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Foreword
A Challenging Landscape And The Way Forward With the recent developments in the global automotive industry, new challenges have emerged for the Indian auto component industry. While the growth prospects of the Indian auto component industry remain very promising, there are new challenges as we evolve into a critical part of the global auto eco-system. For Indian suppliers, on one hand there is the need to maintain competitiveness in an inflationary environment and on the other the need to compete with the best in an increasingly uncertain global market. Strong working relationship and world-class capabilities congruent with global standards of excellence are essentials for the fast changing requirements of the customers. Few questions that need to be answered in this context, which are critical for sustainable growth: what is the nature of, and how competent and comfortable are current working relationships between OEMs and suppliers, what needs to be done to make them more engaging and enduring going forward, and what are the key gaps. To address these questions, the Automotive Component Manufacturers Association (ACMA) commissioned a joint study with M/s JD Power Asia Pacific - Insights Into Supplier OEM Relationship: a Benchmarking Study. The study focuses on the relationship between OEM and suppliers in India benchmarking it with the automotive community in developed and other emerging markets. The benchmarking study indicates that the industry stands to gain from more engagement across the value chain. The cost pressure on suppliers is intensifying around the world. OEMs across the world prefer to engage with suppliers with stable lines of communication, good work culture, effective process orientation, end customer knowledge, who can jointly work with the OEM in developing products and technology to be delivered with a global footprint. OEMs today are consolidating and looking to optimise the points of contact for efficient and effective supplier management and cost savings. Consolidation of supplier base will call for Tier-1 suppliers to manage, continuously upgrade and even handhold the Tier-2 suppliers. This will enhance business opportunities in the future, but will pose challenges, as Tier1s will have to invest in requisite skills and resources to manage an integrated supply chain. Further, as in India, in international markets too, both suppliers and OEMs are faced with the challenge of shortage of skilled manpower, which needs to be urgently addressed. However, this has to be jointly addressed by the OEMs and the supplier community, and not wait for Government to step in. We would like to place on record our appreciation for the efforts of M/s J D Power Asia Pacific for conducting this in-depth study. We are also grateful to our Past Presidents, ACMA member companies, OEMs, IPOs and suppliers in India as well as in US, Germany, France and China who have shared a wealth of their knowledge for this study. We are hopeful that this document will form a basis for all future reference, dialogue and policy formulation for the auto component suppliers and their OEMs. With best wishes, Srivats Ram President, ACMA Dated: September 06, 2011
2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
1 2 3
Objectives & Methodology of the study Key Findings Conclusion and Recommendation
2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
Project Background
1 2 3 4
Vehicle production estimated to grow three-fold by 2020 from 2009. Automotive component industry likely to reach USD 110 billion by 2020
2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
Objective
To understand how Suppliers & OEMs in select markets are building trust and dependability governed by a common purpose of monetary and commercial gains
Methodology
Desk Research
1 2
2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
Study Coverage
India
USA
China
Germany
France
Total number of Companys interviewed Tier-1 Suppliers: 61 OEMs: 19 Buying scenarios: 244
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2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
Contents
1 2 3
Objectives & Methodology of the study Key Findings Conclusion and Recommendation
2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
COMMENTS
-25%
-15%
-5%
5%
15%
25%
Support provided by OEM Financial matters Interaction/ Communication Forecasting/ Ordering Trust Issues Innovation Implementation
Suppliers based in India expect more Support from their OEM clients and assistance on Financial matters Suppliers based in India have relatively fewer unmet expectations on Trust & Communication issues a key essential towards building a stronger working relationship.
2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
-40%
Respect for confidentiality Fulfillment of commitments Willingness to partner Courtesy in interpersonal interaction
-20%
0%
20%
40%
Willingness to involve suppliers early in the product development process Extent of support provided to improve quality Willingness to reward beneficial ideas/ supplier innovation Opportunity to earn reasonable return OEMs concern for suppliers viability Extent of support provided to reduce costs
2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
India China
-40%
Courtesy in interpersonal interaction Transparency in OEM's communication Timeliness of communication Accuracy of order forecasting Reasonable time provided to meet order requests OEMs concern for suppliers viability Extent of support provided to reduce costs Encouragement provided to help you grow your business Speed of implementation Willingness to reward beneficial ideas/ supplier innovation
-20%
0%
20%
40%
India China
2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
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2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
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Relationship Enablers
While Quality, Cost, Delivery remain critical pre-requisites that define the relationship between OEM and their Tier-1 Suppliers, the following key enablers help define a stronger business relationship between them.
Key Enablers for Continued Success Engagement Consolidation Flexibility/ Adaptability Common Purpose
Alignment
Trust
Organization/ Manpower
Innovation/ Technology
End-Customer know-how
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Engagement
Consolidation
Flexibility/ Adaptability
Common Purpose
Alignment
Trust
Organization/ Manpower
Innovation/ Technology
End-Customer know-how
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COMMENTS
50%
100%
Suppliers in India are more open to working together with OEMs in their efforts to move up the value chain. Primary focus of OEMs in India is to improve Supplier Performance (Quality, Cost, Delivery) Unique to India, OEMs are working closer with their Tier-1 suppliers for development of Tier-2 and Tier-3 supplier base
India China
and herein lies probably USA the next growth story for the Indian automotive Europe component industry
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2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
COMMENTS
OEM
Continue to function as quick-jobbers to Tier 1 companies. Manpower quality and bench strength is a big concern.
T1
T1
T1
Lack proper HR policies, professional work environment T2 T3 Do not have bankable balance sheet and hence cannot avail bank financing Limited access to technology There is clearly a greater need for Tier-1s to play a greater role in professionally managing tier -2 and -3 suppliers.
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T2 T3 T3
T2 T3
T2 T3
T2
T2 T3
T2
2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
Engagement
Consolidation
Flexibility/ Adaptability
Common Purpose
Alignment
Trust
Organization/ Manpower
Innovation/ Technology
End-Customer know-how
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Past
Present
Future/ Target
In most cases, for non-critical parts OEMs now source from a single tier-1 supplier Key drivers for consolidation are:
700
350 250
Ability to better manage continuous improvement initiatives In addition the fact that several Tier-1s now have multiple facilities and have grown larger in size & capacity further increases the complexity for the OEM 17
2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
COMMENTS
Existing smaller Tier-1 suppliers are increasingly being assigned to other existing larger Tier-1 suppliers. Result: Critical for large Tier1s to manage their growing Tier-2 partners. Would call for additional investment in resources people, infrastructure, processes. Organizations would need to align themselves to the new market realities. Significant risk of disruption/ separation if alignment becomes a big challenge.
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Engagement
Consolidation
Flexibility/ Adaptability
Common Purpose
Alignment
Trust
Organization/ Manpower
Innovation/ Technology
End-Customer know-how
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Home-Grown Vs. MNC Suppliers - Quotes MNCs are more focused on quality targets, project timelines. Home grown companies are yet to understand and feel like I am running the show at the client plant. MNCs are also more demanding and less flexible. If for example the SOP is delayed; while home grown companies are OK, MNCs asks for compensation - OEM India The MNCs score better on their responsiveness, in their ability to look through the requirement, understand quality, specifications, bring in valuable insights/ suggestions, make predefined business case, think through the delivery mechanism. The family owned businesses have lesser aspirations. However, the family-owned businesses are easier to work with. They do not argue. You talk to them and the work immediately starts. For MNCs you have to give them LOI, signed contracts, surety of business, before they even make a small investment OEM India
2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
COMMENTS
Professional approach to business in case of MNCs likely to win the game in the long run. While home grown companies in India are more flexible and considered easier to work with, it also exposes the organization to considerable business risk Flexibility is often sought owing to lack of proper planning MNCs abide by strict contractual terms as they protect their business risk exposure across markets worldwide.
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COMMENTS
Process Orientation
MNC suppliers are adapting a more balanced approach in India. Indian homegrown companies too need to adapt.
MNC suppliers in India are indigenizing their processes to suit local working styles prevalent in India. Indian home-grown companies are also adapting to the western style of management; with second generation entrepreneurs, having acquired professional managerial skills are leading this transformation The transformation to a more professional set-up would pose significant challenges both internally & externally but essential for future survival.
Low Low
High
Flexibility
India China USA Europe
2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
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Engagement
Consolidation
Flexibility/ Adaptability
Common Purpose
Alignment
Trust
Organization/ Manpower
Innovation/ Technology
End-Customer know-how
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COMMENTS
Higher Disagreement
India The disagreements largely stem from payment of tools, R&D/ developmental expenses, price, production volumes and warranty. China Disagreement relatively high on price, quality, testing/ validation, logistics & communication issues
India
China
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COMMENTS
Higher Disagreement
USA Disagreement mostly on price, IPR and warranty/ product liability. Europe Relatively higher disagreements on price, payment, IPR, production, warranty/ product liability. Product Liability, Recall, Warranty & Part Traceability issues are likely to evolve as new areas of disagreement in India. Suppliers need to be aware of contractual risks.
India
USA
Europe
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Engagement
Consolidation
Flexibility/ Adaptability
Common Purpose
Alignment
Trust
Organization/ Manpower
Innovation/ Technology
End-Customer know-how
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COMMENTS
Forums
Cost
Quality
Delivery
Measure ment
OEM
Supplier
Redressal
To build trust in a B2B scenario, it is important to manage the dynamics both within and across partner organizations. While the primary drivers of trust remain Quality, Cost & Delivery performance over time, partners need to clearly state and discuss on their expectations and readiness of meeting them. The structure in place between the two organizations can foster increased trust. Direct channels of communication, measurement & feedback, grievance redressal escalation mechanism etc. helps in building trust.
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2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
Engagement
Consolidation
Flexibility/ Adaptability
Common Purpose
Alignment
Trust
Organization/ Manpower
Innovation/ Technology
End-Customer know-how
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COMMENTS
In India, as suppliers are moving up the value chain, increasingly they are getting into component design. Though marketing still continues to be the front-face of the organization, there is greater interactions between OEM and supplier teams from design and quality departments. Quality and Design teams at OEMs now exercise far greater influence in supplier selection and evaluation
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D1
Sourcing/ Purchasing department
D2
D3
D1
Sourcing/ Purchasing department
D2
D3
M S2 S3
M S2 S3
S1
S1
Supplier departments
Supplier departments
2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
Quotes
HR Practices and working conditions create a strong first impression whenever I visit a supplier. It not only tells me about the people that work in the supplier but also creates an impression of the kind of quality that I can hope to receive from him OEM India
COMMENTS
OEMs consider Human Resource related aspects as well to assess suppliers management outlook and capability. For example: Stable organization structure with clear hierarchies
Working conditions in plants and offices, workers canteen etc Safety practices Sustainability initiatives
Canteen Sustainability
2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
Engagement
Consolidation
Flexibility/ Adaptability
Common Purpose
Alignment
Trust
Organization/ Manpower
Innovation/ Technology
End-Customer know-how
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Quotes:
Key to selecting suppliers is technology at the right price more than anything else. We go for suppliers who have proven technology and are willing to give us at the right price Indian OEM We look for global alliance primarily for hightechnology items. For new technology items we look for suppliers who have a global alliance. If it is an old technology, then we look for the global subsidiaries of suppliers. We need global technology at Indian prices. We need technology to bridge the global gap Indian OEM In Country X, we need local assembly with around 30% localization. The component costs in Country X are higher than India. However, using our current suppliers relationships with suppliers in Country X, we were able to cut down the costs by 30-35%. Indian OEM
2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
COMMENTS
At present, supplier selection is not based on global alliance/ footprint. However, it is likely to increase in importance as Indian OEMs design vehicles for the global market. The acquisition of global companies are also helping Indian OEMs to leverage their contacts in International markets where they intend to source parts or set up assembly units.
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Engagement
Consolidation
Flexibility/ Adaptability
Common Purpose
Alignment
Trust
Organization/ Manpower
Innovation/ Technology
End-Customer know-how
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COMMENTS
84% 83% 83% 68% 63% 61% Want 60% 53% 53% 52% 51% 48%
Source: 2010 India APEAL
Cars are increasingly being loaded with features what was once available in luxury segment is now available in mass volume segment Airbags, ABS, Electronic Systems are high on the desire list in the mass volume segment Technology. thus is crucial for OEMs when selecting future suppliers, especially in Electronics and Infotainment area Cost, however, continues to play a decisive role in the pursuit of technology
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Has
2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
Engagement
Consolidation
Flexibility/ Adaptability
Common Purpose
Alignment
Trust
Organization/ Manpower
Innovation/ Technology
End-Customer know-how
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Knowledge about the end-customer helps gain credibility and respect and connect better with your clientele. End Customer knowledge
COMMENTS
Customers
OEM
Manufacturers keen to rely on suppliers who know more about their end customers and can bring in their knowledge to value add in the proposed product plans and businesses. Currently this is a big gap seen in India more so for local home grown companies than for MNCs.
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Suppliers
2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
Challenges/ Pressures . . .
2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
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COMMENTS
Greater Challenges
India Suppliers feeling immense pressure to reduce prices, improve productivity, and grappling with sudden volume changes China Suppliers scrambling to meet demand. Relatively less affected by other issues. USA Innovation in products and processes likely to be a key issue. OEMs are likely to increase thrust on sourcing from low cost countries for cost benefit Europe - Market conditions in Europe posing immense challenge/ pressures on European suppliers on all parameters.
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Contents
1 2 3
Objectives & Methodology of the study Key Findings Conclusion and Recommendation
2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
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Key Takeaways
1 2 3 4
Suppliers performance directly impacts OEMs market performance. Suppliers stand to gain from the knowledge & experience of OEMs. Important for Tier-1s to engage more professionally with their Tier-2s & -3s.
2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
Key Takeaways
5 6 7 8
OEMs value suppliers with end customer knowledge, who can value add in future product plans and businesses. Currently a big gap seen in India, more so, amongst home grown companies
2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
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2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
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Different relationship stage represents different aspects for the suppliers and OEMs
Conformance to requirements Exchange of products that are fit for purpose. Focus on Cost, Availability, Quality, Delivery, timeliness
Enables smooth operations
Fruitful association Exchange of advantages on key domains such as - Product, Service, Knowhow, Time-to-market, Price / costs etc
Enables profitable Expansion
Integrated coexistence Exchange of ideas, best practices, new process and product improvements
Enables overall development
Process driven operations - Performance measurement, prompt escalation of issues & Troubleshooting etc
Achieving excellence in Industry and enhanced cultural fit for both parties
Transactional
Strategic
Symbiotic
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Core Drivers
Product Quality
Timely Delivery Cost / profitability Value addition through end customer know how Trust - Transparency of
communication - Proactive approach
Transactional
Strategic
Imperative for Suppliers to Move Up This Value Chain
Symbiotic
2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
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Thank You!
2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
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Mohit Arora Executive Director J.D. Power Asia Pacific 8 Shenton Way, #44-02/03/04 Singapore 068811 mohit_arora@jdpower.com.sg Tel: +65 67338980/ 65976111 (direct) Mobile: +65 91773347
Shantanu Nandi Majumdar Senior Manager J.D. Power Asia Pacific 8 Shenton Way, #44-02/03/04 Singapore 068811 shantanu_majumdar@jdpower.com.sg Tel: +65 67338980/ 65976136 (direct) Mobile: +65 83225965
2011 J.D. Power Asia Pacific, The McGraw-Hill Companies, Inc CONFIDENTIAL. No part of this document may be reproduced or copied without prior permission from J.D. Power Asia Pacific..
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