Fallout from Volkwagen's diesel emissions scandal is going to happen. It's a supply chain inevitability. How can it not be when there will be a huge auto recall, massive cutbacks, billions of dollars worth of fines, many executive resignations, piles of legal suits, calls for industry-wide investigations, and damaged trust that will need to be rebuilt?
This is the kind of risk many supply chain professionals would rather not deal with, or may not factor into their day-to-day routines. Yes, it hurts when you find out there was a fire at factory of one of your second or third-tier suppliers, and you have to quickly second-source a high-value part. And, it's frustrating when a customer over-estimates demand, and you have to burn through the inventory you were told to hold for that customer. But, what do you when you read the tweet about Volkswagen–one of the auto industry's powerhouses with a seemingly stable market presence–being involved in a rapidly escalating scandal that will have widespread repercussions? What's the supply chain management Plan B or Plan C when a big customer crashes against the wall?
Certainly, many supply chain folks are wondering the same thing as the global media unfolds the story behind Volkswagen's admission that it used software algorithms to cheat emissions tests for some of its diesel engines. As many as 11 million cars could contain the software, and the company is setting aside more than $7.3 billion to cover the cost of recalls and other efforts to limit the damage, according to reports.
While the industry will be in triage mode understanding what the immediate fallout will entail and how it will effect individual suppliers or near-term orders, the longer-term implications around the scandal get to the heart of issues that have irked supply chain professionals for years:
- How do we improve visibility up and down the supply chain?
- How do we create more transparency between partners?
- How do we manage risk?
- How do we increase flexibility and agility to deal with whatever comes?
- How do we integrate digital technology and new forms of communications, efficiently verify if there a potential supply chain disruption and respond faster when something goes awry?
- How do we stop assuming that everything is well and good with our biggest suppliers or customers and better plan for worst-case scenarios?
- How do we hold the supply chain and companies that participate in it accountable when expectations fall short?
On one hand, we can be grateful for the real-time social media alerts and Internet headlines that ran through our feeds tipping us off that the shakedown was happening. This type of communication flow is valuable when it comes to supply chain planning and sourcing, and it's strange to remember that things like this didn't exist a decade ago.
On the other hand, the question of what to do with this information still remains. The challenge that lies ahead is how to sync up real-time information with a quasi-near-real-time supply chain response time. While progress has been made in reducing the time between when something happened and when the supply chain did something about it, there's work to do to when it comes to securing the supply chain from man-made disasters companies find themselves in the middle of either because of their own doing or by accident. Perhaps, lessons from recent natural disasters (earthquakes, storms, flooding, and tsunamis) could be applied to these corporate fallout situations; if nothing else Mother Nature has made the immediacy of dealing with crisis a bit more obvious.
There is also an ownership issue related to this: Who in the supply chain will own the responsibility of creating a transparent, sustainable, socially responsible, environmentally friendly supply chain that doesn't cheat the system for profits and better stock prices? And, who will hold others accountable to these standards? The questions don't just apply to measuring emissions from cars. It encompasses mineral mining (conflict or otherwise), fair labor, greenhouse gas controls, natural resources use and abuse, and many other areas.
Will it be you?