2/10/2011 | 3 MINUTE READ

Are Suppliers Ready for the Recovery?

Facebook Share Icon LinkedIn Share Icon Twitter Share Icon Share by EMail icon Print Icon

As the auto industry continues to recover, many suppliers are still struggling but for different reasons.


Facebook Share Icon LinkedIn Share Icon Twitter Share Icon Share by EMail icon Print Icon

As the auto industry continues to recover, many suppliers are still struggling but for different reasons. A year ago, it was because volume was so low that they had to rationalize capacity and reduce resources: anything from people to equipment and support services. Now, companies have a new challenge. Volume is rising steadily and resources are getting constrained. Manufacturers are leery to hire back resources because there is no guarantee that volume numbers are stable and growing.

Additionally, companies learned during the downturn that they need to do more with the same amount of resources including people, equipment and support services. But at what point is it critical for companies to begin to add resources? All of the automotive forecasters are predicting increasing volumes going forward into 2011, and some are even predicting that by 2013 volume will be 16-million units again. Many are somewhat suspect that a rapid return will occur, although the OEM executives are supporting the growth premise.

A leading automotive purchasing executive indicated in December 2010 that he was already seeing several commodity suppliers that are struggling to meet requirements, and he has tremendous concern going forward that suppliers will be able to meet the aggressive demand in 2011 and beyond.

Recently, the Harbour and IRN teams conducted a survey of mid-sized suppliers in various areas of the business to determine their preparedness for future flexibility. The results of the study were interesting and highlighted some surprising areas of weakness. The first concerning area was sales and marketing. Suppliers were asked about their effectiveness of their marketing strategy, and over 64% of the respondents said it was adequate or not adequate. And when asked about the effectiveness of their sales process, only 47% said it was effective or highly effective. Suppliers were asked if their current customer base would support their long-term growth plans, and 65% said no. What's even more disturbing is that during more than 50 on-site manufacturing assessments in 2010 by the Harbour team, many of the companies indicated that they are not prepared from a sales and marketing perspective for the future. Many companies have had years where sales just simply came to them directly without much effort. In the new environment they are not able to get sales in this fashion, and they are not sure how to sell differently. There has been very little investment made to do marketing or hire the right talent to change the approach to sales. Those that have been successful in sales and marketing are taking over market share faster than they thought they would.

The other area of concern from the survey was human resources (HR). Greater than 50% of the companies thought that the HR function was adequate or not adequate and only 8% thought it was highly effective. On-site assessments typically indicate that the HR function is adequate but has very little higher-level thinking occurring in this area and little to no planning for the future flexibility required from suppliers to meet customer requirements and swings in the market. HR at companies needs to become more strategic in order to train resources, find the right resources and flex with the business.

When companies were asked about continuous improvement effectiveness, they indicated that they were adequate or not adequate 59% of the time. It is disappointing that companies are still not effectively driving continuous improvement. However, the assessments do indicate that this has improved considerably compared with 5 years ago. Still, there is a wavering focus put on continuous improvement, and this is the area that will drive the most savings to the bottom line when companies commit the resources.

The last major area of the survey looked at program management. Only 1% of the respondents said their company's program management practices were highly effective; 29% effective; 47% adequate; and the balance not adequate. This is probably one of the most troubling analyses because program management is so critical to the long-term success of any company. The on-site assessments are illustrating a lack of focus and commitment to program management. Companies are struggl-ing to invest in the right people because they are not always being compensated for these services from the OEMs. This lack of up-front support and investment will impact the bottom line in the future for all suppliers and OEMs.

The survey combined with the on-site assessments in 2010 show that much progress has been made by companies over the last several years, but there are new challenges to returning to profitability and managing customer demands. Flexibility will play a critical role for all suppliers and OEMs. Those that manage this flexibility the best will stand to profit considerably in the near future.