From February 2027, the EU Battery Regulation mandates battery passports for all electric vehicle (EV), industrial, and LMT (light means of transport) batteries over 2 kWh placed on the EU market. Whether powering a luxury EV, a defense communications node, or a commercial energy storage system, the batteries of today must be more than energy reservoirs – they must be intelligent, traceable, and circular by design and be able to transform sustainability goals into operational value.

That’s where circularity indicators come in: not as compliance tick-boxes, but as hard tools that shape real business outcomes – through better sourcing, smarter design, and leaner lifecycle costs.

1. Material Circularity Indicator (MCI)

Material Circularity Indicator (MCI) measures how much of a battery is made from reused or recycled material – and how much of it can be recovered at the end. It’s the core sustainability metric for any product that relies on raw materials from vulnerable or volatile supply chains.

MCI takes into account the source of the materials (virgin, recycled, or reused), how much of the product can be recovered at the end of its life, and how efficient recycling processes are. It converts all these aspects into a single score reflecting the overall circularity of material use.

One high-volume manufacturer pivoted to a mix of recycled copper and responsibly sourced lithium, improving their MCI score while shielding their costs from raw material price shocks – key to winning a long-term public sector energy contract.

MCI isn’t just a sustainability badge – it’s a procurement differentiator. As material passports become mandatory, buyers may soon screen suppliers by traceability ratios. Ask yourself: Is your supply chain MCI-proofed for 2030?

2. Durability Index (DuI)

The Durability Index (DuI) is an index that looks at how long a battery will last – how many charge-discharge cycles before it degrades. While that seems obvious, it becomes strategic when viewed as a lever in warranty terms, maintenance contracts, and OPEX forecasting.

Durability is typically assessed by comparing a battery’s expected cycle life to a standard or reference value. The higher the ratio, the better the score. This allows fair benchmarking across battery models without being skewed by individual use conditions.

A defense-sector energy module, previously flagged for excessive degradation under field conditions, saw its durability enhanced by integrating a thermal management tweak – resulting in 18% longer life and a redesign of deployment schedules in harsh terrains.

Durability is no longer a ‘pass/fail’ trait. It’s a design strategy. As AI-driven Battery Management Systems (BMS) predict individual cell performance, we may soon assess personalized durability scores per module. Ask yourself: Are you tracking at that level?

3. Disassemblability Index (DiI)

Disassemblability Index (DiI) determines how easily and safely a battery can be taken apart – essential for recycling, servicing, or second-life repurposing. It factors in fasteners, modularity, tool types, and time. High DiI = fast, safe, and non-destructive.

The index is calculated by evaluating factors like the number of disassembly steps, the types of fasteners used, the tools required, how long it takes to disassemble the battery, and how modular the parts are. These are converted into sub-scores, then averaged to produce a final DiI score.

A modular pack redesign helped an OEM reduce disassembly time by 40%, enabling automated sorting in their recycling plant and eliminating two manual steps – reducing both labor risk and unit handling cost.

As automation expands, DiI will need to evolve toward Robot-Friendly Indexing. If your battery can’t be efficiently handled by a robotic arm, you’re building for yesterday’s plant, not tomorrow’s. Ask yourself: Is your DiI automation-ready?

4. Repairability Index (RI)

Repairability Index (RI) measures how easily a product can be repaired – are there spare parts, documentation, standard tools? A high RI = low downtime, lower lifecycle costs, and more sustainable ownership.

RI combines multiple sub-indicators: the availability of repair manuals and diagnostic data, whether spare parts are reasonably priced and available over time, how easy it is to access and replace parts, and the product’s disassemblability. Each element is scored and averaged to give a composite RI value.

A European operator of large-scale battery storage systems introduced a 3-tier RI-based maintenance model, cutting part inventory costs by 22% and slashing downtime across 14 remote installations.

As predictive maintenance becomes the norm, RI isn’t just about what can be repaired – it’s about what will fail first. RI could soon feed into digital twins and algorithmic budgeting. Ask yourself: Are your repair protocols linked to your data strategy?

