Quantifying Supplier Collaboration at the North American International Auto Show

“Hot and sexy” – 2 words used to describe the debut of the Ford GT at the North American International Auto Show in Detroit that ended Jan. 25.

According to a recent NPR story, Michelle Krebs from Autotrader.com had this to say about the auto show: “The mood is upbeat, there is a lot of optimism, the automotive industry has come off a big year and there is lots of great product.”

Innovation, whether by government mandate – CAFE standards and fuel requirements (Ford’s F-150 pick-up truck) – or simply the need to build compelling and distinctive cars such as the Buick Avenir or the self-driving Mercedes (which feels like a limo), might beg the question: was any of this innovation derived from supplier collaboration?

FREE Report: Can Supplier Management Be Saved? An Analysis and Overview

If you ask someone from the steel industry that question, you will get a resounding yes.

“Over the last 26 years, the North American steel industry has worked with our OEM partners to meet the automotive industrial challenges of lightweighting, affordability and manufacturability,” said David Anderson, senior director, automotive market for the Steel Market Development Institute, a business unit of the American Iron and Steel Institute (AISI). “This collaborative work has demonstrated numerous opportunities to save weight of more than 25% utilizing new steel grades. We are working with our automotive customers to support the enabling manufacturing technologies of the next generation of AHSS [advanced high-strength steel].”

The automotive industry has written the handbook on supplier collaboration – both positive and negative). The soft benefits of supplier collaboration have been well-documented, but now several organizations including our sister site, SpendMatters, have begun documenting the hard-dollar benefits. In that study, my colleagues Thomas Kase and Pierre Mitchell identify (and model) the following financial benefits: reduced compliance fines, renewal discount increases, payment discounts, reduced maverick spending (which translates to actual dollar savings), billing accuracy and overpayment avoidance among many others. These benefits cut across any industry.

Within the automotive industry, the 2014 OEM Profitability and Supplier Relations study that “tracks supplier perceptions of working relations with their automaker customers” goes one step further and attempts to “quantify the economic impact of supplier relations.” Specifically, the study charts vehicle operating income, or EBIT, against supplier trust.

Still other firms have also begun reporting on financial benefits of supplier relationship management along with other supplier/customer collaborations.
Consulting firm State of Flux also publishes an annual study on the state of supplier relationship management. The annual benchmarking study asks over 500 participants a broad range of questions, including ‘how do tangible benefits translate to financial value?’ In addition, the study shows the metrics companies use to measure the success of SRM initiatives. Some of the hard-dollar metrics include: post-contract financial savings, post-contract cost avoidance, sales/revenue growth, preferential pricing, etc.

From a technology perspective, Nipendo CEO Eyal Rosenberg had this to say about the state of supplier collaboration:

“We see companies across all industries that want to improve supplier collaboration, but they are still struggling with the ‘how.’ EDI-type solutions are rigid, not scalable and too costly, while catalog-type solutions are hard to maintain and too limited in functionality. There is a dire demand for solutions that bridge these gaps, but also connect to the existing IT stack—there is little appetite for massive rip-and-replace projects.”

That may not look like “hot and sexy,” but the case for strong supplier relations just may have some horsepower.

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