Ford’s popular F-150 pickup is something I’m well familiar with. My husband has owned one for nearly 20 years and spent what seemed like an eternity searching for his newer one a few years ago. He says he doesn’t plan on buying another one in the future, but I’ll believe it when I see it.
I think this picture of his old and new truck side-by-side should adequately show his level of zeal…
Therefore, news stories about the explosion that occurred on May 2, 2018 at Meridian Magnesium Products of America certainly caught my eye.
Meridian provides auto parts to several major auto manufacturers, including Ford, GMC, Mercedes-Benz, BMW, and Fiat Chrysler. There are more details to this story available on MotorTrend, Chicago Tribune, and CNBC.
Why is this story important to risk management professionals?
It is a real-life example for why companies should be prepared for a supplier outage.
Key points to summarize the situation:
- Meridian supplies auto parts made from magnesium to several major auto makers. The magnesium is light-weight, helping auto makers meet federal fuel efficiency regulations.
- Ford Motor Company uses Meridian parts in its F-150 and Super Duty trucks.
- The Ford truck line brings in more than $40 billion in annual revenue, more than Facebook and Nike.
- On May 7, 2018, Ford idled its production line in one plant for one week, temporarily laying off 3,600 workers.
- The Dearborn plant, a major production facility, suspended its F-150 operations for several days, affecting 4,000 workers.
- The shutdown could cost Ford 15,000 trucks per week.
- Ford says it has 84 days of inventory for its F-150 line, while it takes an average of 76 days for an F-150 to sell, so the company has some cushion.
- “Ford said it relies on less than one-third of the parts output produced at the Meridian plant.”
- Mercedes-Benz production of SUVs is being cancelled “in certain areas” due to parts shortages.
- BMW production of its X6 and X5 crossovers has been halted due to part shortages.
- General Motors is temporarily halting production of two full-size vans, Chevrolet Express and GMC Savana, and did not disclose how long production would be halted.
So with these facts in hand, let’s examine the situation from a risk perspective.
Ford relies on its truck series for a huge part of their profits. Because they are having to meet federal regulations on fuel efficiency, auto makers are using newer materials for its vehicles. One of those newer materials is magnesium.
Why is this important? 2 reasons:
- Magnesium being a new material means it is not widely available from suppliers.
- Magnesium is not like your typical metal. It burns. Actually, it is highly flammable, causing it to be susceptible to fires and incidents.
The first reason causes bigger problems for Ford, GM, Mercedes-Benz, BMW, and Fiat Chrysler. Material not being widely available limits the possibilities for companies to seek alternative sources.
I provide some key questions to ask about your company’s supply chain, and this incident is proving the relevancy of those questions. One of those is asking about the reliance on a specific vendor for operations.
Sounds like all of these companies are relying on Meridian to be able to produce some of their vehicles.
From a risk perspective, I would check-in with management about their concerns on this topic.
- How do they feel about now having a back-up supplier for these parts?
- Are they willing to put their revenue at risk? Are they comfortable that the inventory on hand is sufficient to cover the downtime?
- What about their reputation? Having to lay off workers, even temporarily, for something they could have prevented is likely not resonating with their people too well.
Do these companies understand their reputation risk? Have they completed an in-depth analysis of their stakeholders (including their employees)? Are there ways for them to improve their reputation risk oversight?
On a positive note, I saw that Ford was onsite quickly to retrieve the dies (machines used to create the parts for their trucks), so they can be relocated to another facility. Looks like they have a playbook of sorts for this type of incident. Good thinking on their part!
What type of plans does your organization have in place for a supplier outage?
Provide your comments below or join the conversation on LinkedIn.
If your organization needs to focus on addressing supply chain disruptions, contact me to talk about your situation and how you can support management as they make critical decisions about vendors and risk.
Featured image courtesy of Dwight Burdette via Wikimedia Commons