44 Percent of Automakers and Suppliers Say Relationships are Strained, According to New A.T. Kearney Study

Collaboration Between Automakers and Suppliers Critical to Designs That Improve Quality and Costs

DETROIT, Oct. 6 -- Auto suppliers say their relationships with North American automobile manufacturers are more strained, due largely to an unrelenting focus on cost reduction, according to a new study from global management consulting firm A.T. Kearney. Forty-four percent of automaker and supplier executives polled in the study characterized their relationships with each other as "strained."

By contrast, supplier executives characterize their relationships with Asian auto manufacturers more positively, due to the more-collaborative approach taken by Asian OEMs.

The study goes beyond other recent research, examining the causes for deteriorating relations between suppliers and automakers and concluding that relationships could be greatly improved if both sides adopted a mutually collaborative approach.

"The less than satisfactory relationships between the OEMs and suppliers are not a new development. But, we know from talking with both sides that things have not gotten better over the past several years," said Dan Oxyer, vice president in A.T. Kearney's North American automotive practice and one of the study's authors.

A.T. Kearney's research found the reasons most negatively impacting automaker-supplier relationships included the focus on short term price reductions; lack of appreciation for actual costs to deliver world-class quality, durability and reliability; increased competition among suppliers based on price; and a lack of standard methods for dealing with and considering supplier technology, tooling and related development costs.

The study also revealed that relations between suppliers and the North American auto companies were more problematic than those between suppliers and Asian automakers.

  Solutions Explored - Four Collaborative Integration Imperatives for the
   Industry

The research also identified and examined actions to help mitigate the frayed relationships and forge a more collaborative approach between automakers and suppliers.

Based on responses from supplier and automaker executives, A.T. Kearney has outlined the following four "Collaborative Integration Imperatives" for improving working relationships and increasing competitiveness:

  1. Early Supplier Selection in Vehicle Development Process - Involve
     suppliers from the early planning stages of vehicle and/or systems
     development.  Purchasing and engineering functions should be integrated
     in supplier selection and a target cost should be agreed upon.

  2. Promote and Reward Innovation - Fairly assess and reward or create
     incentives for supplier innovation at early styling and design phases.

  3. Design Cost Out - Utilize design to remove cost or reach target cost
     through OEM- or supplier-led design simplification and technical
     material cost reduction processes.

  4. Stabilize Interface Processes - Stabilize interdepartmental and
     supplier integration processes with concurrent engineering, set-based
     design and quality delivery.

"The four imperatives we've identified for improving automaker-supplier relationships aren't entirely new concepts for either side," said Oxyer. "Most of these companies know and understand the value of a collaborative approach. The key is that these measures become formalized and applied across the board."

The study also notes that bi-lateral participation is a prerequisite if collaborative efforts are to succeed. Both suppliers and automakers will need to create the conditions necessary to promote collaboration through proactive steps.

Specifically, North American automakers need to integrate engineering with purchasing processes early in the supplier selection effort, develop processes for capturing innovation and forward a set of consistent standards for collaborative target development with suppliers. Their suppliers, the study notes, should promote and sell innovative approaches to the automakers' engineering and purchasing departments, make selective investments early in the process and strive to obtain agreed-on targeted cost.

According to Oxyer, Toyota and other Asian manufacturers have been utilizing a closer, more collaborative approach with their suppliers for years. This philosophy is largely based on designing costs out, rather than sourcing them out, Oxyer noted.

Collaboration is Critical as Suppliers' Role Continues to Grow

The study also found both suppliers and automakers believe that supplier share of production value will increase significantly in the future. Almost 80 percent of respondents said that supplier responsibility will continue to grow.

The segments where the responsibility of suppliers is expected to increase include body and structural, chassis, electronics, interiors and powertrain. Respondents indicated that electronics and interiors would increasingly become the responsibility of suppliers. More than 40 percent of those surveyed said that supplier value of production in both segments would grow by more than 15 percent in the next three-to-five years.

"Everything points to the importance of improving automaker-supplier relationships. As the suppliers take on more responsibility for the vehicle, it's going to be critical that both sides overcome their differences. Without significant upgrading of these relationships, it will be difficult for either side to maintain the level of competitiveness required in today's global market," said Oxyer.

About A.T. Kearney

A.T. Kearney (http://www.atkearney.com/ ) is one of the world's largest management consulting firms. With a global presence that includes more than 60 offices in 37 countries, spanning major and emerging markets, A.T. Kearney provides strategic, operational, organizational and technology consulting and executive search services to the world's leading companies. A.T. Kearney is the high-value management consulting subsidiary of global services leader EDS .