Infor: Inside the automotive industry

Lets face it. Its not easy being in the automotive supplier industry. Infors automotive industry analysis indicates that for major players in the automotive supply chain, there are seven trends having the greatest impact. Though there are some differences from region to region, its clear that all apply to your business to some degree. Its also clear that these trends are all interrelated, forming a web of both challenge and opportunity.

Seven key trends

1. Complexity on the rise

Complexity is increasing in the automotive supply chain on a number of levels. First, the product itself is getting more complex. For the consumer, this opens up vast new possibilities for configuring the car of choice. But for auto suppliers, greater configurability means greater complexity in the manufacturing process, as original equipment manufacturers (OEMs), Tier 1, 2 and 3 suppliers cope with abrupt production shifts necessary to meet consumer demands.

2. Globalisation leads to creative disruption

Keeping pace with this new complexity is particularly challenging as the industry evolves into one worldwide automotive industry. Many OEMs and their suppliers are moving operations to new, lower cost areas. For Central Europeans, the emerging states of Eastern Europe offer attractive wage rates in an area relatively close to their core market. In North America, a similar shift from the US to Mexico has been occurring for some time. Meanwhile, other regions like China, Russia and India are emerging as major factors in automotive consumption and production.

3. The industry is consolidating

Many automotive suppliers are responding to the alarming pace of globalisation by seeking the competitive benefits of size. The strongest suppliers are getting stronger as they merge with or acquire other companies. The impact has been dramatic as weaker automotive suppliers either get acquired or go out of business.

4. Responsibilities are cascading through the automotive supply chain

As auto suppliers grow in size, they are also growing in responsibility. Magna International coined the phrase Tier 0.5 to describe an automotive supplier who consolidates products it receives from Tier 1. A Tier 0.5 or to use the Daimler-Chrysler term, Super Tier, in effect is assuming responsibilities that were once the domain of the OEM. This trend of delegating greater responsibilities to your suppliers is working its way through the automotive supply chain, as each tier looks to its suppliers to assume new responsibilities. OEMs also are imposing these new responsibilities as a way to shift warranty responsibility and get more control over the cost of recalls.

5. Communications is assuming more importance

Faster and more accurate communications is fundamental to achieving more supply chain precision in an increasingly global and complex automotive industry. The Automotive Industry Action Group (AIAG) illustrated that the time it takes for information to move upstream in the supply chain has been reduced from 28 days to 14 days. This is impressive progress, but automotive industry leaders know that it falls far short of the need for near-real time communications.

6. Competitive pressure is intensifying

OEMs are being squeezed. They are unable to raise prices much, if at all, at a time when their costs are increasing due to government regulations and the consumer demand for new features. Their response is natural. They are putting the squeeze on their suppliers who, in turn, are putting the squeeze on their suppliers. Unable to raise prices, OEMs are forcing suppliers to share in the financial pain, offering them take it or leave propositions for doing business. For suppliers, their competition is increasingly global so they too lack the leverage to increase prices.

7. Capacity continues to outstrip demand

There is no relief in sight for easing of competitive pressures. In a classic supply and demand scenario, automotive suppliers also must contend with over capacity worldwide.

Resulting challenges

The combination of the industry trends cited poses a daunting array of business challenges for automotive suppliers. Firstly, arbitrary pricing dictates from OEMs combined with dramatic increases in raw material and transportation costs are conspiring to erode the margins of most auto suppliers. There is also the high cost of keeping customers who move their operations. Suppliers who choose not to follow incur costs of another sorthigher transportation and inventory costs that inevitably result as the distance grows between supplier and customer. Increases in total procurement costs are driving automotive suppliers to overcome shortcomings in their supply chain management (SCM) strategies. The need for better SCM is the logical consequence of price pressures and the fact that most available efficiency gains have already been achieved on the production floor. Moreover, this demand for greater supply chain coordination is happening quite often in an environment when your systems are unable to communicate effectively with those of your suppliers and customers.

The pains of IT investment

All of the above pains point to another pain for automotive suppliersthe need to make major investments in their IT infrastructure to meet demands for more supply chain efficiency. In some instances you are being forced to invest in a new IT solution just to keep the right of doing business with your customers. For others, if you cant trace the faulty part to a container or a four-hour shift production, you are liable for the recall of much larger production volumes. If it were just a matter of explaining the business problems and the corresponding IT solutions, many more projects would be funded. But there is competition within the entire business for capital investment. Making the case for IT investment must be done on business merits and not the technology benefits. Its a harder case to make, especially if you are competing against another department with a more favorable return on investment. And with many operational executives, these investments still have a bad reputation from the failed pre-Y2K investments that delivered far less than promised.

Maximising the gains of IT investment

In order to ensure you get the best return on investment, we believe decision-makers at automotive suppliers should ask themselves a few questions when determining if a technology company can help them effectively take on and prevail over their pressing business challenges. Does the vendor understand what makes automotive unique? Can it deliver end-to-end solutions tailored to the unique needs of automotive suppliers? Is this expertise backed up by a corporate philosophy that puts customer first? And finally, does the vendor have the longevity required to be an invaluable business partner in the future as well as in the present? At Infor we see a brightyet challengingfuture for automotive suppliers. You could say that Infor has been on a 25-year road trip in the automotive industry. Like you, we know there are still more miles to cover and were eager to help you get to your destination.

Kevin Piotrowski is the director of industry marketing for the North American regions. Piotrowski joined Infor Global Solutions in 2004 from TradeBeam (formerly SupplySolution, Inc.) where, from 1999 to 2004, he was responsible for leading the product management team in the design, development, and rollout of the i-Supply family of products. From 1985-1999, Piotrowski served in various roles within purchasing, materials management, product control, and Information Technology at Delphi Automotive Systems and General Motors Corporation. As a Senior Staff Assistant for Delphi Automotive Systems he was responsible for designing, testing and implementing SAP, QAD and various legacy systems globally. Piotrowski earned a Bachelor of Science degree in computer science and engineering from the University of Michigan and received an MBA from the University of Detroit.