Managing the Supplier Interface
In an industry known for the precision with which it measures performance, it's quite ironic that suppliers and their automaker customers largely ignore the costs they face in working with each other. Yet this issue is becoming increasingly acute as industry players become more global, diverse, and interdependent. Thus, while global vehicle production grew 2.7 percent annually from 1995 to 2005, the top ten producers (representing roughly 80 percent of global production) boosted production outside of their home regions at more than twice that rate.
As carmakers and global suppliers nurture new local supply bases, the ways in which companies interact have proliferated as well. Compounding this problem, in addition to the increase in customer/supplier diversity, is that the interdependency between manufacturers and suppliers has increased to the point that suppliers can account for as much as 70 percent of the cost of an automobile.
Burk has taken the lead in objectively describing the dynamics of the OEM/supplier interface (OSI) and in identifying potential improvement opportunities across the automotive value chain. Results from this OSI research provide executives with a comprehensive and objective assessment of the waste occurring at the interface between manufacturers and their first-tier suppliers. In scope, the study compares manufacturer-supplier-interaction models in North America and Europe, highlighting best practices and approaches across both regions and manufacturers. Burk's research into the ways that OEMs and their first-tier suppliers interact with each other reveals waste amounting to roughly €22 billion per year (taking the Western European and North American automotive industries together). Even for an industry this large, such a high amount of largely untallied value destruction is amazing and represents a huge industry opportunity.
While each OEM will be unique, certain characteristics are similar among manufacturers from a common regional base. For example, Japanese OEMs tend to have long-term supplier relationships in which there is a high element of trust, a high level of information transparency, and a high degree of predictability. Taking such differences into account, this study attempts to answer two questions:
- In terms of the cost associated with the OSI, is one specific manufacturer-supplier-interaction model superior to all others, or are they just different?
- Assuming one interaction model is indeed superior, what practices and characteristics define such a relationship?
To answer these questions, Burk analyzed specific product programs conducted by suppliers and vehicle manufacturers from North America, Europe, and Asia. The data set collected includes programs covering all of the major vehicle systems (i.e., power train, chassis, interior, electrical, and exterior) and comprises programs that were conducted in either North America or Europe. The aim is to make the case that waste generated at the OSI is substantial in the auto industries of Western Europe and North America, that it can nonetheless be significantly reduced, and that general recommendations can be derived on how companies can go about making changes that will reduce this waste effectively.
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