The new global world of speed and complexity is upon us. Far behind are the days when vehicle programs ran more than seven years (sometimes up to 10 years), all production was based in one region and then sourced from a single supplier plant. Design, development, sourcing, tooling, and communications were a simpler affair. This is not to say competition was not intense or that OEMs and Tier Ones were not demanding on their downstream suppliers, but the interconnections and responsibilities were clear. This situation is now the rare exception not the rule.
Over the past decade, the automotive structures in North America, Europe and China moved down the globalization path quickly as economies of scale, speed to market and the converging regulatory environment are all driving us to do more with less. Japanese OEMs were already down this path, now perfecting the approach. Given this new regimen of global platform/architecture integration and the subsequent adjustment to have all regions shift toward a common product cadence, the automotive world is finally singing the same tune, in unison. By the end of this decade, fully 80% of the world’s output will emanate from at least two regions. Most built in at least five of IHS Automotive’s seven vehicle production regions.
At the core of this new reality is improved economies of scale that are grounded in the ability to spread development and engineering costs across more vehicles. This has significant ramifications for the supply base in the form of global development, tooling and manufacturing coordination. Larger, multi-region suppliers are accustomed to this approach, although smaller, more regionally focused suppliers struggle with it. Having to devote the capital, human resources and focus toward supporting global platforms which may have design hubbed outside the home region or require manufacturing in several regions is a stretch and adds risk.
Speed of today’s vehicle programs is both an opportunity and a threat to suppliers. As global platforms increase penetration, vehicle programs tighten from two directions. The longevity of the cycle condenses from an average of 72 months when programs were regionally oriented to a norm closer to 48 months globally. Suppliers thus have an opportunity to integrate the latest technology into programs with faster cycle timing and greater volume breadth across the platform. An ability to improve margins versus incumbent programs is a positive, though there is a risk of another supplier being sourced the business based upon better technology, pricing or the ability to service requirements globally. Always a two-edged sword.
Speed is a factor from another perspective. OEMs are driving closer global coordination of programs. Instead of taking 36 months to roll out a vehicle in every production region, economies of scale and an ever-integrated global consumer is demanding a faster roll-out. Some global nameplates are now being launched in multiple facilities around the world within 12 to 18 months. Those suppliers who can profitably integrate this aggressive rollout into their structure will bear a competitive advantage though the challenge to properly balance the design, tooling and manufacturing resources within only a couple of months between each region’s launch. This is trying for even the best of suppliers.
The last piece is mastering increasing vehicle complexity and technology adoption going forward. Demands for greater content, faster technology adoption across multiple vehicles, component functionality/cost/mass efficiency and integration with adjoining systems are adding a new wrinkle to the new OEM-supplier relationship, one which can involve coordination with multiple suppliers—sometimes a competitor.
Another competitive differentiator has emerged. Successful suppliers increasingly have a well-coordinated supply base (raw materials, subcomponents, tooling and automation) which is cost competitive, offers new technology solutions and is able to support a supplier globally. A strong supply base is a decided advantage. Those able to master the speed, global coordination, technology requirements and industry complexity will prosper going forward.
Michael Robinet has been a managing director of IHS Automotive Consulting since 2011. Prior to that, he was the director of Global Production Forecasts for IHS Automotive. His areas of expertise include global vehicle production and capacity forecasting, future product program intelligence, platform consolidation and globalization trends, trade flow/sourcing strategies, and OEM footprint/logistics trends.