The role of car suppliers has been well structured for many years. The hierarchical chain established gave clarity and understanding, both to observers from outside the industry and to observers from companies responsible for the manufacture of components or technologies. However, the scenario is changing rapidly.
The 2019 edition of Automotive World with the theme What is the future of mobility? explores this change. We talk about the ways in which change in communication and propulsion technologies, aligned with new business models, changes in emissions and safety requirements, affect people and goods transportation.
The Automotive World report highlights the most interesting changes taking place in the automotive industry. These include OEM portfolio adjustments, the industry’s transition to mobility services, the evolution of the supplier base, changes in trucks and the prospect of an entirely new form of hyperloop mobility.
In complex manufacturing ecosystems, such as aerospace and automotive, there is a hierarchical structure in the supply chain. This structure starts with the companies that produce the raw materials, ending with the companies that sell products with brands that we all know. Today, we find brands like Ford, GM and Boeing at the top of that chain. But as we transition from vehicle ownership to autonomous mobility services in the coming decades, some brands like Fiat Chrysler may be relegated to becoming top-tier suppliers to companies like Waymo and Apple.
We found that over the past few decades, OEMs (Original Equipment Manufacturers) have increased the development and production of components in various levels of the supply chain. At the top of this chain are the large TIER 1 (such as Bosch, Continental, Delphi and ZF). These companies purchase raw materials and parts from lower-level suppliers (TIER 2 and 3), and deliver finished subsystems (such as wiring, driving assistance, transmissions), directly to the OEM’s final assembly lines.
However, as the autonomous vehicle gets closer and closer to reality, OEMs may not be providing the transport brands that consumers pay for. Many OEMs are actively developing autonomous driving and the mobility services related and necessary for their deployment. Companies such as GM, Ford, Nissan-Renault, Volkswagen, BMW and Mercedes-Benz are all well positioned to provide mobility services with autonomous vehicles they manufacture in the future. They have the manufacturing, distribution and service infrastructure through their dealer networks.
In the past, for OEMs to manufacture a vehicle, they simply bought components from a list of suppliers. But, when entering new areas of technology, this choice is much more fragmented and is not always defined by the industry itself. Partnering with suppliers alters the transactional nature of relationships and blurs the boundaries between an OEM and TIER 1. With the confidence that their customers are loyal to TIER 1, they become innovation partners, and are no longer just a fulfillment of purchasing orders.
In this perspective, a new way of working for OEMs opens up, let us call it “TIER all toghether”, others claim that a new channel opens up for a supplier “TIER 0.5”.
In reality, this new paradigm works with it’s customers in the long term, often setting cost targets together and sharing product development. This blurred relationship, however, raises questions about how to negotiate contracts with a supplier, such as:
“Will it be difficult to quantify this type of relationship?”
“Do we do joint development on this?”
“How do we assess the price of joint venture?”
“How do we incorporate third parties into these development prices?”
“Joint development can also create legal complications in which the parties own the intellectual property resulting from the development”
Perhaps this is a critical point in negotiations, it puts a rock in the supplier-OEM relationship. Despite the increase in collaboration, relations between suppliers and OEMs have not improved significantly over the past decade. The OEM-Automotive Relationship Index of Planning Perspectives (PPI) reveals, for example, that Toyota and Honda are classified as having some of the best supplier-OEM relationships. However, its classification still falls under the “adequate” category.
What is certain is that the two major consultants worldwide (Deloitte and Roland Berger) have already pointed out this new vehicle manufacturing concept as a trend for new generations. Both share that there should be only 4 platforms: Powertrain, Chassis, Exterior and Interior.
In fact, this concept can bring a huge reduction in the environmental footprint. We can already imagine the TIER 1, 2 and 3 of interior manufacture sharing the same space, development, supplier of raw material, the same injection machine, energy, the same truck, etc., etc.