RelationshipsAUTOMOTIVE SUPPLY CHAINS

‘HOW CLOSE IS TOO CLOSE?’

Automotive Supply Chains

JESSICA LOMATH

ADRIAN SAMARASINGHE

HANNAH SUGRUE

ANIRUDH SUNEEL

Overview

Traditional (pre - 75)Nature of competition - gentlemanly, friendlyPressure - low/medium, steady, predictable

Stress (72 - 85)Nature of competition - closed but deadly, chaoticPressure - high/unbearable, volatile

Resolved (82 onwards)Nature of competition - closed, some collaboration, strategicPressure - medium, some sense of relief

Partnership (90 onwards)Nature of competition - collaboration, tiering, still dynamicPressure - very high, predictable

Lean (late 90s?)Nature of competition - global operation, local presencecontribution to product technology, organic growth, mergers & acquisitionsPressure - very high, self imposed

Lamming’s 5 phases of customer relationships in the automotive industry

Two Approaches to Supply-Chain Design

TRADITIONAL APPROACH BY OEMObjective – lowest purchase price

Arms-length, adversarial relationships

Short-term contracts awarded using competitive tendering

Multiple suppliers for every item

Control of technology and product design retained by OEM

Large purchasing and logistics administration costs

If performance is unsatisfactory the contract is terminated

Very large supply base

PARTNERSHIP APPROACHObjective – lowest cost of ownership

Open relationships with trust

Longer term contracts awarded after lengthy evaluation process

Single or dual suppliers for every item

Design of sub-systems devolved to individual suppliers

Reduced administration costs but more effort developing partnerships

If performance is unsatisfactory the customer help develop the supplier

Very small supply base

What is a tier 0.5 supplier?Three stages in the development of capabilities of tier 1 suppliers:

Tier 1 basic

Tier 1 synchro

Tier 0.5

Advantages and risks of tier 0.5

Advantages

Supplier gets to expand its scope.

Downsized complexity of logistics operation.

Modular designs

Optimised designs of modules and increased quality consistency (50ppm)

Work together with customers to reduce cost.

Shorter lead time.

OEM is less likely to switch suppliers due to established relationship and trust.

Advantages and risks of tier 0.5

Risks

The costs associated with transforming into a tier 0.5 manufacturer

Increased management costs and complexity due to greater tasks.

Relocation of supplier.

Risk to core component business.

Possibility of OEM imposed suppliers.

‘How close is too close?’

GABRIEL RAMOS MAIA

IARA SANTIAGO BRAGA

Context

Company Top Line Inc. Customer Dynamo

Tim Tree, senior VP of Supply Chain Management of Top Line Inc.

Analyse this invitation

Background Situation of the firm two years ago :

Financial ruin;Quality levels;Productivity;Delivering the product.

Top Line only survived because of 7 patents that protected the company`s key processes and product technologies.

For the firm to survive, Tim and his team managed to improve the customer service capabilities.

After the feedback Top Line embarked in a total quality campaign coupled with a lean logistics initiative.

Results and Consequences Results:

Quality defects dropped to 250 parts per million.Delivery performance 98% on time.Productivity increased by 15%.Sales increased by 30%.Market share of global market increased by 8%.

Consequences:Supplier of the Year awardKey Supplier status by Dynamo

Conclusion Conclusion:

Tim is not confident that Top Line can live up to the new challenges because there are some tools that the company is not accustomed to doing. ◦ Communicate information in a real-time;◦ Share technology;◦ Integrate and plan production schedules; ◦ Dedicate resources to a costumer.

Opportunity to grow Top Line

Opportunities

Growing and learning with a consolidated partner

Improving processes, capabilities, and customer

service

Technology, operational and planning gains

Threats

Not able to accomplish the challenges loss of trust

Dynamo would have access to Top Line technology and patents

A failure could risk all the past 2 years improvement – Dynamo is

the main customer

Tim should accept the challenge. It is the most risky option, however, the collaboration is the future of supply chain. This is a unique opportunity of integration,

and refusing the invitation could mean fall behind competitors.

Recommendation

No

Conservative position

Other partners to

replace Dynamo demand

Improve capabilities to

possibly become a close partner in the future

Yes

Risky position

Spend all the effort

necessary to live up to

expectations

Resources, time and teams committed to

Dynamo

Increase trust in

Dynamo

Summary

ActionsHow to guarantee a successful partnership:

Spend enough resources

Support from high management

Negotiation to possible shared goals – specially in the beginning

Arrange frequent meetings with Dynamo

Try to achieve reciprocal interdependence: too much dependence is not healthy