5. How about Circular Intelligence Index (CII)?

In an era where supply chains are under scrutiny, traceability is no longer a compliance checkbox – it’s becoming the invisible or silent KPI shaping investment, regulation, and resilience strategies. While current circularity indicators focus on material use, repairability, or disassembly, there’s a growing gap: the intelligence embedded within a product’s lifecycle. This includes data on sourcing, ethical audits, embedded emissions, and end-of-life destinations – factors that increasingly define a product’s business value and risk exposure.

Theoretically, the Circular Intelligence Index (CII) proposes to fill this void. It integrates traceability, ESG data quality, and digital transparency into a single metric. This shift marks the rise of circularity not just as a design principle, but as a data-led strategic asset.

The CII would measure a company’s readiness for circular data intelligence. It evaluates the extent to which a battery system – or its maker – can integrate traceability data (e.g., via Digital Battery Passports), link material flows to real-time analytics, and align product lifecycle insights with ESG, compliance, and circular economy targets.

While not yet standardized, CII could be scored based on the presence of digital systems that track lifecycle data, transparency of material sourcing, readiness for third-party verification, and integration with circular economy KPIs. It reflects the digital maturity of circularity systems.

With regulatory convergence across the EU, US, and APAC, the companies that win will not just build better batteries – but know more about what they build, from cradle to repurpose and they will be willing to share. Ask yourself: If a regulator or buyer asked for proof of sustainability tomorrow, could my product’s data speak for itself?

Conclusion

Circularity is no longer just an environmental goal. It’s a business framework – shaping warranties, logistics, automation, supplier choices, and strategic positioning in a data-regulated world.

Remember, not every company needs to start with all indexes at once. The right entry point depends on your product type, value chain maturity, and strategic priorities. For example, OEMs and manufacturers often begin with Durability and Repairability to address warranty costs and after-sales service. Battery producers focused on ESG may prioritize the Material Circularity Indicator to improve sourcing and end-of-life metrics.

Companies looking to comply with regulations like the Digital Product Passport or Battery Passport increasingly need visibility into Disassemblability and Circular Intelligence. Over time, combining all indexes provides a 360° view – tying operational performance to traceability, regulatory readiness, and sustainable brand value. This integrated visibility forms the foundation of proposed Circular Intelligence Index (CII), where data moves from isolated compliance checklists to strategic levers for growth, risk management, and innovation.

At Seraph, we help companies use circularity indicators not just to comply – but to compete. Whether it’s redesigning for faster disassembly or benchmarking data flows for traceability, the future belongs to those who translate sustainability into smart economics.

Ready to harness the DBP for operational advantage?

Do you need support, guidance and insights on automotive manufacturing excellence?

Let’s talk  https://seraph.com/contact-us/

About Seraph  

Seraph is a global operations and strategy consulting firm, that leads value chain improvements, restructurings, and turnarounds. We unite the disparate roles in operationally intensive businesses to create efficient operations, bridging the divide from concept to production. High-level decision-makers in manufacturing and industrial organizations rely on us to solve complex issues and launch initiatives that ensure success and sustainable change.

Seraph is a member of the BASE Battery Passport for Transparency and Circularity consortium.

The BASE project has received funding from the Horizon Europe Framework Programme (HORIZON) Research and Innovation Actions under grant agreement No 101157200 

Visit the BASE website here: https://base-digibattpass.eu/

We share our perspective on 5 effective solutions.

Periodically, Seraph surveys key members of the automotive industry to determine the ‘real’ challenges that the industry faces on a regular basis.  In our most recent survey, cost management rose prominently to the top as the primary concern for Suppliers and 2nd only behind the EV transition for OEMs.  

Given inflation pressures in labor, material, and energy, it’s no surprise that companies are facing a stronger squeeze between price and cost.  Continuing to address that margin gap has been a challenge for decades but is increasingly difficult.  With Seraph’s work in the automotive sector and the clients we serve, we have a unique perspective on what the common and effective solutions are.

Source: Seraph Automotive Trends report

Although the rate at which average vehicle pricing increases has slowed down, it has increased approximately 20% over the past 5 years.  Along with those price increases, inventory of salable vehicles has increased 48% in the past year suggesting that pricing pressures limit the ability to expect car buyers to continue to absorb the full burden of inflation pressures.

