SUPPLY CHAIN RISK MITIGATION STRATEGIES IN THE AUTOMOTIVE INDUSTRY AND A QUALITATIVE RESEARCH
Increasing uncertainties around supply chains and increasingly complex relationships among chain members lead to the potential emergence of more sources of risk (Thun & Hoenig, 2011, p. 5512). Factors such as the globalizing market, shortened product lifetimes, complex international networks of industrial partners, and unpredictable demand increase the vulnerabilities of businesses and the risks they face (Lavastre et al., 2012, p. 828). Understanding how firms can manage supply chain risks has become an important issue for both academics and practitioners (Ambulkar et al., 2015, p. 111).
Supply chain risk management is the implementation of strategies to manage daily and unusual risks encountered throughout the supply chain based on risk assessment studies (Wieland & Marcus Wallenburg, 2012, p. 890). However, many managers are having difficulties in adapting some high-cost strategies against risks (Kilubi, 2016, p. 604). There are also some limitations during the implementation of the strategies. For this reason, it is extremely important to identify the risks that would threaten the supply chains and to implement the right strategies to reduce these risks or their effects.
1.1. RESEARCH SUBJECT
This study was focused on the supply chain risk mitigation strategies of the automotive main industry companies in Turkey. Due to the high complexity and close collaboration between its members, the automotive supply chain is suitable for risk management (Thun & Hoenig, 2011, p. 245). Also, although there are various studies on supply chain risk management in the literature, empirical studies in the automotive sector are still in their infancy (Ceryno et al., 2015, p. 1146; Thun & Hoenig, 2011, p. 243).
1.2. RESEARCH PURPOSE AND IMPORTANCE
The study was aimed to identify risk mitigation strategies and their effects on companies in the automotive supply chain. A literature review for this study revelead that this study is the first one to evaluate the implementation of supply chain risk mitigation strategies with in-depth interviews with experts. In addition, practitioners and academics will benefit from the first-hand experience of the expert participants as they provide plenty of examples of real events about risks and risk mitigation strategies.
1.3. CONTRIBUTION of the ARTICLE to the LITERATURE
No experimental study was found during the literature review on the identification and effects of risk mitigation strategies. With this study, this gap in the literature is intended to be filled and it is thought that the findings will make serious contribution to the supply chain risk management literature. Providing information supported by real cases, especially regarding the advantages and disadvantages of risk mitigation strategies, can help practitioners to develop strategies that are appropriate for their businesses.
2. DESIGN AND METHOD
2.1. RESEARCH TYPE
Qualitative research design was adopted for this study. Accordingly, semi-structured in-depth interviews were conducted with experts in automative main industry companies.
2.2. RESEARCH PROBLEMS
In this study, the authors tried to find answers for two research problems: (1) What risk reduction strategies are used in the automotive supply chain?; (2) What are the effects of risk reduction strategies?
2.3. DATA COLLECTION METHOD
The population of the study consisted of experts in the automative main industries in Turkey. Intentional sampling, which is not based on probability, was used in the study. Accordingly, semi-structured in-depth interviews were conducted with a total of 20 supply chain managers from 14 automative main industry companies. Each interview took more than an hour. Expert opinions were either written down or recorded upon the permission of them.
2.4. QUANTITATIVE / QUALITATIVE ANALYSIS
In the study, a qualitative analysis of data was undertaken. With the qualitative analysis, the opinions, understandings, and perceptions of experts about the risk mitigation strategies and their impacts were examined and reported. In addition, NNIVO 12 program, a qualitative data analysis software, was used to identify the main themes about the risk mitigation strategies.
3. FINDINGS AND DISCUSSION
Flexible supply chain practice “changing order quantities among suppliers” (Tang & Tomlin, 2008, p. 15), is a preventive strategy against demand variability, inventory risk (insufficiency or excess), supplier-originated quality and delivery risks.
Many supply chain managers want their suppliers to have certain flexibility with their capacity. In this context, it is important to have another flexible supply chain practice, “reserve capacity” (Saghiri & Barnes, 2016, p. 172). For example, world’s leading automaker Toyota requests its suppliers to have an extra capacity in the range of 10% to 18%.
The materials sent by the suppliers at the desired time, quantity and quality play a key role for supply chain success. For this reason, the other three flexible supply chain practices “selection of suppliers” (Swafford et al., 2006), “development of suppliers” (Chiang et al., 2012, p. 54), and “long term relationship with suppliers” are considered very important in the automotive industry.
Experts underlined that the risk mitigation strategy “working with local suppliers” (Tachizawa & Gimenez, 2009, p. 5793) reduced the impact of many risk factors.
The practices of delaying the final product assembly activities and configuring the basic materials and sub-assembly parts according to the final order, which are included in the postponement strategy, are not found suitable for the automotive industry.
Flexibility makes it possible to adjust the level of capacity to a certain extent and enable businesses to react quickly to demand fluctuations at every stage of the supply chain (Rajesh et al., 2015, p. 240). All participants stated that certain levels of variability can be managed in increasing and decreasing production capacity.
4. CONCLUSION, RECOMMENDATION AND LIMITATIONS
4.1. RESULTS of the ARTICLE
Automative main industry companies require their suppliers to have volume flexibility. The volume flexibility of suppliers may keep companies on the safe side against demand risks, logistics risks and production risks. However, since the volume flexibility will cause an increase in cost, the ability to meet different volume requests must also be limited.
As a mitigation strategy postponement is not deemed appropriate in the automotive sector. Although “use of common parts in products” within this strategy is practiced in the automotive sector, the participants do not see it as a part of the postponement strategy.
While risk mitigation strategies cause businesses to be more flexible against supply chain failures, they increase costs. For this reason, companies need to make cost-benefit analysis of their investments to increase their abilities against supply chain risks (Chopra & Sodhi, 2014, p. 74; Vahid Nooraie & Parast, 2016, p. 8).
It is necessary to balance the costs caused by the risks and the costs to reduce the risks. Therefore, trade-off between risk mitigation and its cost is an important decision phase that should be taken into account in reducing all risk factors. In order to reduce the negative effects of the risks, the cost to be incurred must be less than the cost of damage that the risk may cause.
4.2. SUGGESTIONS BASED on RESULTS
Conducting future studies in different sectors and with different research methods will increase the knowledge on supply chain risks and strategies. In this context, other sectors such as electronics and health, where supply chain complexity and sensitivity are high, can be examined. In addition, country differences in supply chain risk management can be studied.
4.3. LIMITATIONS of the ARTICLE
A limitation of the study is that it was conducted in Turkey. There are many different factors causing supply chain risks, and some of those are country-specific such as the country's economic situation, business life, business culture and legal regulations. Therefore, the results of this study should be treated with care as they may not be generalizable to other countries.