This Year's Recall 'Pileup' Is a Supply-Chain Nightmare for Automakers

Jun 10 2014, 4:56pm CDT | by

The recent flood of recalled vehicles is putting a huge strain on automotive supply chains.

Some 13 million cars and related parts, including child seats, equipment and tires, were recalled in the U.S. in the first quarter of 2014 alone, according to the latest Stericycle Recall Index . That puts the industry on pace easily to surpass the 28 million units recalled in 2013 — a number that was 54% higher than the previous year.

The number of auto-related recall events, averaging nearly two per day, hasn’t changed much over the past four years. But unit amounts “are soaring drastically,” said Stericycle vice president Mike Rozembajgier. “This puts stress on the supply chain to produce replacement parts, taxes auto dealerships and used car networks, and further complicates the consumer notification and communication process.”

The biggest name in recalls this year is General Motors, which reportedly has called back some 15.8 million cars and trucks worldwide. Faulty ignition switches in GM vehicles allegedly are responsible for at least 13 deaths and 54 accidents, but chief executive officer Mary T. Barra has said the number could climb in the weeks ahead. The company has dismissed 15 employees and earmarked $1.7 billion for that recall alone. It has also revealed defects in headlight switches, seatbelt cables, airbags and a host of other problems across dozens of models.

GM is far from the only automaker to be plagued by a surge of recalls. In recent months, it has been joined by Toyota , Nissan , Honda and Ford Motor Co. , to name a few of the biggest players. At the same time, said Rozembajgier, just over a quarter of recalls over the past four years were caused by the top 10 assemblers. The vast majority involved small companies and makers of add-on parts.

Why the huge increase in recalled units? One factor is the growing technological complexity of newer vehicles, said Rozembajgier. According to the Stericycle index, 70% of the vehicles affected in the first quarter of 2014 were manufactured within the last five years. They feature systems and software with a high propensity for glitches.

Growing public awareness of the problem is another reason. Each successive recall generates concerns that make both consumers and government regulators hyper-sensitive about product defects, causing a ripple effect among other manufacturers. Social media can set off a firestorm of reaction. “There’s a laser focus on safety coming out of Washington, D.C.,” said Rozembajgier.

Even so, car owners appear blasé about issues that don’t directly lead to death, or involve malfeasance on the part of automakers. The pace of recall announcements is so relentless that many are suffering from “recall fatigue,” Rozembajgier said. Nearly a third of recall notices are ignored by owners. Last year, 3.5 million used cars went up for sale on line with unfixed defects. Moreover, an estimated 36 million vehicles — one in seven of those on the road today — are driving with problems that are under recall.

Manufacturers, who in some cases face charges of criminal negligence  for covering up known defects, can’t afford to be complacent. “It just begins to snowball for a company,” said Rozembajgier. At the same time, they’re dealing with extended supply chains and multiple partners, any one of which could trigger an incident.

More than anything else, said Rozembajgier, the auto recall “pileup”  is a supply-chain issue. “With small manufacturers and suppliers contributing to the majority of [2014 first quarter] events, it’s clear that no organization is safe and that auto brands are only as strong as their weakest link,” he said. “To protect consumers and the brand alike, companies must ensure they are prepared to efficiently address every facet of a recall in this increasingly complex industry.”

It starts with a lack of visibility throughout multiple tiers of suppliers. “A lot hinges around creating much more transparency across the extended supply chain,” said Keri Dawson, vice president of industry solutions and advisory services with MetricStream , which specializes in software for governance, risk and compliance. “It’s critical to know every step along that product’s lifecycle, so you can make a determination of where the failure occurred.”

That’s becoming more of a problem for automakers, which used to produce the lion’s share of components that went into a vehicle. In the late 1990s, they began spinning off their parts-making divisions, opening up a communications gap in the manufacturing process.

With the growing complexity of vehicles, it becomes more important than ever for manufacturers to keep tabs on independent vendors. In an intensely competitive marketplace, however, they might be tempted to slack off on vetting and re-certifying suppliers on a regular basis, Rozembajgier said.

Automakers also need to deal with the aftermath of announced recalls. Their supply chains must be prepared to supply the parts needed to fix vehicles quickly and minimize inconvenience to the owner, who is already upset over the very existence of the defect.

The responsibility for quality doesn’t rest with one individual or department, said Rozembajgier. Sourcing, legal, finance, quality control and even sales and marketing must get involved. “It really is cross-functional,” he says.

 
 

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