While much attention has been paid to the havoc being wreaked on suppliers to automotive OEMs as a result of intense pressures to reduce costs, a new study says those OEMs are jeopardizing their own futures with such purchasing tactics. For the study, "Beyond Cost Reduction: Reinventing the Automotive OEM-Supplier Interface," the Boston Consulting Group (BCG) surveyed 80 members of top management from all major suppliers and OEMs in Europe, North America and Japan. Analysis by the Boston-based firm shows that 60% of the automotive industry's value is created by suppliers. In fact, "in seminal areas, suppliers now register more than three times as many patents as OEMs." Yet, even as OEMs outsource more and more functions to their suppliers, cost pressures have forced down supplier prices and worsened conditions for innovation. Boston Consulting Group predicts the 1,500-plus suppliers to the auto industry will be halved by 2010. "In their own interest, OEMs should see to it that their supplier base remains diverse," says BCG Vice President Frank Dietz. "That is the only way they will be able to cover the entire range of vital innovations." BCG also ascribes the auto industry's quality problems to the tense relations between OEMs and their suppliers. The consulting firm offers a list of suggestions to improve these relationships. They include:
- Stabilize the innovation-purchasing process. Forget exercising market clout. The study suggests OEMs take a more cooperative stance in negotiations for components that are important for product differentiation and "foster partnership concepts to secure future technologies."
- Differentiate remuneration of suppliers' R&D expenses. The study suggests ways to share R&D costs.
- Involve suppliers early in the innovation process. BCG suggests that development time for new models will shrink from 30 months currently to 18 months by 2010. Suppliers should be brought in to the concept phase early on, the consulting firm says.