Source: Seraph Automotive Trends Report

Download the Latest Automotive Industry Report

The automotive industry isn’t alone in the requirement to reduce costs in the face of inflation pressures and cost reduction and management are normal courses of business for OEMs and Suppliers alike.  In Seraph’s experience, we’ve experienced a few proven practices to combat the squeeze between cost and price. 

1. Back to basics 

It’s always most important to rally around processes, standardization, and lean practices in crisis situations, but interestingly we find that as the situation gets more difficult, companies and teams have a habit of abandoning practices that are known to work.  Working through a value-steam map exercise to improve process efficiency, maintaining good process discipline, problem-solving disciplines, and rallying around good leadership and employee empowerment processes are very strong solutions to preventing cost variances and ensuring cost avoidance in difficult times.  Difficult times can not equate to excuses to abandon basic practices that allow for improvement. 

2. Operational efficiency improvement 

Most facilities have a never-ending pursuit of improved efficiency. Seraph is asked by clients to complete assessments of their facilities using our assessment tools and we are continually surprised at the level of inefficiency in them.  Our data tells us that facilities, on average, are less efficient than they were prior to the pandemic.  In many cases, facility OEE is far below expectations and there are limited actions to improve it.  In most cases, team members in facilities know how to improve the OEE but lose momentum to doing so as they focus on the cost reduction activities of the day prioritized by leadership.  But operational efficiency will typically result in a much greater cost save for labor, material, and energy, than micromanagement of a travel budget or an overtime approval process.  Certainly, those actions should be considered part of watching a company’s costs, but it can’t stop there, and priority must be put on improvement the operations for a much better return. 

3. Relocation and consolidation of footprint 

As markets have changed and the squeeze has made it more and more difficult to maintain margins, it’s ever more important to review manufacturing footprints for duplicate or underutilized capacity and labor market costs.  In Europe, most companies have discussed, and some are putting actions in place to move capacity to Northern Africa to reduce their labor costs. LCC labor typically has been in Eastern European countries but as they experience labor inflation rates significantly higher than countries in Western Europe, Northern Africa has become more and more attractive.  While Eastern Europe remains labor cost advantaged, Northern Africa seems to provide a longer-term opportunity for investment. 

4. Increased use of automation 

Investment in automation has been increasing in the industry for some time.  We see many countries leading the way in the investment in automation and that investment is providing for strong returns in Europe.  Improving costs through labor elimination or redeploying labor to other productive areas is a sound strategy for managing costs as it reduces the marginal cost of each additional unit produced. 

5. De-risking the China-Europe supply chain 

China has been a region for decades that companies have sourced for lower costs, so it seems counterintuitive to discuss re-shoring from China as a potential cost management strategy.  However, tariffs, geopolitical events, and the like have shown us recently that while China can provide cost improvement in the short term, there are longer term effects that must be considered in the risk analysis of sourcing in there.

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About Seraph

A global enterprise consulting firm that partners with business leaders to handle their most complex problems in areas such as supply chain, operations, and manufacturing challenges while delivering long-term operational and leadership improvements. Seraph has extensive on-site industry experience in the automotive, private equity, defense, medical device, electronics, energy infrastructure, and engineering sectors. The Seraph leadership team brings vast expertise across; crisis management, mergers, acquisitions, due diligence, restructuring, turn-around services, product launches, and logistics. Our four-phase process has been proven to provide quick payback and positive ROI, which is measured throughout customer engagement. Learn more at www.seraph.com and follow Seraph on LinkedIn.

INDUSTRY: Heavy Truck Manufacturing

SERVICES: Cost Gap Analysis & Supply Chain Optimization

Situation.

A leading OEM truck manufacturer faced significant price increase claims from a key wiring harness supplier with facilities in three different countries across Eastern Europe and the Middle East. These claims were driven by stated increases in production costs and market condition changes such as inflation and transportation, however constant “fire-fighting” undermined operational excellence and continuous improvement at the supplier. The OEM needed a comprehensive understanding of these cost claims to negotiate effectively.

Actions.

• Evaluated the supplier’s actual production costs across different facilities.
• Benchmarked these costs against existing contractual agreements.
• Scrutinized the supplier’s rationale for extra claims beyond the agreed costs.
• Developed an optimized cost model reflecting best practices in supply chain and operations.
• Identified discrepancies between current and optimized costs and devised a plan to bridge these gaps, including necessary capital expenditures.

Results.

• Achieved a clear, fact-based understanding of the cost structure.
• Seraph validated an overall increase in costs amounting to €10.8 million, with €6.4 million attributed to manufacturing/labor and €4.4 million to component costs, against the supplier’s claim of €7.7 million and €5.3 million in these respective categories
• Prepared for negotiations with a detailed analysis of current vs. should-cost scenarios.
• Outlined a strategic plan with 15 work packages for cost optimization and operational improvements, Seraph identified €7.8 million in opportunity to offset the validated increases in cost.

The automotive industry is a highly competitive and rapidly evolving sector. The past several years of supply chain disruptions and the current shifting regulatory environment has made the industry uncomfortably dynamic. Consequently, many manufacturers are identifying areas for cutting costs, using more efficient and cost-effective materials, automating certain parts of the production process, and implementing lean manufacturing techniques. Developing and implementing a comprehensive cost-reduction strategy is also critical, including setting clear goals and objectives, creating a plan of action, and involving all stakeholders in the process. As Andrew Carnegie often said, “watch the costs and the profits will take care of themselves.” 

Identifying Areas for Cost Reduction 

To identify potential inefficiencies, automotive companies or even consultants hired by automotive companies must conduct an analysis of the production process. This in-depth analysis of the manufacturing process may take considerable time but will leave the manufacturer with an idea of what needs to be addressed. Gathering data is the first step in the process, including analyzing production schedules, performance metrics, equipment efficiency (OEE), and maintenance cycles. Analyzing this data will help the manufacturer identify and understand bottlenecks that delay the rest of the process. In addition to looking internally, manufacturers should also look externally to evaluate what other options there are for lower-tier suppliers. Supply chains have been stretched to their breaking point which have caused a dramatic increase in critical automotive suppliers, especially in the automotive industry. Manufacturers would be well-served by identifying critical suppliers and diversifying their upstream risk. 

Developing and Implementing Cost Reduction Strategies 

Developing a comprehensive cost-reduction strategy is essential for any organization looking to cut production costs in the automotive industry. The first step in creating a cost-reduction strategy is setting clear goals and objectives. These goals should be specific, measurable, achievable, relevant, and time-bound (SMART). Identifying key metrics that can be used to measure progress towards these goals is also important. This will help the organization track progress and adjust as needed. 

Once goals and metrics have been established, the next step is to create a plan of action. This plan should detail the specific steps that will be taken to achieve the goals and metrics, along with a timeline for implementation. It is important to involve all stakeholders in the strategy development process, including management, employees, suppliers, and customers. This will ensure that all perspectives are considered and that the strategy is aligned with the organization’s overall goals and objectives. 

Implementing the cost-reduction strategy is the next step, and it is important to be mindful of the techniques used to ensure its effectiveness. Communication and training are critical in this stage, as employees need to understand the goals, metrics, and actions that form the strategy. It is also important to monitor progress and adjust as needed, which can be done through regular reviews. 

Creating a culture of cost-consciousness within the organization is also crucial for implementing the strategy effectively. This can be achieved through employee training, communication, and incentives that encourage cost-saving behavior. By fostering a culture of cost-consciousness, employees will be more likely to identify and implement cost-saving measures on their own, leading to greater cost savings overall. 

Automation and Technology 

Investing in new technologies and equipment that can improve efficiency and reduce labor costs is one strategy automotive manufacturers can use to cut production costs. Automation is one of the most effective ways of achieving this since it reduces the marginal cost of additional units produced. Automation of assembly lines and using robots for tasks like welding can help reduce the need for human labor, which can lower costs while also increasing efficiency and quality. 

Given the clustering nature of automotive facilities, it’s common to see regional wages rise much faster than national averages. In areas with many new plants like the American South or Monterrey in Mexico, new job openings are outstripping population growth. Open positions can only stay unfilled for so long before companies surrender and pay a higher rate. Without investments in automation, labor costs will eat every ounce of profit left in a company and spit out the bones to be acquired by a company capable of applying technology.  

