64% of suppliers surveyed in SupplierBusiness’ recent survey of suppliers were either dissatisfied or very dissatisfied with the way that OEMs had addressed the steel problems of the industry. In addition, although most (71%) say the problems are a little better than six months ago, a significant number (one-third) still expects steel prices to rise again in the next six months, and very few (3%) expect steel prices to fall a lot. Most suppliers also see serious problems with other raw materials.
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The management of purchasing has become more important as suppliers have moved a greater portion of their manufacturing output to emerging markets such as India, China and Eastern Europe.
With expanded challenges and managing a competitive second tier network, suppliers have looked more carefully at make-or-buy decisions, with a growing tendency to outsource more operations where possible. First tier suppliers are working to intensify the closeness of their co-operation with their leading second tier suppliers as demands for higher quality and reliability pass down the line into the second tier environment.
The importance of high quality of second tier suppliers was underlined by problems thrown up by Bosch’s durability testing of its pump system and which led to the stopping of production at some of Bosch’s customers while the problem was sorted out. As a result, Bosch has intensified the testing regime for its systems, and brought the process forward, so that problems are identified closer to the component production date.
In addition, pressures on raw material prices have led to tier one suppliers looking to share the burden of cost increases – with their own second and third tier suppliers, as well as with the OEMs, where possible.
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By GlobalDataSuppliers are much more pessimistic about the outlook for purchased goods in the next two years. Two years ago, 21% of suppliers questioned expected the unit cost of purchased goods to fall by 10% or more in the next two years. No suppliers in the 2005 survey expected the cost of purchased goods to fall by more than 10%, and only 6% expected the cost of purchased goods to fall by over 5% (compared with another 21% in 2003).
In contrast, almost 30% of suppliers expected a rise, compared with just 13% two years ago. 65% of suppliers expected the fall in the average unit cost of purchased goods to be between 0-5% in the next two years.
Most suppliers also see serious problems with other raw materials. Several companies mentioned the problems of resin prices, but suppliers also raised the costs of chemicals, copper, tin, zinc and other non-ferrous metals.
Very few of the suppliers questioned (which were mostly in Europe, and predominantly in Germany), bought much from China. Over 80% bought less than 10% of their components from the region at present.
Just over half of suppliers thought they would increase their purchases from China by less than 10% over the next two years, but almost one-third – 32% – thought that they would increase purchases by between 10-25%, and another 15% thought that they would increase their purchases by value from China by over 25%.
Suppliers are looking for smaller volume parts with a high labour content – plastic, steel, metallic, fabricated components, as well as electronic components and easy to ship assemblies.
Other suppliers mentioned steel and steel products, sintered and turned parts, grey iron castings and stampings.
In contrast, more of the suppliers already had a significant share of their components sourced from eastern Europe, while fewer than 70% still had less than 10% of their material from the region in 2005. Just over a half expected to increase their purchases from the region by more than 10% over the next two years – and over a quarter expected to increase their purchases from eastern Europe by more than 25%.
However, none of the respondents expected to more than double purchases from the region over the period.
The kind of components that suppliers are looking to purchase in eastern Europe are similar to those that they are looking to China for, but with a lower sensitivity to the cost of transportation.
The proportion of suppliers looking to outsource a significantly increased amount was very similar to two years ago. However, re-sourcing of purchased goods or services finds less favour with suppliers now.
Only just over 40% of suppliers said that it was very important or essential to resource purchased goods or services to improve their competitive performance, compared with over almost 60% two years ago. Many more suppliers favoured working more closely with their existing suppliers (over 70%), a more solid majority than two years ago.
More than one-third of suppliers said it was essential to work with existing suppliers to reduce costs, the most emphatic endorsement of any cost reduction strategy included in the survey. The tier two and tier three supply base was an area of concern by the suppliers interviewed. One noted that the high price of steel had increased supplier bankruptcy at that level.
One supplier said that suppliers in the second tier supply base “must become more professional in driving cost down and quality significantly up”.
“Tier two and three cannot keep pace” with rising quality standard and requirements by the OEMs, said another supplier.
Finding good suppliers in India and China is a challenge, one supplier noted.
As in the survey two years ago, improving supplier quality was one of the most important tasks facing suppliers, almost 77% rating it as very important or essential.
Low cost country sourcing, in particular sourcing from Asia, China and eastern Europe were all key issues for suppliers, but the industry was also worried about fair payment terms and the financial viability of the supply base.
Source: SupplierBusiness.com For more on the topic and to be sent a sample of the issue where the article originally appeared, please click here.
