Friday, 26 April 2013

Mass Auto Recall Highlights Importance of Supplier Diversification

Authored by Sara Omer

Last week, Japanese automakers, Toyota, Honda, Nissan and Mazda announced that they are recalling 3.4 million vehicles sold around the world due to faulty airbag inflators.

So what’s the thread that ties these four automakers together? Their airbag supplier – Takata Corp. the automakers all purchase airbags from the suppliers in an effort to improve collective buying power, driving prices down.
However, mass recalls like this highlight the risks of relying on only a handful of suppliers – or even worse, one supplier.


In addition to putting their reputation on the line, recalls are a major financial hit. The money spent purchasing new parts and repairing faulty ones for 3.4 million vehicles is a large and unplanned expense that impacts profit margins.

This is also a major hit for Takata as the supplier copes with its largest recall crisis in 20 years. The company’s stock price dipped 9 per cent last Wednesday and 6.7 per cent the following day.

If each company had a diversified supply base, the financial impact of these recalls would be far less costly. Seems like they haven’t learnt their lesson yet…

Do you think that this mass recall will spur automakers to diversify their suppliers?


 

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