Outsourcing and Offshoring 

Outsourcing and offshoring certain parts of the production process to lower-cost suppliers or manufacturing locations can also aid in reducing production costs. This may include sourcing raw materials and even manufacturing certain components. By outsourcing non-core functions, suppliers can take advantage of lower labor costs and access to specialized expertise and equipment. Offshoring to countries with lower costs of living can also help reduce production costs. However, it is important to consider the potential risks and challenges that come with outsourcing and offshoring, such as language barriers, cultural differences, and longer lead times for delivery. To mitigate these risks, it is important to carefully select and manage suppliers, and to establish clear communication and quality standards. Manufacturers who wish to keep their supply chain within their own country may look for states and provinces with lower costs of living to establish plants. 

Lean Manufacturing 

Lean manufacturing is a cost-saving strategy that involves implementing techniques to reduce waste and improve efficiency. Lean manufacturing is not always a silver-bullet solution, but it does play a role in improving efficiency and reducing overall costs. One of the key components of lean manufacturing is the implementation of just-in-time (JIT) inventory systems. JIT inventory systems are designed to reduce the number of raw materials, work-in-progress, and finished goods inventory that a company holds. By having inventory delivered just in time for when it is needed, organizations can reduce the cost of holding and managing inventory. 

Another key aspect of lean manufacturing is the use of visual management tools. These tools, such as Kanban boards, help to make the flow of materials and information more visible, allowing for more effective problem-solving and decision-making. Regular Kaizen events, which involve continuous improvement efforts led by employees, can also help identify areas for cost reduction and increase efficiency and revenue.  

Materials Optimization 

Materials optimization is a cost-saving strategy that uses lightweight composites, advanced alloys, and high-performance plastics. By using high-performance plastics and other alloys, manufacturers can reduce costs by replacing metal components in certain areas of the vehicle. This will also lead to savings for the consumer in the form of a lighter vehicle that consumes less fuel. 

Process Optimization 

Optimizing internal processes saves costs by analyzing and streamlining production processes to identify inefficiencies and reduce costs. Value stream mapping is a way to visualize the journey of a product or service, from its origin to its final destination in the hands of the customer. It’s a tool used to identify and document every step in the process, including the good, the bad, and the ugly. When dealing with process optimization, value mapping can yield exponentially high dividends.  

With a value stream map, it helps to easily spot inefficiencies, bottlenecks and waste in the process. Once these problem areas are discovered, companies can focus on increasing the value-adding steps, while eliminating or streamlining the non-value-adding steps. This can lead to shorter lead times, better quality, and increased productivity. 

Value mapping can also be done with an eye toward the future. This illustrates the process as it will look after the improvements have been made. By comparing the current state map to the future state map, companies can see the expected improvements and the steps required to implement them. 

Additionally, at the cell-level, using data analytics can help manufacturers gain insights into production performance, this can help identify areas where improvements can be made, such as reducing downtime, increasing efficiency, and reducing costs. By analyzing production data, manufacturers can identify patterns and trends that can be used to improve performance and reduce costs. 

Conclusion 

Reducing production costs is an ongoing challenge for manufacturers in the automotive industry but it must be a priority to thrive in the next decade. Identifying potential areas of improvement and implementing strategies can help manufacturers to reduce production costs. Hiring a consultancy can also be a great way to help automotive manufacturers develop strategies for reducing production costs, as it can provide manufacturers with expert advice and support in identifying areas for cost reduction and implementing cost-saving measures.  Our team of specialized operational consultants, works alongside automotive manufacturers and acts as a support structure, adding value from day one. Our advisors are former management at many suppliers and OEMs and are experts in production and operational efficiency. Contact us today to schedule a discovery call, or see our case studies for more information.

Prior to 2020 and the resulting shutdown of many crucial global supply chains, automotive suppliers enjoyed some of the most profitable business environments in history. However, as the pandemic drew on and supply chains calcified, profit margins suffered. The result has been extreme pressure on suppliers, a tense relationship with OEMs, and ever-shrinking revenue. Many suppliers are trying desperately to improve their lot, but the environment and relentless supply chain issues are creating a never-ending stream of challenges. Fortunately, there are concrete steps that company leadership can take that may offer a light at the end of the tunnel for many businesses. Here, we’ll examine five ways automotive suppliers are beating the odds and returning to pre-pandemic revenue levels.

The Problem

To the degree that it was possible, supply chains before the COVID-19 pandemic ran seamlessly and created a great deal of prosperity for automotive suppliers. However, since the pandemic started, global supply chains have slowed or halted entirely, leaving suppliers in a difficult position to fulfill contractual obligations to OEMs. Suppliers have been stuck eating the costs of rising inputs, and a semiconductor shortage has caused much of the automotive supply chain to experience severe delays.

Still, suppliers are becoming less profitable, and OEM’s revenue continues to grow. This disparity is also leading to a lot of tension and frustration between the two former bedfellows. At Seraph, we recently identified several reasons that this crisis is occurring: poor capacity planning, HR issues, outside unforeseen events like new technology, or black swan events.

5 Tactics Executives Employ to Boost Margins

Our experience has shown that there are five tactics that executives can use to help boost margins and increase EBITDA. First, automation can help reduce human error and increase throughput while eliminating bottlenecks. Open communication channels between executives and the shop floor and bringing in outside help can eliminate many problems caused by lack of communication and information. Finally, addressing any inefficiencies by eliminating bottlenecks and re-imagining processes can help remove unnecessary bloat.

1. Hands-On Understanding

Nothing can separate a company’s leadership from the boots-on-the-ground the way that a turbulent market can. Unfortunately, the administration of many companies is missing valuable information that could be gleaned by talking with shop floor workers. In our experience, those who are working hands-on often have the best insights as to where inefficiencies lie. As a corollary, they often have great ideas on how to solve these same problems. Unfortunately, a divorce between the leadership and the shop floor can also cause workers to lose morale or be unaware of the expectations and goals for the company at large.

Executives can cast visions for their employees, set expectations, create cohesion through the company, and get a boots-on-the-ground understanding of how the company is working. Seraph recently worked with a company to reconnect executive leadership with the shop floor. Our professionals worked with the leadership to implement leader-standard work, effective daily management meetings, and the 5S methodology. The result was a drastic improvement in efficiency and elimination of waste, resulting in improved EBITDA.

2. Addressing Bottlenecks

Bottlenecks can kill the productivity of any supplier, and it’s not always easy to understand what the fix for the bottleneck should be. However, removing unnecessary delays and allowing the assembly line to run as efficiently as possible is one of the most significant actions a company can take. 

Seraph recently worked with a company that identified supply chain delays as the main bottleneck affecting the OEM. However, upon closer analysis, even if the material arrived on schedule, the assembly line would not have been able to keep up with the demand of production. By changing processes, implementing new training methods, and providing clear leadership, they eliminated the bottleneck and increased production by approximately 67%.

3. Outside Expertise

The average car has about 30,000 different components and many are made by distinct companies that each has its own inputs. Truthfully, there is no one-size-fits-all answer since each automotive supplier company is different. One of the best ways to return to pre-pandemic normalcy is to get the best outside help that knows the market and has experience resolving enterprise-level problems. Sometimes a company’s leadership is, through no fault of their own, too close to a problem to be able to see the solution. A detailed understanding of the overall market and supply chains can help companies overcome the current supply chain issues in the markets. 

4.  Automation

Since the onset of the COVID pandemic, many suppliers have started looking for ways to cut costs and increase efficiency. One of the most obvious ways to do this is through implementing automated operations and processes wherever possible. The addition of automation and robots into assembly lines and manufacturing processes has increased throughput while simultaneously reducing the cost of production. Most of the costs are front-loaded since purchasing the hardware for automation can be costly. However, the ROI is nearly always positive and promises lower costs for the life of the machinery. 

One company that Seraph worked with benefited greatly from implementing robots on their assembly line. A new generation product formerly required 19 people, which has now been reduced to three people. The other 16 were relocated to more productive roles within the company.

