There is no end to the problem of disrupted supply chains. Whether it’s the chip crisis, the COVID-19 pandemic, or increased raw material prices – they are all taking their toll throughout the supply chain. The fact that automotive suppliers are particularly at risk in this respect is shown by a recently published forecast on the share of small and medium-sized enterprises in Germany at risk of insolvency by sector 2022–2025 (only in German), which does not give automotive suppliers a good report card.
The reasons for supply chain disruptions are complex. One cause is the COVID-19 pandemic. Plant and port closures are impeding production and transportation. Current events such as the blockade of the Suez Canal reinforce this effect. In parallel, the demand for certain materials and raw materials (e.g. semiconductors and microchips) is increasing. Availability on the market is low, and prices are correspondingly high.
These disruptions are particularly noticeable in the automotive industry. Based on the different positioning of the players within the supply chains, in the vast majority of cases these disruptions are not at the expense of the OEMs, but of their suppliers. Existing contractual arrangements between OEMs and suppliers reinforce this effect. Indeed, the often strong negotiating position of OEMs means that the distribution of risks related to disruptions and incidents is stipulated within the framework of numerous contracts between OEMs and their suppliers, to the detriment of the latter. This is one of the reasons why OEMs are able to turn a profit despite the tense situation, while small and medium-sized automotive suppliers in particular are on the losing side.
An improvement in this situation for suppliers can be achieved, quite fundamentally, through careful and forward-looking contract design. The agreement of self-supply reservation clauses and material price escalation clauses are just two examples, agreement on deviations in order volumes and lead times and the associated price adjustments a third, and shorter price commitment periods a fourth.
However, the way the parties deal with each other will also have to change: Suppliers must position themselves more strongly and clearly name and address disadvantages in their sandwich position. This can also lead to OEMs or higher tiers having to be more involved in triangular relationships with sub-suppliers.
The current development again shows how important it is for suppliers to assess commercial as well as legal risks before entering into business relationships and to take countermeasures. Contract design is an effective means of achieving this. Existing contracts should therefore be reviewed to enable risk assessment and to initiate negotiations with customers and suppliers in a correspondingly well-prepared manner. Future contracts should be negotiated in such a way that risks are minimised as far as possible right from the start.back