Globalization Will Continue to Drive Consolidation Among Auto Manufacturers And Suppliers
22 May 2000
Globalization Will Continue to Drive Consolidation Among Auto Manufacturers And Suppliers; Roland Berger & Partners Study Highlights Major Shifts In Roles, Relationships
Suppliers to Assume More Risk, Responsibility for Vehicles
E-Commerce, Electronics Technology Will Add Value, Lower Costs
TROY, Mich., May 22 By 2010 there may be just eight
independent global vehicle manufacturer groups, which will drive further
globalization and consolidation of their suppliers, fundamentally change
relationships between suppliers and manufacturers and create new opportunities
for the survivors, according to a new study released by the strategy
consulting firm, Roland Berger & Partners.
Ten years from now, fewer than 50 "mega-supplier groups" will compete for
large, global platform contracts, take on greater risks for a vehicle's
ultimate success and assume significantly more responsibility for systems
integration and sub-supplier management, the study states.
The study also found that successful suppliers in the future will be
leaders in providing innovative solutions, in furnishing greater value-added
content, and flourishing in tomorrow's e-commerce business models.
"Tomorrow's winning suppliers will be those who are fast and agile in
adapting their business systems and reinventing themselves to keep pace with
their OEM customers, who are rapidly and radically adapting their business
models to new e-technologies and a new competitive environment," said Michael
Heidingsfelder, partner at the firm's Detroit office.
The study, titled "Nine Mega-Trends Reshape the Automotive Supplier
Industry," is available for downloading from the firm's web site,
http://www.rolandberger.com . Hard copies are available by contacting PR
Associates at 313-963-3396.
Roland Berger & Partners interviewed 70 representatives from automakers
and suppliers around the world to determine the impact of major "mega-trends"
on suppliers and their relationships with their customers. Their findings:
1. Value-added content per vehicle replaces volume growth.
Vehicle-volume growth in major markets such as the United States may slow
in the near future, but suppliers still will have the chance to increase
revenues by providing additional value-added content, primarily through
technological innovations that improve safety, reduce weight, boost fuel
economy, enhance component performance, improve driver and occupant
functionality and -- last but not least -- increase driver and occupant
comfort.
2. OEM concentration results in eight global purchasing hubs and triggers
supplier globalization.
A consensus of study respondents believes that by 2010 there may be just
eight independent OEMs or OEM groups, down from 16 today. The resulting
purchasing hubs, in turn, will create opportunities for a smaller number of
increasingly dominant suppliers. Interestingly, OEMs expect that by 2010, 95
percent of their Tier-1 suppliers will be global, while the Tier-1 suppliers
themselves anticipate that only about 75 percent of their ranks will be global
players.
3. Increasing platforms and model varieties require advanced deal and
project management capabilities.
By 2010, some 82 percent of all models will share a platform, up from 65
percent today. There also will be a substantial increase in the number of
vehicle models. This will create opportunities for new, large-scale global
platform contracts and a huge number of model-related projects. Given this
likelihood, suppliers must adjust their processes, structures and current
strategies if they are to achieve profitable growth in an increasingly
competitive environment.
4. Suppliers will stay under price pressure!
Historically, suppliers who have been responsible principally for
component manufacturing have felt continuous, deliberate pressure from OEMs to
reduce prices. While suppliers believe this will abate, OEMs suggest
otherwise, saying that cost pressure will continue long-term even if they
place greater responsibilities on their suppliers.
5. Suppliers take over systems integration responsibility and management
of the supply chain.
The share of value-added content contributed by OEMs to every vehicle will
steadily decline to little more than 25% by 2010, with suppliers picking up
the difference. As a matter of fact, over the same timeframe 50% of the
overall system capability will be attributed to them. Innovative approaches
are being explored to strengthen relationships between OEMs and their
suppliers: traditional competition-based models evolve toward closer
cooperation and early integration in the development process. Tier-1, or --
better to say -- Tier 0.5, suppliers will become a part of the most critical
steps of car development and production. While increasingly taking over this
responsibility, they will need to sharpen their capabilities to manage a wider
and more complex base of lower tiers- suppliers.
"To meet this challenge, those mega-suppliers will need to design and
implement well structured professional supplier management strategies and
systems," Heidingsfelder said.
6. E-commerce will shake the supply chain: suppliers need to act rapidly
to be winners in this game.
All OEMs are moving rapidly toward internet-based platforms for their
supplier relationships and are implementing different models to carry out this
strategy. In any case, however, the industry is on its way to a new standard
of communication with suppliers. Although the effect is now visible in the
reduction of purchasing prices, the potential mid-term impact extends to new
ways of designing products and fostering new business models. Suppliers have
a short window of opportunity to act proactively and take advantage of --
rather than be caught off guard by -- the B2B wave.
7. The electronics revolution changes the "rules of the game."
The study forecasts that electronics will drive 90 percent of all future
innovation in the automobile and that by 2010 electronics will account for
about a third of vehicle cost, a jump of more than 50 percent. The
electronics revolution is occurring on four levels, including substituting
electro-mechanical components for hydraulic/mechanical ones, integrating
vehicle electronics, incorporating telematics and leveraging mobile computing.
Each level gives rise to myriad issues. Regarding telematics, for example,
non-traditional automotive suppliers such as IT, software, telecom and media
companies will try to enter the automotive market.
8. Suppliers establish closer links to consumers.
Suppliers of certain components and systems will try to exploit the
benefits of branding their technologies and services to differentiate
themselves, generate market pull by vehicle buyers and mitigate risk of
component substitutions by OEMs. Many suppliers will try to copy the success
of existing branded components like audio and multi-media systems, wheels or
tires. Branding also will create opportunities in the aftermarket. OEMs and
suppliers are fighting about it, since brands ultimately determine who "owns"
the customer. And why shouldn't suppliers who develop technology applications
claim a trademark for their services?
9. Thirty to 50 mega-suppliers will lead the supplier pyramid and set the
performance standards worldwide.
By 2010, there will be three to five top suppliers for each module or
system, down from seven or eight today. This level of consolidation already
exists in seat, brake and safety systems. Meanwhile, the number of modules
and/or systems per vehicle will shrink to about ten, from 18-20 today. To
remain key players in tomorrow's game, Tier One suppliers will seek to add new
capabilities that complement their current strengths.
These nine mega-trends will have a direct impact on suppliers' core
profitability, the study concludes. Supplier firms will be forced to sharpen
their focus in key areas including customer relations, innovation, cost,
integration, global delivery, and management of cooperative ventures and
merger/acquisition activities.
"The winners of this high-stakes competition will be the suppliers who can
extend their competitive advantage to include new customers and geographic
regions, efficiently allocate resources, innovate, reduce costs on a
continuous basis, be a consistent winner of fewer, but larger contracts, and
increase -- while doing all this -- their profitability and shareholder
value!" Heidingsfelder said.
The success of Roland Berger & Partners is rooted firmly in its culture:
entrepreneurship, creativity and the "down-to-earth"-sense for successful
implementation. Since its founding in 1967, Roland Berger & Partners has
become the foremost consulting firm of European origin, with 31 offices in 22
countries. Entrepreneurial thinking and understanding that each client is
different allows Roland Berger consultants to approach every engagement with
an open mind. Then, drawing on the deep industry knowledge and experience of
a truly global firm, they create strategies that work in traditional and new
economies.