What is in this article?:
- The Auto Industry's Big Changes and Second Chances
- 3 Actions to Ensure a Win-Win Outcome
With production capacity of automobile makers heading back to pre-recession levels, car makers and suppliers are at a crossroad. Will they take the opportunity to create win-win supplier-customer relationships?
Actor Harrison Ford once said “We all have big changes in our lives that are more or less a second chance.” That observation might be taken to heart by executives in the automotive industry (and elsewhere) as they think about their supply chain strategies for 2013 and beyond. A recent IndustryWeek article, The Auto Industry’s Next Bottleneck, noted growing concerns about the ability of suppliers to keep up as production levels pushed back towards pre-recession levels. Such concerns are well founded. On a recent visit to Detroit, two of the four companies that I was working with were already implementing “Plan B efforts” to address supply shortfalls.
What is remarkable about this challenge is that for so many years, the auto industry has been the poster child of overcapacity, at both the carmaker and the parts supplier levels. For the industry as a whole, capacity increased on almost an annual basis, with very few interruptions, over the twenty years from 1987 to 2006. Only once during that interval did excess capacity dip below 15%, and there were many years during which it topped 30%.
The unfortunate consequences of that situation festered for many years. Among the factors that produce price and margin pressures, excess capacity tops the list. That’s a fact that just about every industry participant can document. The sad stories of conflict between customers and suppliers are legion, and, with the recession adding fuel to the fire, it generated bankruptcy after bankruptcy. Commerce Department and other estimates all suggest that literally hundreds of suppliers disappeared from the base during that period. By any assessment, what has happened to the automotive industry qualifies as a “big change.”
What remains to be seen is whether the industry participants will take advantage of it from a “second chance” perspective, or fail to realize the potential for value creation that exists from well-managed supplier-customer relationships. Suppliers could implement a “what was good for the goose is now good for the gander” perspective and put all of their energies into achieving short-term pricing victories. Customers could again implement their earlier efforts to encourage new suppliers to enter the market and, despite the recent flurry of charges about illegal trade practices, there are more than enough candidates in China to get back to the bad old days of excess capacity in a few years. Either practice will reflect a failure to take advantage of the second chance the industry has been given. And, both in the short term and over the long term, shareholders of both carmakers and suppliers will see value creation opportunities wasted if that happens.
Change will be a challenge for this industry. The bad memories of past relationships are still fresh in the minds of most industry executives, and many can say “I tried that once, and was badly burned in the process.” It will take strong champions from both supplier and customer organizations to manage the change process necessary to evolve relationships from zero-sum to win-win. Here are three actions that such champions can take that have been successful in other industries in which win-win outcomes reward both suppliers and their customers.