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Chrysler and Ford: What’s an Auto supplier to do?

December 18th, 2008 · by Dan Kowal · 1 Comment · automotive sector, best practices, oil/energy, outsourcing, sourcing, supplier management, supply management, supply market dynamics, supply risk

Earlier today, Chrysler and Ford both announced they’ll be temporarily shutting down some production facilities. Chrysler is idling all 30 of their plants for at least one month, while Ford is extending their usual holiday shutdown for an extra week.

As Congress debates how best - or if - to address the plea of the automakers for assistance, the real question is…what can the the automakers and their suppliers do to help save themselves while they wait?

Certainly they shouldn’t sit on the sidelines waiting for clarity. If they do, they’ll miss a great opportunity to make themselves more competitive by strategically reducing their cost structures. So how can both sides bring their cost structures down to Earth?

  1. Strategic Sourcing. In today’s market, everything is on sale . Raw materials, logistics, non-production products and services - all are at 5-10 year (and in some cases) historical lows. This is the ideal time to be sourcing everything. Yes, volumes are dropping and future volumes are uncertain, but make some guesses and go.
  2. Reverse Price Increases/Threats. Within the last couple of months, sourcing markets have completely changed. In the current environment, there is almost no good reason to absorb a price increase. The entire North American industry landscape is about to change dramatically, thanks to what seems like inevitable consolidation. It will be smaller and more competitive, which means excess capacity. So sourcing markets should remain favorable for the foreseeable future. If price increases are thrown on the table, go back and renegotiate with your partners to share the burden.
  3. Innovate. Surviving manufacturers will be looking for their suppliers to bring more than competitive prices to the table. Better fuel efficiency, lighter yet safer, cleaner burning, leverages renewal energy, alternatives fuel - all will be key elements of the vehicles of the future - and in fact may be part of the stipulations put on the use of any funds provided by the government. Suppliers that can bring technology to the table that supports an environmental agenda will be well-positioned to succeed in the new environment.
  4. Collaborate. During tight times, the tendency for most organizations is to shore up costs and adopt a myopic approach to conducting business. Buyers become complacent bystanders as suppliers begin to run into trouble. Suppliers in turn become less flexible in their negotiations with buyers, eyeing badly-needed present revenue over long term growth. Isolated and wary, organizations on both sides often find themselves navigating through tough economic times on their own. They give less, they spend less, and in doing so, they gain less. This is not the way to prepare for, or pull through, a recession. It is more important than ever for buyers and suppliers to work more closely together, share the economic burden of the times, and embrace innovative ways to ensure their mutual health. As we saw with Plastech, if a key supplier to the industry goes down, it hurts everyone.

No one can predict how Congress will act in the weeks ahead. But by taking some of the actions above, buyers and suppliers can take some control over their fate and improve their chances of surviving into the future.

Dan Kowal is Vice President of Strategy & Sourcing Services at Ariba. Dan has over 20 years of combined industry and consulting experience in strategic sourcing projects, with a particular focus in purchasing, supply chain, logistics, and operational transformation and turnaround in the automotive industry.

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  • 1 Supply Excellence — Green Cars Are No Panacea for Detroit // Jan 6, 2009 at 1:46 pm

    [...] together. So, what do they do if simply going green won’t cut it? My colleague Dan Kowal gave his strategy advice recently. Dan’s recommendations included strategic sourcing, a halt to supplier price [...]

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