BERLIN - The automotive supply chain is going through a radical change, and relations between automakers and suppliers are being redefined in the process.
That was the consensus among members of the purchasing discussion panel at the Automotive News Europe Congress here. Suppliers will need to deliver innovations and work more closely with automakers during the next few years, most participants agreed. Purchasing departments must examine the value chain more closely to adapt, they said.
But participants disagreed on just how far carmakers should go in handing over work to suppliers, and whether the new systems-oriented mega-suppliers represent a threat to vehicle makers in the long term.
Volkswagen has no intention of giving up its 'core competencies' in systems to suppliers, said Francisco Javier Garcia Sanz, purchasing director at Volkswagen group. 'To get all the benefits of our platform strategy we need to keep core competencies in our own company,' he said.
He distinguished between systems suppliers, who develop a complete system, and systems integrators, who assemble modules. He does not believe the supplier industry has developed more than a handful of true systems suppliers. 'We will work with systems integrators, but we want to maintain overall control and development of systems,' he said.
VW sometimes uses different systems integrators on the same platform. VW is very satisfied with its relationships with systems integrators at Resende, Brazil, and Mlada Boleslav, Czech Republic, said Garcia Sanz. 'We will take it further where it is feasible and possible,' he said. But he said that it was 'doubtful' that the Resende model would work with 2,000-3,000 cars a day, and VW is still learning how labor relations affect this kind of relationship.
VW is looking for innovation from its suppliers, and only wants to work with suppliers 'who want to think and act as much leading edge as we do,' he said. VW wants to spread innovation from its growing volume of luxury segment cars down to its mass products.
Innovation from suppliers is also important at PSA/Peugeot-Citroen. Herve Guyot, vice president of purchasing, said PSA expects suppliers to come in with their best ideas.
PSA expects suppliers to invest in their own research and development independently of model programs, he said. PSA would be willing to contribute to the cost of a development in some critical areas, particularly where market opportunity is uncertain.
Jean-Baptiste Duzan, senior vice president of purchasing at Renault, said speed of innovation will be a key differentiator for carmakers in the future. He is 'not worried at all' about the consolidation of the supply industry: 'I do not think that size is important.'
Duzan said there are 'huge opportunities' for European suppliers in Japan. Nissan has a tradition of working in-house, but they realize it has been carried too far, said Duzan. He said Renault had something to teach Nissan about cost reduction and supplier relationships. In 1997 and 1998 Renault cut average purchasing costs by a total of 16.1 percent, and it intends to cut costs by another 6 percent this year.
Renault's Optima program for supplier programs and partnerships has been inspired by Chrysler's Score program and the Japanese approach to partnerships, said Duzan.
Steve Armstrong, vice president of purchasing at Ford's AutoAlliance plant in Flat Rock, USA, and former head of purchasing at Jaguar, believes suppliers must change attitudes about quality.
'It is not enough to achieve quality standards such as QS9000,' said Armstrong. 'A reactive response to quality is not enough, senior management must get involved directly in a proacative way.'
Consumers now have access to information about product quality that has historically not been available, said Armstrong, and if carmakers 'do not stop sourcing from poor quality suppliers, consumers will do it for us.'
Armstrong said suppliers must learn to understand consumers better. They should talk to customers directly and not always rely on information passing through Ford.
Siegfried Wolf, president of Magna Europa AG, defined the emerging goal for suppliers and carmakers as 'time to money' rather than simply 'time to market.'
'The race for innovation does not only require process and product innovations but new organizations and structures,' he said.
Wolf described Magna as a '0.5 tier' systems supplier, but said that the company did not always need to supply the whole system to significantly enhance the product. He was questioned about the success of the Micro Compact Car Smart concept. Magna assembles the body-in-white and doors for the Smart car at Hambach, France.
'It was a big challenge for us and our customer,' said Wolf, 'but we would do it again.'
Craig Muhlhauser, president of Visteon Automotive Systems, said Visteon would not be acquiring another major European supplier in Europe in the next few months. Visteon acquired Plastic Omnium's interiors business earlier this year. But he did say Visteon will have to change dramatically. 'We have a traditional business model that has to be blown up,' said Muhlhauser. 'We have way too much investment relative to the vision we have.'
He sees big opportunities in the radical changes made possible by electronics. Visteon wants to merge telematics into the cockpit, and is also looking at the aftermarket to accelerate the introduction of new electronic features.
Asked about the possible Visteon spinoff from Ford, he said: 'Right now we've focused on getting competitive and expanding business outside Ford, and we have yet to finalize timing.'
AT Kearney's Nikolaus Soellner also expects major changes in the supply chain. The introduction of the euro will lead to major shifts in purchasing, and electronic commerce will 'change supply chains fundamentally,' he said. Comparing the automotive sector with other industries, Soellner said that the Dell Computer model might change the game in the auto industry.
'There are very few industries with the luxury of a long time to market of the auto industry,' said Soellner.
Panelists (left to right)
Francisco Javier Garcia Sanz: Director of purchasing, Volkswagen group
Jean-Baptiste Duzan: Senior vice president of purchasing, Renault
Steve Armstrong: Vice president of purchasing at Ford's AutoAlliance plant in Flat Rock, USA, and former head of purchasing at Jaguar
Craig Muhlhauser: President of Visteon Automotive Systems
Herve Guyot: Vice president of purchasing, PSA/Peugeot-Citroen
Siegfried Wolf: President of Magna Europa AG
Nikolaus Soellner: Vice president, AT Kearney