Follow the loser - As I See It - Brief Article - Editorial

Automotive Industries, June, 2002 by Andrew Cummins

What a compelling headline -- I wish I could take credit for it. It's the result of a conversation I had with an industry executive who shall remain nameless to protect the innocent. But it's what's happening in our industry. Suppliers are being forced to quote based on the lowest common denominator, not on the value of the product or service.

I've said it before: Why do cars cost more every year when suppliers are being price squeezed to death -- or at least Chapter 11? It wasn't that long ago that I wrote an editorial on the topic of "Price Versus Quality -- What Gives?" Al followed that editorial with Gerry Kobe's groundbreaking story on "Supplier Squeeze" and the industry took notice. At least rhetorically.

These two pieces stimulated a lot of discussion and buzz around the industry but we're back to business as usual. Lowest price wins the bid.

Due to my new responsibilities as Editorial Director of Automotive Industries, I've had a lot of great opportunities to talk with executives on both sides of the issue. And you know what? They both have valid arguments. However, as suppliers are forced to take on increased responsibility for whole portions of the vehicle, new issues emerge -- liability for one. If a part fails it's the responsibility of the supplier to fix it at their own cost. But if it's built to the OEM'S specifications why does the cost burden fall to the supplier? Because the OEM has the supplier's business squarely in its sights and its finger on the trigger.

Assemblies are at particularly high risk. A recent dispute between GM and a Tier-1 supplier over a failed assembly is a good case in point. GM spec'd the part, another company made the part but the Tier-1 is being asked to bear the burden of the recall. Where do you think the breakdown is in this scenario?

It's everywhere -- it's in the process that got us here in the first place. I believe there are ways to get cost out without sacrificing quality or puffing the squeeze on suppliers to the point that they are forced out of business. Woe be unto the OEM that's forced to go back into the very business they have been feverishly trying to divest themselves of or eliminate -- that of self-supply.

Now I may be from the old school but I still believe it is better to find the cure than fix the blame. In the instance cited above, all parties are culpable. The OEM for faulty specifications, the Tier-1 for not catching it in the assembly process, and the Tier-2 for not communicating the problem up the supply chain. The real problem is that suppliers are squeezed so tight they can't afford to lose the business, they can't afford the recall, and they can't get more cost built in from the OEM to fix the problem from the start.

But if the supplier didn't catch the problem -- shame on them.

There's been a lot of rhetoric in our business about partnerships, collaboration, and sharing of ideas. But what about responsibility and reliability? And this takes me back to my original statement If suppliers are forced to follow the loser, we're going to have more recalls, faulty parts, controversy, and ultimately more expensive vehicles. Seems to be going in the wrong direction.

What the industry needs is a nonpartisan organization to arbitrate disputes and seek solutions rather than affix blame. We can't run our industry or put customers in vehicles that are produced by the lowest bidder. We need to build value that will ultimately deliver more reliability and reduce costly recalls from low cost parts.

The only way the domestic OEMs are going to earn back the market share points they have lost to the new domestics is by creating greater value not cheaper vehicles.

So what do you think?