipment as quickly as possible. Some OEM suppliers will be able to respond swiftly to that demand. Some won’t. OEMs that ask the questions above to vet their suppliers’ capacity, strategic planning effectiveness and reliability through the economic unknowns ahead will be well-positioned for the recovery, whenever that may be.

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