CEO of Crisis Control Solutions LLC & Schwenk AG, a leading expert in risk and crisis management for the automotive industry.
In the intricate ballet of the automotive industry, purchasing managers stand at a particularly challenging crossroads. Charged with the responsibility of satisfying both commercial imperatives and ethical considerations, these professionals navigate the turbulent waters of profitability and morality.
Yet, it’s essential for industry leaders to remember that while car manufacturing is a commercial endeavor, it is equally important to ensure the survival and well-being of suppliers.
The Objectives Of Car Manufacturers
It’s a fundamental truth: A primary objective of business is to generate profit. Car manufacturers, like any other commercial entity, operate to achieve growth, satisfy shareholders and maintain their competitive edge. Purchasing managers, in this light, have a primary duty to the company’s bottom line.
To this end, they often have to negotiate hard, securing the best prices and terms from suppliers. Achieving commercial targets and meeting company expectations often translates to squeezing suppliers for better prices, shorter delivery times or more favorable conditions.
The Hidden Costs Of Overzealous Bargaining
However, when purchasing managers push too hard, the ripple effect can compromise not just the survival of suppliers but the very quality and integrity of the vehicles produced.
There are temptations and troubles in manufacturing: When squeezed beyond a certain limit, some suppliers may find it challenging to maintain the approved and specified manufacturing processes. While a few might be motivated by sheer greed, many suppliers deviate from established processes in a desperate bid to cut costs and ensure their survival. This deviation can manifest in several ways.
1. Material substitution: Suppliers might resort to using cheaper and non-validated materials. Such replacements can compromise the durability, safety and performance of parts and, consequently, the entire vehicle. Unauthorized, of course.
2. Unauthorized outsourcing: To further save on production costs, some suppliers might unofficially outsource their processes to cheaper third-party manufacturers. These clandestine operations typically go unchecked, escaping the rigorous quality control measures established by the original car manufacturers.
The Quandary Of Quotation
The process of quoting prices for parts and services is another labyrinthine challenge. Given the limited number of genuine automotive manufacturers worldwide, suppliers often find themselves in a precarious position. While there are dozens of recognizable automotive brands globally, they often fall under a few large umbrella corporations. For instance, Ford Motor Company owns the brands Ford, Lincoln and Troller. General Motors owns the brands Cadillac, GMC, Chevrolet and more. Volkswagen comprises ten brands, and Stellantis a total of 14 brands. (Disclosure: Volkswagen is a customer of my company.)
This concentration means that the actual number of distinct customers for suppliers is quite small. To remain competitive and gain new business, suppliers need to quote aggressively. The cutthroat competition often sees them pitted against global competitors willing to undercut prices further. Unfortunately, when quotations are unrealistically low, it’s only a matter of time before such suppliers face financial strain or collapse.
When suppliers face crises, the burden often falls back on the car manufacturers, who then have to invest significantly in crisis mitigation. This could mean financial support to keep the troubled supplier afloat or hurriedly seeking alternative sources—both scenarios come at a hefty cost.
The Ethical Side Of The Coin
However, the transactional nature of business doesn’t absolve companies of their ethical obligations. While negotiating better deals is a primary objective, it should not be pursued at the expense of the suppliers’ ability to maintain sustainable operations.
Operating on the principle of “live and let live” is crucial. Suppliers are partners in the manufacturing process, and their well-being directly influences the health of the automotive ecosystem. Pushing them too hard may yield short-term gains, but it could also lead to long-term pitfalls like reduced quality, supply chain disruptions and even the collapse of critical suppliers.
Moreover, maintaining a reputation as a fair and ethical partner can enhance a manufacturer’s brand image, fostering loyalty and trust among consumers and partners alike.
Striking The Right Balance
So, how do purchasing managers maintain this delicate balance?
1. Open dialogue: Transparent communication with suppliers can foster a mutual understanding of challenges and expectations. By discussing potential obstacles, both parties can work collaboratively to find solutions.
2. Long-term partnerships: Shifting the focus from transactional relationships to long-term partnerships can promote mutual growth. When manufacturers invest in suppliers’ success, they can ensure a stable and high-quality supply chain.
3. Ethical training: Companies should emphasize the importance of ethical considerations in their training programs. This can equip purchasing managers with the tools they need to make balanced decisions.
4. Performance metrics: While cost-saving metrics are essential, they shouldn’t be the only criteria for evaluating performance. Metrics that account for supplier well-being and sustainability can offer a more holistic view of success.
The automotive industry’s landscape is rife with challenges, from maintaining ethical partnerships to ensuring quality and cost-effectiveness. Car manufacturers and suppliers must remember that while competition is inherent in business, collaboration is the key to sustainable success. Pressuring suppliers to the brink might yield short-term financial gains, but the potential long-term repercussions—both financial and reputational—can be dire.