5. Process Reengineering

Reengineering processes is different from eliminating bottlenecks in that it attempts to maximize the efficiencies of processes that are already running well. Perhaps the capacity is 1000 units per day without changing the status quo, but it could be 1300 units with a re-engineered and optimized process. The goal is to create sustainable value, improve already-adequate performance, and improve utilization capacity. 

Conclusion and Call to Action

Instead of mourning over the past, wise leadership is looking toward the future and taking practical steps to begin to construct a brighter one. This change of mind is not an easy process–the supply chains are in a sub-optimal state. However, the key to overcoming adversity is to take responsibility for what is in the sphere of influence. Seraph has been helping automotive suppliers navigate business cycle ups and downs for over 10 years. We’ve helped companies survive and thrive in the most challenging climates by optimizing processes and working with the leadership to find real business solutions. Contact us today to schedule a discovery call with Seraph to see how we may be able to help your business.

The State of Cashflow in the Automotive Supply-Base

Recent OESA analysis confirmed many of the concerns expressed by OEM, Tier 1, and industry experts. The outlook is bleak. OESA’s Q2 2020 report shows the Supplier Barometer Index^TM(SBI) at 15, which is the lowest level ever recorded in the history of the metric.

Suppliers are coming under the watchful eye of customers due to financial distress. OESA reported a 600% increase of distressed suppliers in Q2 2020. Several factors have come together to increase the number of distressed suppliers. To meet increased localization requirements in the USMCA, suppliers have undertaken arduous supply chain modifications . Next, with the ongoing impact and concerns from the COVID-19 pandemic, more suppliers are coming under the watchful eye of customers due to financial distress. 

OESA reported a 600% increase of distressed suppliers in Q2 2020 with even more that are considered borderline. Finally, OEMs are planning for significant changes in overall volumes worldwide as the supply chain comes back to life and markets struggle to reopen.

As the automotive industry restarts after and extended shutdown due to COVID-19, operational challenges and increasing costs (demand volatility, supply chain disruptions, PPE cost increases, etc) will continue to strain the cashflow of suppliers.  Action is required to mitigate the associated issues; a company’s failure to act can prove fatal.

A Proven Action Plan and Tools

Seraph has developed a robust, methodical process and highly effective tools which we have used to turn around numerous financially distressed companies. As a partner representing the operations discipline, Seraph has collaborated with major financial consulting companies to bring to bear a combined operations-finance perspective.

Correct

Cashflow correction may be required to offset the high start up costs to regain positive cashflow immediately.

• Implement a disciplined approach to monitoring performance on a frequent and regular basis.
• Establish a steering team consisting of Operations and Finance membership.
• Rigorously manage the cash outflow points of the operation.

Mitigate & Improve

Mitigation of predictable risks or improvement of marginal situations may be necessary to preserve positive cash flow.

• Improve efficiency to eliminate the need for capital spending or increased inventory.
• Map and monitor potential future cashflow challenges and mitigate them with intensity.
• Implement or refine the process to manage improvement daily.

Restructure

Restructuring could be required to adapt to new market conditions.

• Complete a network capacity plan and identify opportunities to consolidate.
• Drive product VAVE improvements to reduce product and process cost.
• Evaluate and revise the organization structure for efficiency with clarity of roles and responsibilities.

Successfully addressing operational issues to improve cashflow is critical to survival as the automotive industry roars back to life

Action is Critical to Survival

Successfully addressing operational issues to improve cashflow is critical to a company’s survival as the automotive industry roars back to life. With our proven processes and tools, expert operational resources, and decades of experience, Seraph is the partner for your organization’s success during these critical times.

About Seraph: 

Seraph’s team of operational experts and senior consultants intercede on our clients’ behalf to fix a crisis that is putting the business at immediate risk, turnaround a situation that is damaging the bottom line or restructuring to improve the balance sheet. Seraph has successfully delivered projects in the following regions: The Americas, Europe, China, and India. Seraph’s Industry Expertise Includes Aerospace, Automotive, Energy Infrastructure, Healthcare, and Medical Devices. Through our other operating companies, we are continually looking for distressed situations where we can put our expertise and capital to work to create value.