Automotive supplier relations trapped in 'self-defeating cycle'

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24 August 2011 | Adam Leach

Too much focus on reducing costs throughout the supply chain means US automotive companies are unable to collaborate, claiming their “hands are tied”.

The US AutoSupply Chain at a Crossroads, published by Case Western ReserveUniversity (CWRU), reported a mixture of market forces and too much stress on cutting the price of parts has created a ripple effect in the supply chain where companies do not have the opportunity or resources to look at alternatives to simply negotiating lower costs.

The study reported the mantra from every tier of suppliers was “our hands are tied”. At the top level, companies such as the “big three” – General Motors, Chrysler and Ford – need lower costs from vendors in order to stay competitive with rival European and Japanese manufacturers. This in turn leaves tier one suppliers with little choice but to demand reductions from their suppliers, and this continues down to the individual component manufacturers.

The report suggested this attitude towards supply chain relations is so “firmly entrenched” in the industry that there is a strong possibility that this “self-defeating cycle” will continue. Susan Helper, Carlton professor of economics at the Weatherhead School of Management at CWRU, who worked on the report, said: "In this future, instead of developing better products and thinking critically about how to remove inefficiencies from processes that span multiple firms, firms at each level of the supply chain generate profits by squeezing margins of firms in the tier under them. This path is a recipe for industry-wide stagnation."

However, Helper also envisages an alternative where collaboration can flourish. This approach is "characterised by collaborative relationships between firms at all tiers of the supply chain, wherein firms share cost savings from identifying and eradicating inefficiencies that they might not have been able to address on their own".

The study was based on a series of interviews and surveys with industry professionals, tier one suppliers and business experts.

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