Supply Chain strategies
In the 1990s European and North American vehicle manufacturers – facing mounting
global competition – have looked to their suppliers to take ever greater levels of
responsibility for  product design and development, coordination of the supply chain,
logistics, cost reduction and quality control. The relationship between vehicle
manufacturer and supplier has become central to competitive success for both parties.

At the same time, Japanese ‘transplants’
across the world have brought with them new ways of managing the single most important
issue for the global automotive components industry; closer integration with their
customers. The analysis showed that 79% of suppliers rated this as very important (Fig.1).

Suppliers in South Africa and Australia
face a different set of challenges. In the case of Australia, the continued presence of
vehicle manufacturers is under question in what is a very small market. In the case of
South Africa, a motor industry survived throughout the years of international isolation,
but now faces the prospect of re-integration into the global industry.

In order of importance the main issues are

Fig.1 – Summary of strategies considered most important

Reducing suppliers

Among the European countries, the
importance of reducing the number of suppliers is generally rated quite low (Fig. 2). The
high rating seen in Germany reflects the fact that the industry tends to be slightly
behind the rest when it comes to issues regarding the ‘leaning’ of the supply chain.

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Fig.2 – Importance of reducing number of

As the pressure to reform purchasing/supply
relationships percolates down the Tiers of the European automotive components industry,
and as the focus shifts to the entire supply chain, so it is to be expected that the
pressure on all plants to reduce the numbers of their own suppliers will increase. Again,
there is a clear size/Tier bias to the results, as well as distinct inter-country

In terms of size and Tier level, it is the
smaller and lower Tier plants that do not consider this issue important. For example, on
average in Europe 16% of suppliers do not rate this issue as important, 23% of third Tier
plants in all countries take this view, as do 18% of the medium sized companies. In
contrast, 37% of the upper revenue bracket of supplier plants thought reduction in the
supply base a very important issue. In North America 27% of total suppliers thought the
issue not important at all, perhaps reflecting an industry that is overall less fragmented
than that in Europe.

The findings in Italy may well reflect a
split industrial structure: 22% of plants thought the issue not important at all, yet
Italy was also the leading country in terms of considering the issue very important – with
34% of plants taking that view. This may relate to the higher levels of vertical
integration of sections of the industry.

Integration with suppliers and

fig_3.gif (22083 bytes)
Fig.3 – Importance of closer integration
with customers and suppliers – Percentage rating very important

Unsurprisingly, closer integration with
customers is considered to be more important than closer integration with suppliers
(Fig.3). Variation between countries is marginal, as is variation between companies in
each Tier (Fig.4). However, the importance of closer integration with customers is more
marked in Germany for larger revenue plants (87% ranked as very important). Vehicle
manufacturers in Europe continue to reduce the number of direct suppliers used,
consequently many suppliers are fighting for the ‘right’ to remain in the first Tier,
which is why closer integration with the customer is so important. Third Tier suppliers
worldwide rate this issue slightly less, with 73% considering it very important.

Fig.4 – Importance of closer integration
with customers and suppliers – Tier breakdown

In the first wave of lean restructuring,
vehicle manufacturers in Europe largely concentrated on reducing and optimizing supply in
the first Tier level.  The early 1990s was characterized by a focus on the internal
efficiency of individual plants, and on the link between the first Tier suppliers and the
vehicle manufacturers. More recently the focus has shifted from these ‘islands of
optimization’ to improving the net efficiency of the entire supply chain. Throughout
Europe, supplier ‘clubs’ have been established to improve the vertical and horizontal
dissemination of best practice as the first Tier has become more responsible for the
coordination of the sub-supply base.

Interestingly, the survey shows that
concern over supplier integration is greatest in Germany, where 61% of suppliers rate this
as a very important issue. It is the larger plants that have the greatest burden here, 70%
of plants of the highest revenue rate surveyed, placed closer integration with suppliers
as very important.

Understanding customers and

Fig.5 – Importance of understanding future
strategies/requirements of customers and suppliers

Understanding future strategies and
requirements of customers and suppliers was generally rated high. Tier One companies gave
higher ratings than Tier Two and Tier Three companies (Fig.6). The importance attached to
this issue reflects size and location issues. This issue is high in Italy which still
retains a relatively large number of small firms in the automotive supply chain. Concern
is strongest in the USA, and least in Australia (Fig. 5). At a time of increased
turbulence in the automotive supply chain, suppliers have to develop a closer
understanding of the needs of their own customers, and the potential and limits of their
own suppliers.

