06 September 2001
Supplier relations are the key to success in the auto industry. David Arminas looks at how two UK car makers in this brave new world of manufacturing deal with their suppliers
Since the days of Henry Ford early last century when he developed the first assembly line in the US, car makers have been at the leading edge of manufacturing innovation and excellence.
Just-in-time and lean manufacturing have been pioneered by car makers and then adopted in different sectors worldwide.
Nissan's Sunderland manufacturing plant has, over the past few years, been the yardstick by which other auto makers measure themselves.
Even in the risky world of e-commerce, the automotive sector appears to be leading the way with its massive B2B exchange Covisint, a joint venture between Ford, General Motors, DaimlerChrysler and other makers. The ideal is to get as many suppliers as possible dealing with their clients onine.
All this means that supplier relations have become the key to success in the auto industry. And that means that the position of purchasing and supply management pro- fessionals has moved ever closer to the business centre as they direct these relationships.
Our stories about Jensen and Rover show how buying is moving even closer to the centre - right at the centre in Jensen's case - and it has taken low and medium-volume firms to achieve this, not the big car makers.
Jensen is a true niche player with only 600 vehicles a year planned. MG Rover is a medium-size firm aiming to make nearly 200,000 units a year. Both companies know what failure is. Jensen went bankrupt in the 1970s. Starting a firm from scratch in today's environment, where large car makers are restructuring and fighting for market share, is risky.
Likewise, an ailing Rover was originally sold by British Aerospace to BMW in the 1990s. BMW jettisoned it for £10. Analysts said it would be years before Rover became profitable and the company would likely go to the wall long before then.
But both companies are proving the pundits wrong and procurement practices are at the core of their resurgence. In Rover's case, it claims profitability is likely by 2002.
All of Jensen's cars have been sold before they have been made, ensuring profitablitiy from the word go, according to its managing director. He is direct about its apparent success so far: procurement is at the centre of the famous marque. The S-V8 is, he acknowledges, a totally outsourced car.
In essence, a Jensen car is the ultimate product of its suppliers. Because production has already been sold, procurement is literally buying according to end-user specifications, not its internal clients.
Rover could be the first car maker to move towards what larger car makers have been talking about since the early 1990s: sharing development and research cost with a supplier to the extent that it sets up shop on the client's site.
In both cases, the final outcome of client-supplier relations is to blur the division between the two.
The downside for procurement could be the risk involved when things go wrong, a major problem when suppliers are responsible for complete sections of a car.
For a future Rover set-up, changing a major supplier that has helped research and design a new car may not be easy, and disruption could affect production schedules to the point of wiping out profits.
On the other hand, this is added impetus to work things out as supplier and client will be well aware of the cost of failure for both parties. In disagreements that go to the courts, there will be no winners.
The challenge for procurement professionals in this new environment is to ensure they have the skills to manage these intense relationships.