Automotive industry: How Tier 1 suppliers are escaping the “sandwich trap”
Wolfram W. Hackbarth
February 27, 2025
On this page
Supply chain problems? This phrase is likely to remind many people of the coronavirus pandemic. Back then, it was primarily disrupted transport routes and production losses in the Far East that caused problems for German car manufacturers in particular. This time, it is the volatile situation in the supply industry. enomyc author Wolfram W. Hackbarth explains why their sandwich position is so dangerous for large suppliers and how manufacturers and large suppliers can take advantage of the wave of consolidation.
Approval processes and production site changes OEMs and TIER1 suppliers must approve every new production site. This process involves extensive certification and quality assurance tests that can take months or even years. A production relocation process also requires investment in new machine qualifications, production validations, and process adjustments. Compliance with industry-specific standards such as IATF 16949 and VDA 6.3 must also be ensured.
Substitution costs when changing subcontractors If a TIER2 is no longer able to deliver or has been completely changed as a result of consolidation, an alternative supplier must usually be found. Development and validation costs for new tools and manufacturing processes can quickly run into the high double-digit millions. The integration of an alternative TIER2 can also entail high start-up costs because new interfaces to existing ERP, logistics, and quality assurance systems must be programmed.
Availability of components for series production, aftermarket, and CKD business One of the biggest risks associated with the failure of a TIER2 supplier is delivery delays due to production changes, as these lead to immediate bottlenecks in ongoing series production. However, the lack of spare parts leads to failures in the aftermarket business, which is particularly problematic in the case of long-term commitments from OEMs and warranty processing. Completely Knocked Down (CKD) programs require particularly stable supply chains. If a TIER2 fails at short notice, TIER1 and OEM assembly plants around the world face production downtime – and horrendous claims for damages.
Breaking free from the stranglehold: How TIER1 suppliers can reduce their risk
To avoid scenarios such as those outlined above, TIER1 suppliers must take active countermeasures. Four measures can reliably reduce the risk of economic difficulties arising from a supply chain failure:
Early risk detection: Continuous monitoring of TIER2 suppliers is essential. Regular credit checks and supplier evaluations help to identify financial and operational risks at an early stage and take countermeasures. Based on this, enomyc has developed a proven early warning system (PART = Pro Active Radar Tool) specifically for TIER1 and OEMs as an active practical tool and is continuously optimizing it. In addition to master data and information from TIER2 suppliers, the system is based on a structured technical risk and validation analysis, for example using the product modular parts list, the manufacturing and process technology used by TIER2, and a simulation and initial assessment of the costs for testing and endurance testing of the substituted components by TIER1 and OEMs. In addition to the initial cost assessment, the system also provides a realistic estimate of the project timeline with milestones and phases for prototypes, samples, and PPAP target dates.
Diversification of the supplier base: Concentrating on a small number of suppliers always involves significant risks. A broader supplier base improves resilience against sudden failures. A dual sourcing strategy, i.e., cooperation with at least two independent suppliers, is particularly recommended for TIER1 suppliers of technically sophisticated assemblies or products for which certain TIER2 suppliers have developed special expertise in manufacturing technology during the product life cycle.
Partnerships and cooperation: When TIER1 suppliers and OEMs work closely together, risks can be identified early on and problems can be resolved jointly. External experts with proven industry and process knowledge can help companies protect themselves against such crises in a targeted manner, for example by developing and implementing early warning systems.
Digital supply chain solutions: Technologies such as artificial intelligence and blockchain offer new opportunities to monitor supply chains in real time and ensure transparent processes. PART analysis has become established in current business practice because it provides a very quick and targeted initial assessment of TIER2 suppliers.