Building Resilient Supply Chains Through Communication, Alliances

Automotive players are transforming their procurement strategies to face the supply chain disruptions caused by international challenges. New communication strategies and partnerships are being implemented to make the supply chain more resilient, as adapting to emerging challenges will allow Mexico’s automotive industry to transform this crisis into an opportunity for growth. 

Before the pandemic, the industry was already experiencing significant challenges regarding sustainability and technology. The COVID-19 pandemic later brought shortages of raw materials and end products. “Raw material shortages and disruption in supply chains have become the main challenges for the recovery of the automotive sector,” said Daniel Hernández, Director General, Queretaro Automotive Cluster. Many troublesome factors are still converging and forcing players in the supply chain to adapt to withstand the changes that the industry is facing. 

The sector is facing unprecedented problems, said Paris Hirschberg, Head of Purchasing, Daimler Truck and Bus Mexico. The effects of macro challenges such as the COVID-19 pandemic, the Russia-Ukraine conflict and the trade war between the US and China have led automotive companies to face shortages and high costs. This hostile trade environment is forcing automotive players to find new strategies to strengthen their supply chain and make it more resilient.

To achieve this, suppliers need to transform the way in which they communicate with clients. Suppliers must be transparent regarding their capabilities to implement resilient strategies in the face of supply chain disruptions, said Nathaniel Kenninger, Principal, Boston Consulting Group. 

Additionally, communication has to be thought of in two directions: operational and strategic. Operational communication should not focus on the “if” but on the “when,” allowing suppliers to be ready for any unforeseen challenge and approach OEMs with options to solve the problem, rather than just transferring the responsibility to manage the crisis. Strategic communication focuses on understanding customers and their main needs by asking questions. 

Moreover, companies must rely on good strategic partnerships as suppliers are now considered business partners. “Not all disruptions are created equally. Different challenges will require different solutions and companies, thus the relevance of creating strategic partnerships and remaining agile,” said Hirschberg. However, the opportunity to create synergies and strategic partnerships is not the same for all players in the market, according to Kenninger. Those who were already prioritizing alliances before the pandemic will be the ones with more advantages. 

By implementing these strategies, crises can become opportunities for the automotive supply chain, specifically in Mexico. “Supply chain disruptions represent a great opportunity for Mexico to develop a local supply chain to substitute imports,” said Xavier Ordoñez, Supply Chain Leader Partner, Deloitte. “Mexico must take advantage of its strategic location, not only to integrate with North America but also to become a continental hub in the Latin American value chain,” he added. 

Meanwhile, the implementation of the new free trade agreement between Mexico, the US and Canada (USMCA) will be crucial for the Latin American country. “Regarding the USMCA, Mexico is going to be a huge winner,” said Hirschberg. In this new treaty, the regional content of light vehicles was increased by 12.5 percent. In addition, new rules have been incorporated for Tier 1 providers that are now required to boost regional content from 63 percent to 75 percent. These changes are increasing the need to find and incorporate Tier 2 providers in Mexico, said Manuel Montoya, Director, Cluster Automotriz de Nuevo León (CLAUT), to MBN.

For a Tier 2 to leverage this opportunity, it needs to select the niche and product in which it needs to be truly competitive, said Ordoñez.  Also, the company has to focus on partnerships specifically thought for the electric and hybrid vehicle markets, which are transforming the automotive industry as sustainability becomes the main driver of the sector. 

"Sustainability has always been a challenge for the sector and will continue to be for the next five years, especially in Mexico," said Kenninger. Although Mexico's president has committed to increase production of EVs by 2030, incentives are still needed so Mexico can achieve this goal. In the future, Mexican suppliers will have to be prepared for changes in the measurement of emissions and other sustainability priorities. Consequently, Mexico has to rely on technology, which has become essential to push supply chain integration and logistics to a new level. 

Technology helps businesses improve and make better strategic decisions, granting them faster access to information to increase competitiveness. Although technology offers multiple benefits, many are still reluctant to embrace it, which sometimes stops companies from investing in it.