Automotive Component Manufacturers Association of India

Insights Into Supplier OEM Relationships

A Benchmarking Study
Presentation of Key Findings September 6, 2011

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..

Ashok K Taneja Chairman, Economic Affairs, WTO & KP Committee, ACMA

2

Structure of the Presentation

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

Huge growth potential in India

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

India Increasingly an important sourcing destination

More than 30 IPOs have offices in India. Component exports from India likely to grow by six-fold by 2020

Building strong Supplier - OEM relationship is key to success

To realize the huge growth potential it is imperative for suppliers & OEMs to create a strong working relationship and develop world-class capabilities that are in step with the fast changing requirements of the customer - in India as well as internationally

Critical to identify gaps and expectation mismatches

Benchmarking of current working relationships between Tier-1 suppliers and their OEM clients is an unique opportunity for auto component manufacturers to position themselves on the road to growth and sustainable future.
4

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 & Methodology

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

To describe and understand the current market situation

In-depth Interviews with Tier-1 Suppliers & OEMs across markets

Structured questionnaire. Interviews were conducted in India, China, USA and Europe through Face-to-Face interactions as well as over Telephone.

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..

Key findings Business Relationship Factors

Suppliers with a footprint in a particular country evaluating their relationship with OEMs in the same country

Greater expectation mismatches

Fewer expectation mismatches

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.

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..

Key findings Business Relationship Attributes

Top 5 areas of greater and fewer expectation mismatches for India and comparison with China
Greater expectation mismatches Fewer expectation mismatches

-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

Key findings Business Relationship Attributes

Top 5 areas of greater and fewer expectation mismatches for China and comparison with India
Greater expectation mismatches Fewer expectation mismatches

-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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The relationship enablers . . .

Foreword: In the following section we have analyzed the key parameters that play a critical role in the working relationship between Suppliers and OEMs. It presents Suppliers the opportunity to distinguish their performance from other 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..

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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

Global Footprint/ Alliance

Innovation/ Technology

End-Customer know-how

Quality, Cost, Delivery

Critical Pre-requisites
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..

12

Key Enablers for Continued Success

Engagement

Consolidation

Flexibility/ Adaptability

Common Purpose

Alignment

Trust

Organization/ Manpower

Global Footprint/ Alliance

Innovation/ Technology

End-Customer know-how

Quality, Cost, Delivery

Critical Pre-requisites
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 findings Greater engagement (1/2)

OEMs in India increasingly willing to engage more with their local supply base as they feel there is a tremendous scope of improving operational performance

Working together with OEMs to improve

0%
Continuous Improvements Agility/ Flexibility/ Adaptability Emerging customer expectations Cost Reduction Development of Tier 2 & 3 supplier base Supply risk management and disruption avoidance Innovation/ Intellectual property

COMMENTS

50%

100%

% responding somewhat/ very much

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..

Key findings Greater engagement (2/2)

Productivity & quality upgrading of tier-2 and -3 supplier base is critically important to continued growth and success of tier-1s

Tier Structure of the Auto Component Industry

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

T1: Tier-1, T2: Tier-2, T3: Tier-3 Supplier

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 Enablers for Continued Success

Engagement

Consolidation

Flexibility/ Adaptability

Common Purpose

Alignment

Trust

Organization/ Manpower

Global Footprint/ Alliance

Innovation/ Technology

End-Customer know-how

Quality, Cost, Delivery

Critical Pre-requisites
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 findings Consolidation of Suppliers (1/2)

Consolidation activities will continue to alter the competitive landscape in the Automotive Component Supplier industry COMMENTS

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:

No. of Tier-1 Suppliers

700

Better supplier management; Improvement in cost savings & profitability potential

250 200 200

350 250

350 275 200

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..

Key findings Consolidation of Suppliers (2/2)

Large Tier-1s likely to become responsible for a growing number of Tier-2 partners. This is likely to result in opportunities for JV/ M&A activity

Tier-1 being converted to Tier-2

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.

OEM Tier-1 Tier-2 Tier-3

Some amount of initial handholding may be done by the 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..

