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Porsche Avoids driving in a Ditch with Flexible Supply Chain

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Firestorm Expert Council Member Jack Healey, CPA/CFF, CFE "drives" home his point of looking at risk throughout the entire supply chain - and avoiding dangers in the road along the way...

During the week of June 5, 2013, heavy rains caused floods in the Elbe, Danube and Vltava Rivers throughout Germany, Austria, the Czech Republic and Slovakia. These rains caused an interruption to many manufacturers' supply chains. In addition to the flooded areas, many companies were affected by disruptions in transportation- especially rail- the primary mode for this region, as the floods caused wide spread outages of service.

On June 5, 2013 Porsche was forced to 'slam the brakes' on production at their assembly plant in Leipzig, Germany after the floods in the Czech Republic interrupted the rail service from their Bratislava, Slovakia plant to Porsche's Leipzig, Germany assembly plant. The Bratislava plant produces automobile bodies and components for Porsche's number one selling model the Cayenne, it also produces bodies-in-black for the Panamera model. The production of their Panamera models will continue using bodies-in- white produced in Porsches' Hanover, Germany plant. The Leipzig plant produces 450 vehicles per day and last year the Cayenne had U.S. sales of 15,545 according to Automotive News, making it the most popular model for this prestigious automobile company.

But unlike the 2011 northern Japan Tsunami related disruptions of black paint and other automobile components which left manufacturers such as Ford Motor Company 'stranded on the side of the road', Porsche has invested heavily in a flexible supply chain and manufacturing capabilities. By June 7, 2013 the company was 'back in the drivers' seat' as it began limited production in the Leipzig, Germany plant- starting with one shift avoiding 'the detour' of a prolonged plant shut down. Siegfried Buelow, head of the plant said in a statement "The supply PorscheLeipzigGermanyassemblyplantsituation however remains critical", but the company is gradually 'shifting into gear' increasing its capacity. In addition, Porsche has been able to perform 'pre-assembly' work on the Panamera during the delay at its Leipzig plant.

Porsche's 'flexible production system' allows the company to work additional shifts at the Bratislava plant when it resumes to full production. They have invested heavily in introducing flexibility into their manufacturing, production and logistics over the past several years. It is for events like these that their planning paid off. Porsche's contention is that they will not lose any volume based on their ability to shift production to other plants in the near term and increase production when the plant comes back on line.

These events highlight many of the Best Practices which Genesis Management and Firestorm® have noted in our Executive Supply Network Risk Forum. The Forum, the results of a survey of over 100 international companies disclosed that when it comes to companies risk in your supply chain, you have to look at the risk embedded throughout the entire supply chain, whether you 'own' (i.e. manufacture) that portion of the chain or outsource that component.

Development of alternative sources of supply and alternative manufacturing strategies are paramount to mitigate the costly mistakes of an interrupted supply chain. Many times 'price', burden rate allocations and current impact on the businesses profitability are' the drivers' in managements' decision as it relates to the supply chain and component availability. However, the cost of a loss/interruption of supply continuity dwarfs the impact of a favorable burden rate or price point.

The lessons learned fit nicely into our automobile analogy, if not a little strained:

1. Carry a Spare Tire- Develop alternative sources of supply and manufacturing for all key parts and supplies

2. Make certain there is air in the spare and you have jack- having identified the sources of supply are not sufficient and will not help you if you have not tested the plan. An effective plan made certain that parts pass engineering requirements, specifications and applicable BOM specifications. Just having a plan, or negotiating additional volumes with suppliers is not enough- you must be certain your plan will work.

3. Have the number for the Auto Club- Have your plans been tested and vetted by independent supply chain and manufacturing experts? Having a third party test your assumptions and study the impact of prolonged supplier interruption on you and your competitors is essential. It is not enough to look at your supply chain, but how your suppliers interact with your competitors as well. Having an expert intimately familiar with your operations and plans prior to a disaster can' keep you on the road' when the actual event occurs by protecting your customers, saving you money and keeping you in 'the drivers' seat'.

Want to learn more?  Contact Jack

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