"Which supplier will be next?" I'm regularly asked this question by financial analysts who want to know which suppliers to invest in and the ones to avoid. They want a crystal ball so that they can get ahead of their competition, but unfortunately, one does not exist. With any one vehicle program, suppliers can become winners or losers. It's all about execution. For the Detroit Three, their revival is very dependent on the supplier community that supports them. They will only be as strong as their weakest link. Many suppliers we work with on operations tell us that OEMs or the large Tier One's they support are the villains and they are victims. Indeed, relations are difficult between several suppliers and their customers. However, we have uncovered numerous problems at suppliers that aren't a direct result of actions by their customers. Many supplier plants we visit have tremendous potential to free themselves of the pain they encounter on a daily basis. But often they don't have the financial or human resources to begin this monumental task; or, more importantly, they don't have the leadership.
We have found that suppliers generally fall into one of three categories:
- "The Club." Those with outstanding leadership that very early on understood what it takes to forge a world-class organization. They evaluated industry trends, anticipated the direction of the market, and set themselves on courses to diversify globally and balance production among domestic and foreign OEMs. They are driven by their strategic plan and do not modify the plan based on the day's events. Understandably, they are doing very well today. When negotiating with OEMs for a price increase, they can document a track record of high productivity, quality and delivery performance, along with proof that the price increase is warranted. If a supplier can illustrate lean performance, strong program management and good leadership, OEMs tend to reward them or at least compensate for things like rising energy and material costs.
- "The Troubled." This group lived in denial, ignored the screaming headlines and did nothing to adapt to emerging trends. When refused price increases by the OEMs, they threw up their hands in dismay and couldn't understand what was involved in that seemingly cruel decision. The common theme among these companies is lack of leadership. Today they're in trouble-either in bankruptcy or walking close to that line.
- "The Tweeners." This large group is maneuvering between the extremes. Suppliers in this category are not in immediate danger of insolvency, but they also have not achieved world-class status. Some desperately want to improve but don't know where to start. Others are moving toward membership in "The Club." They're on the right track and just need to keep adjusting, while finding ways to do everything better than before. But some suppliers are headed toward "The Troubled." They just need a transition plan to exit the business. A majority of suppliers in North America, large and small, fall into this third category.
As the Detroit Three work through their restructuring programs, each of them has a major focus on commonization of vehicle architecture, reduction of platforms, the introduction of more models on fewer platforms, and manufacturing more models in fewer plants. These trends will put significant pressure on suppliers. But more importantly, each of the engineering teams of the OEMs are focused on the reduction of part complexity, global commonization of parts and the reduction of total suppliers. Many suppliers have said this is just another threat by the OEMs that they will not live up to. The difference now is that the Detroit Three have their backs against the wall, and they can't afford not to make these changes. We have begun to see the commonization of parts on some of the programs and savings have been huge, particularly in areas of the vehicle that we as consumers don't see. For example, GM commonized horn assemblies globally from 70 to 2 across their entire vehicle lineup. The key point for suppliers with consolidation is not just a savings in engineering time and cost, but it means that supplier consolidation will happen with each part that is commonized. The OEMs will now have the opportunity to pick the best suppliers from their list to make parts globally as they consolidate. Price will still be an issue, but the OEMs will be able to narrow down to the best suppliers to support them globally. Suppliers that are prepared for these changes, have the right strategy in place and invest in the characteristics that will make them more like a "Club" member will be the ones that survive the shake out. Those that continue to live in denial, waiting for that one price increase to pull them out and make them successful again, will be the ones we read about in future news stories.