By Louis Rumao
The future looks good for the global auto industry as production is expected to soar to more than 100 million units by 2017. Mega suppliers, with deep pockets for R&D and expansion, and those who offer new technology, or other innovations for total cost management to the automakers have rebounded from the Great Recession of the last decade. These suppliers are expanding in the rapidly growing global markets, especially China, Mexico and India. That’s important because in the next 18 to 24 months OEM’s will be giving out contracts worth hundreds of billions of dollars.
Various surveys have indicated the following areas of concern for automotive suppliers. They are Cost reduction, Risk management, Technology advances and new entrants and Globalisation.
Cost-reduction is critical, but the industry has recently been emphasising total cost, not just price reduction. One of the approaches is by working with suppliers in the initial design process so that the suppliers can offer their expertise in advance. This is in contrast to designing a part or system, and then bringing the suppliers in and telling them “make this part this way”.
OEM’s are striving for a waste-free and defect-free value stream to manage total cost. It also means paying attention to logistics, such as finding the best places to source or manufacture parts and avoiding a situation where a natural disaster may shut down a supplier, causing a worldwide shortage of parts.
Another part of managing total cost is to use modularity, allowing OEM’s to take advantage of economies of scale through modular designs among common platforms. By 2019, global platforms are expected to account for 75 percent of the world’s light vehicle production, up from about current 65 percent, requiring global suppliers. One example of such global mega suppliers – Johnson Controls, Inc. produces door panels and consoles for one of Chrysler’s vehicles in USA, Germany, Hungary, the Czech Republic, China and South Africa.
OEM’s are having more dialogue with the suppliers for advice on how to better manage total cost and improve product quality. OEM’s are pleasantly surprised by the responses from suppliers about beneficial improvements they can implement. OEM’s are rewarding suppliers with longer contracts – instead of, say, a five-year contract for one product cycle, suppliers can get a contract to last two product cycles. This helps suppliers in their planning. Another concern is about supplier capacity strain. The current popularity of trucks and SUVs, due to lower gasoline costs, has put a real strain on supplier capacity. OEM’s are helping in several ways, including help with acquisitions of capital, overtime compensation and concessions on 24/7 operations.
The automotive industry is always on the look-out for new suppliers who can help in all aspects of business. Technology is changing so rapidly that OEM’s will have to seek out new suppliers, even Apple and Google, to support software, radar and a multitude of sensors for automated vehicles of the future. Auto industry, prodded by savvy consumers and competition, is adopting a lot of new technologies. These will provide innovative suppliers with new and profitable opportunities.
Automotive is one of the most global industries – second only to electronics. Indeed, the automotive industry has been at the forefront of establishing global infrastructure. As other industries begin to catch up, they are struggling with some of the same operational issues automotive supply chain executives have faced for some time: namely, quality and delivery reliability. These two issues are the top challenges for the auto industry.
After many years, they have learnt that quality goes hand-in-hand with price they negotiate for a given component.
Timely delivery is another concern – at any given time, more than 15 million containers are traveling through international waters or waiting to clear customs. These deliveries face many risks: delays, diversion, and even physical damage. For traditional supply chains, cross-continental transit typically means loss of traceability. Smarter supply chain can track its cargo containers anywhere in the world. Instrumented containers collect information and report on their location, assuring in-time delivery.
NB: Pix used for representational purpose only.
Louis P Rumao is AutoParts Asia’s Correspondent in the US. He is a Materials Engineering with over three decades of automotive experience. He is a consultant to automotive rubber and plastics suppliers