Fig.6 – Importance of understanding future
strategies/requirements of customers and suppliers – Tier breakdown

Sales and marketing

The importance of improving sales and
marketing effectiveness was ranked the lowest in France. It is interesting to note that
Tier Three respondents rated improvement of marketing effectiveness well above Tier One
and Two respondents (Fig.7). This may indicate that these companies believe that they have
more scope for improvement than those in the top two Tiers. It may also be related to the
rating which was given to ‘reduction in the number of suppliers’ in Fig. 2. There is a
connection in both figures with the polarity of German and French respondents’ ratings.
Again, a mixed picture emerges in terms of the importance of this issue.

Fig.7 – Importance of improving sales and
marketing effectiveness – percentage rating very important

In South Africa 67% of suppliers see
improving sales effectiveness as a very important issue, while in France a remarkable 14%
consider it not important at all. In addition, 10% of the larger plants do not consider
this an important issue, whereas, 70% of third Tier suppliers rated sales effectiveness as
very important. These figures reflect the changing role of suppliers. At the first Tier
level, at least in some cases, the traditional ‘sales’ function has disappeared to be
substituted by a more complex team and engineering/sales approach. Differences in
responses by suppliers could also reflect differing exposures to the aftermarket, where
sales effectiveness is more important.

The survey findings on marketing
effectiveness reinforce those on improving sales effectiveness, in that marketing in
itself is not seen as critical to competitiveness. This is the ‘other side’ of the
findings on closer integration with customers. In the emerging era of complex mutual
dependency relationships within an integrated supply chain, traditional marketing has no
proper function – beyond establishing the initial contacts from which these closer
relationships develop. In the most extreme case, France, 18% of suppliers rate this issue
as not important at all. Again reflecting the findings on improving sales effectiveness,
10% of supplier plants with a large revenue consider the issue as not important at all.
The issue is seen as very important in South Africa, where 63% of suppliers give this
rating, perhaps reflecting the need for suppliers there to win new business in the global
automotive industry.

Product quality v New material
and design

Improvement of product quality is a higher
rated priority in USA, Italy, Germany and Spain. However, respondents in each Tier gave
almost identical ratings. There can be little doubt that right first time quality, with
production defects measured in parts per million, is the key for suppliers to retaining
long-term business with vehicle manufacturers. The survey clearly reflects this priority.
It is interesting however that 80% of suppliers in Germany, despite the ‘High quality’
image of the cars and components currently produced, rated improved quality as very
important, compared with only 55% in France and South Africa, and 54% in Australia (Fig.
8). This relatively large gap seen in the German values for each is related to their
traditional focus on R&D and technological solutions.

Fig.8 – Importance of improving
product quality and adding value by new materials and design – percentage rating very

Much has been made of the automotive
components industry in Europe taking on wider responsibilities in product design and
development. There has been an explosion of interest in alternative technologies and
materials for all parts of the vehicle. Yet, only 42% of all responses rate new materials
and designs as very important. The UK and the USA stand out here, with 50% of suppliers
rating the issue as very important. Again, the relatively low average rating globally may
reflect the views of plant level management rather than, say, those at a centralized
R&D facility or of senior management at company headquarters. In terms of operational
performance at plant level, new materials and designs are not of such concern. Adding
value through new materials or design was considered marginally more important in Italy,
as well as USA and UK and it was also considered more important by Tier One suppliers
(Fig. 9).

Fig.9 – Importance of improving
product quality and adding value by new materials and design – percentage rating very
important – Tier breakdown

Improving business process
planning v Improving business flexibility to change
In the European automotive components industry, 42% of suppliers consider
business process planning a very important issue. As with the issue of business
flexibility, suppliers in the UK and France place less emphasis on business process
planning than those in Germany, Spain and Italy. The overall mean rating is between
‘important’ and ‘very important’. The only other difference occurs in the breakdown by
company annual revenue. Suppliers in the highest revenue bracket tended to rate this
strategy more important than those in the lower bands. First Tier suppliers face the need
for flexibility more strongly, especially those that deliver fully built-up sub components
such as seats, bumpers and exhausts. In all, 47% of first Tier suppliers rate improving
business flexibility to change as very important, compared with 42% of those in the third
Tier (Fig. 10).

Fig.10 – Importance of improving
business process planning and business flexibility to change – percentage rating very

Given the emphasis placed in contemporary
management thinking on flexible and agile manufacturing, it is perhaps surprising that
this issue does not rank higher as a concern within the European automotive components
industry. Again, French suppliers have rated ‘Improving business flexibility to change’
considerably lower than the other nationalities. These low figures in comparison to the
average suggest that the French suppliers do not consider the improvement of business
process planning or business flexibility as a priority strategy. Furthermore, the level of
ratings given by these respondents is consistently low for all of the strategies in
section one.

The greatest contrasts are between
suppliers in Italy and those in France. Of suppliers in France, 10% rate improving
business flexibility as not important at all, whereas in Italy 56% rate flexibility as
very important. This may be due to cultural differences – perhaps a natural Gallic
reluctance to rate any one factor highly. A number of issues may be at work here. First,
many suppliers may consider they have reached an adequate level of flexibility given the
nature of the component they make and the expectations of their customers. Second, the
message on greater flexibility may have been taken up more quickly in the UK, Spain and
France compared with Germany and Italy. For these latter countries, flexibility is thus
more of a ‘live’ issue.

Globalization v Mergers &

Globalization has long been one of the key
themes in the automotive industry, yet in this survey 13% of all suppliers do not consider
globalization as important at all. However, the results here need careful interpretation.
As this is a plant level survey, responses may not reflect the strategic headquarters
view. Many of those surveyed in the UK, Spain and Australia are branch plants owned by
non-domestic companies. Moreover, the survey captures the diversity of the automotive
components industry in Europe where there are many small and medium sized businesses for
whom globalization is an unlikely prospect. In fact, supporting this analysis, 57% of the
larger revenue plants rate globalization as very important.

French suppliers appear to be most acutely
aware of the need for globalization, 49% rate this issue as very important (Fig. 11).
Apart from a small handful of large suppliers (for example Valeo, Michelin), the
components industry in France has traditionally been focused on Renault and PSA, and to a
lesser extent Fiat. The French vehicle manufacturers have tended to follow national
purchasing. For their long term viability, the suppliers in France need to reduce
dependence upon their domestic vehicle manufacturers. As one would expect, the suppliers
with higher annual revenue and Tier One suppliers consider globalizing the organization to
be more important than smaller, lower Tier companies. The European suppliers are also more
focused towards globalizing the organization with one exception – UK. The USA, South
African and Australian respondents also gave median ratings.


Fig.11 Importance of globalizing
the organization and growth by mergers and acquisitions – percentage rating very important

Although Spanish suppliers said that
globalizing the organization is an important strategy for achieving financial and business
goals, they also said that growth by mergers and acquisitions (M&A) is not. The
strategy of growth by mergers and acquisitions is generally rated below the median,
however, Italian suppliers place considerably more value upon this method of growth than
the rest. Among suppliers in Italy, 34% rate growth by mergers and acquisitions as very
important – perhaps reflecting the need to rationalize a substantial proportion of the
supply base.

Of all the business issues facing the
automotive components industry in Europe, this issue is rated as the least important. In
itself, this is quite surprising – over the early to mid-1990s M&A activities in the
global automotive components industry reached record levels despite uncertain conditions
in the market for cars. In this case, the findings may reflect the point made earlier
about the responsibilities and concerns of plant level management. In all, 24% of first
Tier suppliers take the view that growth by mergers and acquisitions is not important at
all. The Australian and South African view is influenced by their geographical isolation.
The basis of their automotive industries being locally assembled kit supplied by OEMs. As
suppliers of local content, they exist to overcome import restrictions, encouraging local

Countries such as Germany, France and Italy
place a high importance on M&A as the ratio of suppliers to cars produced in these
regions, is higher than that in the US, Japan and the UK. Perhaps indicating that these
countries have some way to go with M&A when compared to the US and UK who rate M&A

At plant level, firms are hoping to be
acquired into a larger group, seeing this as a means to secure future business as part of
a larger Tier, systems supplier. However, whatever the ultimate ownership structure of the
plant, it is its operational performance that will determine long term success or failure.