Automotive Suppliers: Trying to Outrun Red Ink …

As I've written about quite a bit on Spend Matters before, the US automotive industry is in crisis. And as even the great Dave Nelson will attest to, world class procurement results are not enough to keep a company out of bankruptcy. Unfortunately, it does not look like there's much good news on the horizon -- even on a global basis. According to a recent study from Alix Partners, "Thirty-eight percent of North American and 24% of global suppliers face possible insolvency." Of course Alix Partner's study is a bit self-serving -- the firm is a turn-around advisory shop that feeds its partners bellies with the scraps of distressed companies. Still, the study is eye opening, even if you discount the objectivity to some degree based on the financial incentive of the firm carrying out the research. According to an article analyzing the findings, "the study revealed that a pronounced divergence is taking place between top-performing OEMs and suppliers and those in the lowest-performing quartile; that the Chinese automotive market has cooled off to such a degree that a big shake-up is most likely brewing there; and that auto suppliers, in particular, need to do much more than what they have done to date to accelerate cost reductions, improve working capital and better manage product innovation if they want to stay competitive."

Looking at the intersection of Spend Management and product innovation will be critical for those companies hoping to stay out of the red. As Delphi and Visteon prove, even if you chop billions of dollars from your bottom line by constantly threatening your suppliers with brass-knuckles and mace, there's no guarantee of success in this environment. But by more closely linking the design and engineering function with procurement, tier one and tier two vendors will be able to offer more creative solutions and assemblies while simultaneously designing products with an eye towards cost, rather than simply trying to take cost out on the back-end. Of course, it is easy to spot automotive suppliers engaged in this behavior today by simply looking at who is working with the Hondas and Toyotas of the world. It's these suppliers who have the best opportunity to thrive and avoid the Detroit-based train wreck that is only just beginning.

Jason Busch

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