Localization instead of globally interlinked supply chains

How MD is systematically reducing the risk in the supply chain in order to better respond to the requirements of the automotive industry

The impacts of the Covid crisis and the conflict in Ukraine have been troubling many sectors of industry for some four years now. The automotive industry, which relied for decades on globally distributed, commercially optimized supply chains, has been particularly affected. Logistics used to be cheap and reliable. The key lesson learned from the last four years is that the concept of the supply chain needs to be rethought in order to minimize the risk of failure for companies. Times will also remain unpredictable in the future – we only have to look at Taiwan to understand this. The trend is clearly moving away from globally interlinked supply chains towards robust, local supply chains. In this article, we investigate how a supplier such as MD ELEKTRONIK is reducing the risk in its downstream supply chain. Core elements include measures such as a global production network, the localization of production and key suppliers, the use of second source components and the redundancy of sites.

Reducing the risk in the supply chain at MD ELEKTRONIK

Global network and redundancy of sites

The basis for minimizing the risk in the supply chain is to make production capacities available in every relevant sales region, and to do so across the entire range of products. Thanks to sites in China, Europe and North America, MD ELEKTRONIK is able to supply customers locally and directly in these three regions. The MD product world is currently taking a great leap forward in innovation. Old technologies are being designed out, while new, smaller and more powerful technologies are being brought in. Together with the associated production lines, these technologies have to be brought in at the same time in all regions, as our customers – the OEMS – are launching global platforms that are starting up simultaneously in all regions. Up until a few years ago, platforms were still introduced region by region. As a supplier, we now need to meet demand globally. The “local for local” approach is an important guiding principle for us. For medium-sized suppliers, it means significant investment needs in plants, and above all in machines. After all, similarly to OEMs, MD also has to start with new technologies in all regions at the same time.

In addition, the redundancy of sites in one region can help to reduce the risk in the global supply chain.  MD ELEKTRONIK has several production sites (two in China and two in Europe). This means that we are able to react quickly in a crisis, and that deliveries can continue even if there are disruptions in one location. It also means that we can react to capacity fluctuations at short notice to provide additional capacities, if necessary, and at the same time, keep supply chains short. In the near future, the strategic further development of robust supply capacity will play a central role for MD. When planning a new site, in addition to cost structures, we take into account the legal and governmental stability of a country, the availability of highly qualified employees and the site’s proximity to our direct and indirect customers and suppliers.

Localization of key suppliers

The actual structure of the supplier industry will remain unchanged in the future. Component manufacturers (tier 1) supply module manufacturers (tier 2), module manufacturers supply system suppliers (tier 1) and system suppliers supply OEMs. As a tier 2 supplier, MD has key suppliers for the components that we process. We work closely with them in devising localization strategies. The aim is to locally source as many components as possible. This also leads to considerable investment needs for our suppliers. For example, we have bulk stock suppliers in all regions with local production facilities. In this area, our focus is on a few, strong partners in order to further expand our global footprint.

Second source components

Like every company, MD ELEKTRONIK depends on reliable suppliers. Longstanding business partners are a core component of our supply strategy. The right balance has to be found because at the same time, we want to spread the risk. To ensure this, second source options are required which are able to supply our plants locally. By working with a selection of reliable, alternative suppliers for critical components, we can react quickly as a company if the main supplier fails because a site is affected by a natural disaster, for instance. An important element here is that we work with our OEM customers at an early stage to free up alternative supply options.

Stable processes in the supply chain through digitalization

In addition to disasters and crises, domestically-generated risks also exist for supply chains in the automotive industry. These can also cause failures up to and including assembly line stoppages at the OEM – a mega disaster for any supplier. The risks become apparent especially when information about the supply chain is not distributed correctly, on time or in a transparent manner. That’s when missing parts or production residue occurs which can cause supply chains to fold. In order to prevent these situations in the future, which will be no less demanding, the end-to-end digitalization of the supply chain is extremely important so that, from the vehicle’s production order to the last components required, the demands can be communicated correctly, transparently and on time. Many systems already exist to ensure this, however so do countless technical issues. And a great deal of manual processes still exist too, especially during vehicle development. Sample and pre-series requirements are currently very often still processed manually. For this reason, MD is working intensively on digitalizing and standardizing processes in the supply chain area. One example of this is the “Planning@MD” project which makes it possible to give an extremely precise forecast for the next 24 months, thus helping to further ensure on-time delivery to our customers.

Summary and conclusions: The building blocks of a robust supply chain

In an unstable world where crises and problems can occur at any time, it is more important than ever to rely on robust delivery chains. The increasing complexity of technical equipment in vehicles is also reinforcing this need. By spreading the risk in the global supply chain, companies can continue to supply their customers even in the event of unforeseen circumstances. Reliability and flexibility, including when introducing new technologies, are important components of our identity as a company. Measures such as a global production network, the localization of components and key suppliers, redundancy of sites and second source localization are important steps in this direction. MD ELEKTRONIK shows that through targeted planning and by making investments in strengthening supply chains, the risk can be spread and the reliability of supply, increased. Contact our team now to find out more!

Thomas Knoblauch

Thomas Knoblauch currently works at the MD plant in Mexico and was previously responsible for sales in Northern Europe and for market development in Asia. Over the last eight years in this role, he has acquired new customers for MD and successfully supported several vehicle projects up to SOP. Each of the projects involved has its individual challenges that need to be mastered, especially when working with others across different time zones and cultures. He firmly believes that long-term business relationships can only exist through “win-win” situations and therefore is always interested in finding the best solution for all parties. He loves taking on new challenges and appreciates close contact with customers and business partners from different countries in his daily work, in keeping with his motto: “If you really want to do something, you’ll find a way. If you don’t, you’ll find an excuse.”