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Automotive Industry

Suppliers Get No Guarantees

Automotive Industries, April, 2001 by Greg Janicki

Can a supplier be the right size? Can a supplier have the optimum capabilities? Can a supplier be everything to everyone? While the latter question. may seem an easy answer (no, of course not) the former questions are really asking the same thing: Can a supplier have all the answers? Logic says no, but logic sometimes has little to do with how the automotive supply industry operates. So if there is no "right size" or "right capabilities," how does a supplier know when they are optimizing performance? Maybe they don't ever know because the game is always changing.

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If you subscribe to survival-of-the-fittest theory, you could argue that with natural selection only the suppliers best able to adapt to the current environment (provide all the capabilities the OEMs want) will thrive (and survive). The problem with applying this theory to the automotive supply industry is that the "current" environment changes day-to-day. What works today, may not work tomorrow. And what works today at DaimlerChrysler may not work today, tomorrow, or the next day at Fiat or Ford Motor Co.

Take module strategy, for example. As an analyst, I take questions daily from suppliers who want to know what a particular OEM's module strategy is. As much as I'd love to provide the answer, I just, don't know it. But the worst part is that the OEMs don't really know it, either. Sure, some OEMs have begun sourcing particular programs as modules (Renault/Nissan, as an example), but the truth is that as a "strategy," OEM module sourcing is a work-in-progress. Don't get me wrong, I am not saying that the OEMs are not sourcing modules. What I am saying is that the OEMs do not have a corporate-wide, global strategy for module procurement. Their "strategy" is based on what is right for the platform. It's all relative -- what works for one program may not work for another.

Here's another one for thought: European OEMs have been outsourcing complete vehicle production for a number of years, through Magna Steyr and Karmann for example. Is vehicle outsourcing an OEM "strategy?" Well no, not a corporate one. Does it still occur? Yes. Why? Because the OEM has determined that for a particular vehicle, outsourcing works. Should a supplier be positioned to build vehicles? If they want to take advantage of future opportunities in this area, then the answer is yes. Should (or can) all suppliers position themselves to build vehicles? No.

The story here is that you cannot be all things to all people. It's an obvious assumption, but one the supplier community is having a hard time seeing. It's tough to see because most suppliers (especially the large Tier 1s) don't really know what the OEMs want, so they cobble together as many capabilities as they can thinking (hoping) they will be viewed as being the "right size" and having the "right capabilities" by someone... anyone. Unfortunately; they sometimes don't know who that is, so they carry around a suitcase of choices like a traveling salesman.

It is a tough situation to be in -- positioning your business for a future that has no guarantees. But for suppliers that use flexible systems to account for market evolution and OEM strategy change, the future may be a bright place indeed.

Greg Janicki

Vice President

CSM Worldwide Inc.

Automotive Industry

Suppliers Get No Guarantees

Automotive Industries, April, 2001 by Greg Janicki

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