is part of the Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Survival strategies for suppliers to automotive (and other) OEMs

A recent article in which I addressed how OEMs and Tier 1s are mitigating risk, I noted that Tier 2 suppliers might want to change or implement a new strategy to adapt to the changing landscape of the automotive industry.

A recent article in which I addressed how OEMs and Tier 1s are mitigating risk, I noted that Tier 2 suppliers might want to change or implement a new strategy to adapt to the changing landscape of the automotive industry. Daron Gifford, the Partner leading automotive industry strategy consulting at Plante Moran in Detroit, wrote recently in that company's newsletter about this same situation ("Global platform shift: Suppliers must deploy key strategies to reduce risk"). With Gifford's permission, I offer some of these thoughts to the readers of PlasticsToday.

Global platforms are the future of the automotive industry. Remember when the mantra (from Toyota) was "buy it where you build it," and a regional supply base was the favored model? That will no longer be true. "To achieve economies of scale, automakers are introducing global platforms that will allow them to design vehicle families that share the same powertrain and underpinnings. . . . By 2020, global platforms will account for two-thirds of worldwide vehicle production," predicts IHS Automotive.

Embed yourself as the automaker's strategic partner. Gifford advises that gaining recognition as a "strategic partner" comes with advantages, such as the ability to get an "early look" at customers' product planning and a better "shot at long-term, no-bid contracts." However, to become a strategic partner, says Gifford, "suppliers will need to establish their engineering division—with strong technology and software expertise—to interact as ‘equals' with the automaker's design team. Suppliers that prefer to ‘build to spec' in the future will confront difficulties." This will also involve a high level of customer trust, notes Gifford, "enough to show them their best ideas and technology—even before they get the contracts."

Seek long-term contracts to amortize tooling and R&D. "Ideally, a supplier would negotiate customer contracts extending for the life of the vehicle (five-plus years), as well as the next generation of the same vehicle platform," says Gifford. While this is "standard procedure" for Japanese and Korean suppliers who are strategic partners, Gifford notes that "this idea is still uncharted territory for the Detroit 3."

Negotiate long-term agreements. "More than ever," says Gifford, "the supplier's leverage to obtaining long-term relationships is technology—especially if it impacts fuel economy." Another thing that helps secure long-term contracts is to have a regional presence in areas where the customers are, "because automakers want to keep their supply lines short," says Gifford.

Aim to be the number 1 or 2 provider of your targeted product technology. "The automakers desperately need cutting-edge technology, and they need it now," emphasizes Gifford. "Those who are numbers 3, 4 or 5 will need to invest heavily to move up, or even keep up. Suppliers unwilling to invest need to evaluate whether they want to stay in the segment."

This is all good advice to manufacturers in the plastics industry, whether they are a small to midsize company that holds a Tier 2 or 3 position, or a large supplier of molds and molded components with plants throughout North America, Europe or Asia. Even the smaller molding and moldmaking firms need to look at Gifford's advice and explore ways that his advice might apply to them as well as their own customer base, whether it's automotive, consumer products, industrial components or another industry segment.

The competitive landscape is changing: With mergers and acquisitions, small to mid-size molding and moldmaking firms with specific technologies are becoming attractive, not only as suppliers, but as targets for acquisition. For example, Linear Mold, which was an early adopter of 3D metal printing and went on to make it a core competency, became an attractive target for one of its customers that purchased 70% of the company. That's an excellent example of the huge opportunities that can arise from aiming to be number 1 or 2 in a specific technology.

With 2016 just over the horizon, perhaps it's a good time to commit to finding ways to capture more and better opportunities to partner with your customers and grow your business.

Hide comments
account-default-image

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish