Balancing Auto Suppliers Manufacturing Networks

Balancing Auto Suppliers’ Manufacturing Networks

While auto suppliers are enjoying strong sales, and are in fact approaching highs of about a decade ago, a financial squeeze is on the way, according to The Boston Consulting Group (BCG).

At issue are the demands by OEMs for suppliers to locate closer to production and R&D facilities.  And some of those locations are in emerging markets. This adds both cost and complexity for suppliers.

BGG calls this proximity paradox and says it isone of the most serious management challenges that the global automotive-supply industry will face over the next few years. Pressure to cut prices is unlikely to relent, and avoiding emerging markets is not an option because they are critical to growth.”

In partnership with the Fraunhofer Institute for Manufacturing Engineering and Automation, BCG surveyed 42 automotive suppliers from around the world. This sample comprised one-quarter of the world’s 100 biggest players and a selection of midsize companies. They also interviewed dozens of auto supply executives and industry experts.

 Some of the key findings of this research are as follows:

  • The cost pressures are real. An overwhelming majority of respondents—86%—said that they are under increased cost pressure from their automotive customers. Industry experts told us that major automakers are rolling out multibillion-dollar programs.
  • The pressures to localize production are real as well. The second most important factor driving manufacturing-location decisions is proximity to the customer’s manufacturing plants. Suppliers surveyed expect to increase the number of their global manufacturing sites by an average of 9% over the next five years.
  • The balance in manufacturing capacity is shifting. Nearly 60% of surveyed auto suppliers’ total production sites—including many core manufacturing operations for certain products—is expected to be located in emerging markets some five years from now, compared with only 45% five years ago. The automotive-supply industry in Germany alone is projected to lose 35,000 jobs, including highly skilled blue- and white-collar workers.
  • Efforts to address the challenge are insufficient. Every supplier surveyed agreed that it is important that it adjust its manufacturing network, but our research found that most suppliers lack the organizational capabilities, business processes, and tools to achieve an optimal manufacturing footprint.
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