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September 21, 2022

Global supply chain collapse to a new beginning

The rollback of globalisation and international supply chains is a critical topic. As part of a new study, the consulting firm Strategy Engineers and the global mobility-technology provider AVL conducted a comprehensive analysis of changes to ICE supply chains in the mobility industry. This requires consideration of many factors, including the biggest structural change in decades - the path to electromobility. Electrification and global crises pose existential challenges to the established network of OEMs and their ICE-focussed suppliers networks. These challenges will create many opportunities, but require careful risk management. The winners will be those OEMs and suppliers who actively shape change in ICE markets and use upheavals to reposition themselves for success.

Four future developments are conceivable:

  • Bought-in parts will be supplied by small, specialised companies that manufacture to OEM specifications.
  • New "mega-ICE suppliers" will emerge, manufacturing standardised parts that no longer meet specific OEM requirements.
  • OEMs in-house production of selected components – a strategy already used by many manufacturers.
  • Suppliers pursue a transition strategy, gradually shifting from ICE components to BEV components.

As a result, there will be reduced availability for selected components, a loss of competence in the ICE environment and change in the cost structure.

But what strategies can OEMs and suppliers adopt to be successful in the future?

As vertical ICE supply chains disappear, OEMs will need to take more responsibility in securing and cooperating with upstream suppliers. This means dovetailing supplier quality, purchasing and risk management, and reviewing resources to validate increased control effort. Meanwhile, remaining suppliers will demand secured volume commitments in their business relationships. An active divestment strategy, i.e. shifting aggregate manufacturing to suppliers, might decrease OEM cash flow requirements and secure critical mass for suppliers. This development, and potential bundling of ICE needs between two or more OEMs, might also drive growth of mega suppliers as mentioned above.

The impending loss of competence can essentially be cushioned by two measures:

  • By securing long-term capacity from specialised development service providers.
  • Through constructive unification or standardisation of selected and non-brand-forming components in partnership with competitors.   

A solution for suppliers could be (1) the development of a sustainable "last man standing" strategy, in which the remaining ICE suppliers await the exit of their competitors, (2) the development of new business areas/ growth strategies, or (3) building a completely new business model.

More detailed information can be found in our study.

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