Final answer:
Without long-term contracts for raw materials, an auto manufacturing plant in Michigan could face supply chain risk, including material shortages and price volatility. The just-in-time production model often used in this industry makes the impact of such disruptions more severe. Long-term contracts could provide a buffer against such risks by securing stable supply and prices.
Step-by-step explanation:
An auto manufacturing plant in Michigan with high scheduled demand for its product but without a long-term contract for raw materials could face supply chain risk. This exposure can take various forms, such as material shortages, price volatility, and disruptions caused by supplier unreliability or macroeconomic factors. In the case of an auto manufacturing plant, the just-in-time production model, which minimizes inventory and relies on timely supply of components, could exacerbate the impact of any disruption. Supply chain issues can have a significant effect on production capability, potentially leading to plant shutdowns and job losses, as seen in historic situations such as strikes at parts sub-assembly plants impacting larger assembly operations.
Considering the industry's supply chain dynamics, expansion of production is easier over the long term, allowing for the construction of new facilities and the hiring of additional workers. However, in the short term, the options to mitigate supply chain risk are limited, making long-term contracts for raw materials a strategic choice to secure stable supply and prices, reducing the plant's vulnerability to market fluctuations.