The Original Equipment Suppliers Association (OESA; Troy, MI) reported in its Q1 2018 survey that the primary internal production issue continues to be talent availability in engineering and skilled and hourly labor. Inventory carrying costs and manufacturing capacity constraints are improving, however, compared with 2017. Suppliers are working to reduce inventory and 35% of the supplier base have lower inventory levels while 32% have increased inventory levels, which are still down by 6% over 2017.
Another primary issue is material cost pressures that continue to impact suppliers’ ability to meet production requirements. Also, suppliers (representing 25% of respondents) are experiencing significant constraints in transportation and logistics, inbound expedited freight and raw material shortages.
Forty-four percent of suppliers are confident that their customer releases are matching sales and inventory requirements.
R&D spending is unchanged from 2017 at 4% of total sales. Advanced material technologies are a top priority for investments in R&D. In answer to the question, “If you had additional dollars for R&D investment, rating in terms of importance, how would you allocate it across the following technical areas, advanced material technologies (composites, lightweighting materials) came in as the highest priority for both 2017 and 2018.
Sustainable manufacturing technologies held the first and second priorities for R&D in 2017 and 2018, respectively. In Q1 2018, powertrain technologies (internal combustion engine, hybrid, electric, alternative fuels, fuel cells and transmissions) was rated a first priority for R&D spending. Interestingly, the lowest priority (fifth) for respondents is investment in driver assist and autonomous driving technologies.
As to the general outlook for business over the first three months of 2018, 44% of respondents said their outlook is unchanged; 38% said they are “somewhat more optimistic” and 15% said they are “somewhat more pessimistic.”
The greatest threat to the automotive industry continues to be “changes in government trade policy” and “poor sales of vehicles in programs supplied.” These two threats have alternated between the first and second positions over the last six months.
As for planning and production, the breakeven point for 2018 is 15 million units. Suppliers report that they are okay if a mild downturn occurs over the near term, and the break even is well below forecasts. Capacity utilization is at a median of 85% with the upper quartile at 87% and the lower quartile at 76%. OESA noted that internal capacity utilization at suppliers has stood at 85% in both 2016 and 2017. Should capacity utilization hit 90%, respondents said they can go to flexible operations, overtime and even relocate production to other suppliers, if needed. They can also expand or invest in new facilities, new equipment or sub-contract work, as necessary. More proactive planning will be needed if capacity levels rise.
When asked to identify the issues they will face as they meet required production levels over the next 12 months, the response was as follows: Production scheduling difficulties (41%); material cost premiums (59%); transportation/logistics constraints (28%); inbound expedited freight (26%); and raw material shortages (23%).