Supply chain management is the single biggest opportunity for suppliers to reduce
costs, Original Equipment Suppliers Association (OESA) managing director Neil
De Koker told a meeting of the Automotive Public Relations Council (APRC) in Troy,
Michigan, yesterday.

While he noted that e-business can be an important tool to manage supply chains
more effectively, he added: “All of us in the industry have room for improvement
– to be more lean or implement other programmes that will help us become
more efficient… we must find a way to take costs out through collaborative
efforts between automakers and parts manufacturers.”

De Koker told the group of nearly 100 APRC members and guests attending the
meeting, held at ArvinMeritor Inc., that the last six to eight months have been
a unique time in the original equipment industry.

“Suppliers have come together like never before to deal with the price
squeeze issue,” he said.

“As a result of the suppliers working together, they have developed a
sense of ‘we’re not in this by ourselves’.”

Suppliers are taking on more responsibility and the automakers are demanding
more, all at lower margins – the lowest they’ve been since the 1982 recession
year, according to De Koker.

“Our price to earnings ratio is low, analysts are not looking favourably
at our industry and it’s hard for suppliers to get funding,” he explained.

“The question is: ‘Does the price squeeze affect quality and supplier
innovation?’,” De Koker asked.

“Quality is a given but, if you reduce engineering, research and development,
then it’s possible that continuous improvement efforts will be affected.”

In fact, this is a viable industry for investment and does have a bright future,
De Koker noted.

“In an increasingly competitive market, where automakers are trying to
make suppliers into commodities, suppliers have to work hard to differentiate
themselves. The key is to develop innovations and share these innovations with
our customers,” he said.

“Suppliers must be willing to walk away from business that won’t yield
an acceptable return,” De Koker added.

“Excess capacity is a huge problem and has made suppliers take on work
for unacceptable returns. This has marginalised the entire industry.

“Suppliers need to realise that it is more cost effective in the long
run to reduce excess capacity than it is to lower the bar on margins for everyone.”

To view related research reports, please follow the links

b2b – Strategic threats and opportunities in the automotive supply chain

Supply Chain Management