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Competitive Challenges: Times Are Changing. Are You?

In these challenging times, suppliers have essentially one course of action: Embrace change. The alternative is unappealing.

“Broaden your perspective.” This is the underlying theme of this year’s SAE World Congress in Detroit. And it is particularly pertinent today, given the climate of the global automotive industry. A fundamental question that’s raised in this context is: The industry is changing are you? Much like our own personal growth, the industry participants must look inward to see how they are changing and adapting to the current climate. Unfortunately, for years the North American auto industry had an arrogant attitude, which led to the culture seen today—one resistant to change.

Change is never easy, particularly when the reward system reinforces current behavior. Reward systems at the Detroit Three traditionally have favored design and engineering of unique components. That’s how engineers were promoted. These systems also have supported the reduction of cost for purchased components, at times at the expense of quality and capability of suppliers. Although the companies say this is changing, it is obvious in many cases these systems remain intact. We believe this longstanding and deeply imbedded culture is evolving, but it won’t be reversed overnight. And much like our children adapt to our behaviors over time, many suppliers in today’s environment have accepted this culture from their customers and enforce it with their own suppliers—
perpetuating the problem.

Changing cultures through the reward system is one step. But in today’s challenging environment, companies will not reach best-in-class levels without a focus on strategic planning and out-of-the-box business alternatives. Recently, we worked with a machined components supplier that was heavily impacted by its automotive customers’ losses. After examining the company’s business and performing some industry research and strategic planning, our joint team identified opportunities for its product in the medical industry. After a few months of sales and marketing, they have been awarded business in the medical field allowing them to diversify and achieve stronger margins. Because this supplier was willing to look outside the auto industry and stretch its traditional thinking, they have been rewarded with new business. While this change isn’t possible for all suppliers, this thought process is critical to the survival of all companies in the near future. OEMs are moving quickly towards fewer platforms, and from those platforms they will produce more models in fewer assembly plants. Additionally, the need to shorten product development time is more pressing today in a market that wants more models, a faster replacement schedule and higher profitability at lower volumes. This puts new pressures on suppliers in terms of complexity, number of launches and launch timing.

Product development efficiency goes hand-in-hand with manufacturing flexibility. A good production system begins with a good design. Flexibility initiatives will fail unless there is a concentrated focus on efficient product development and process engineering. While there was much focus in the past on labor hours per vehicle at the OEMs, many companies now are turning their attention to engineering hours per vehicle to drive the next wave of productivity improvement in their plants and at suppliers. This involves close cooperation among product development, process engineering, manufacturing, and suppliers with constant communication and accountability to the same goals and objectives. Looking at efficiency in the whole system is the present-day requirement for higher quality and productivity.

The current drive among the OEMs for commonality, coupled with continuing gains by Japanese automakers, will have immense implications including ongoing reductions in white collar and technical staffs as well as additional pressure on automotive suppliers to compete for larger volumes of common parts and component systems. Suppliers again will be challenged to react to new demands from the OEMs. Reduction of vehicle life cycles can’t be accomplished unless suppliers cooperate. Suppliers in today’s market have an average of 4.5 OEM customers. These suppliers have been accustomed to the old work pace that included few new product launches. As this changes, and pressure to reduce costs and prices increase, the main test for suppliers will be to find the resources to respond effectively. It is up to suppliers to broaden their perspectives and to evolve with the changing times. Regardless of what OEMs do, suppliers must forge their own path to success. Companies must think about global sustainability to survive long term. They must evaluate their culture and rewards systems, and strategize how to adapt to the changing times to position themselves for the future. 

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