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Key Enablers for Continued Success

Engagement

Consolidation

Flexibility/ Adaptability

Common Purpose

Alignment

Trust

Organization/ Manpower

Global Footprint/ Alliance

Innovation/ Technology

End-Customer know-how

Quality, Cost, Delivery

Critical Pre-requisites
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 findings Flexibility/ Adaptability (1/2)

Case of Home-grown companies Vs. MNC Suppliers

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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Key findings Flexibility/ Adaptability (2/2)

Transforming the organization by bringing in a stronger process orientation is likely to help in business continuity over the long-run for Indian home-grown companies

Process Orientation Vs. Flexibility/ Adaptability

High

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

MNC Suppliers Home-grown Suppliers

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Key Enablers for Continued Success

Engagement

Consolidation

Flexibility/ Adaptability

Common Purpose

Alignment

Trust

Organization/ Manpower

Global Footprint/ Alliance

Innovation/ Technology

End-Customer know-how

Quality, Cost, Delivery

Critical Pre-requisites
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 findings Gaps in Alignment (1/2)

Disagreement between OEMs and Tier-1 suppliers

Lesser Disagreement Payment for tooling Payments for R&D activities Price Production volumes Warranty/ Product liability Payment for system/ module/ sub assembly management to Tier-2 Intellectual property rights Distribution of genuine parts in the aftermarket by your Company Business Continuity Logistics and communications
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

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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Key findings Gaps in Alignment (2/2)

Disagreement between OEMs and Tier-1 suppliers

Lesser Disagreement Payment for tooling Payments for R&D activities Price Production volumes Warranty/ Product liability Payment for system/ module/ sub assembly management to Tier-2 Intellectual property rights Distribution of genuine parts in the aftermarket by your Company Business Continuity Logistics and communications
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

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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Key Enablers for Continued Success

Engagement

Consolidation

Flexibility/ Adaptability

Common Purpose

Alignment

Trust

Organization/ Manpower

Global Footprint/ Alliance

Innovation/ Technology

End-Customer know-how

Quality, Cost, Delivery

Critical Pre-requisites
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 findings Trust

Business partners must be clear on their reasons for wanting to build trust, assess risks and the intention and willingness to take risks, and receive feedback on their trustworthiness

The Bearing of Trust

COMMENTS

Communi cation Account Manager Feedback

Forums

Cost

Quality

Delivery

Measure ment

OEM

Supplier

Review mechanis m Escalatio n mechanis m Organizat ion Structure

Redressal

Critical prerequisites Trust building factors

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.
26

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 Enablers for Continued Success

Engagement

Consolidation

Flexibility/ Adaptability

Common Purpose

Alignment

Trust

Organization/ Manpower

Global Footprint/ Alliance

Innovation/ Technology

End-Customer know-how

Quality, Cost, Delivery

Critical Pre-requisites
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 findings Organization/ Manpower Issues (1/2)

Increased interactions with various OEM departments may necessitate greater co-ordination (internally) as well as availability of capable manpower at various levels

Evolving organization structure

Build-to-print scenario OEM departments Design as per boundary conditions provided OEM departments

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

Key account manager/ Marketing

M S2 S3

Key account manager/ Marketing

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..

Key findings Organization/ Manpower Issues (2/2)

Manpower planning and execution of HR policies is increasingly being used to assess Suppliers aspirations and management outlook

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

Safety Employee Survey

Working conditions in plants and offices, workers canteen etc Safety practices Sustainability initiatives

Canteen Sustainability

Timely payment of salaries, incentives & implementation of basic HR policies

29

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 Enablers for Continued Success

Engagement

Consolidation

Flexibility/ Adaptability

Common Purpose

Alignment

Trust

Organization/ Manpower

Global Footprint/ Alliance

Innovation/ Technology

End-Customer know-how

Quality, Cost, Delivery

Critical Pre-requisites
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 findings Global Alliance/ Footprint

Global alliance/ footprint is likely to gain importance as OEMs tap their existing supplier relationships in home country to establish base in newer markets

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
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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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Key Enablers for Continued Success

Engagement

Consolidation

Flexibility/ Adaptability

Common Purpose

Alignment

Trust

Organization/ Manpower

Global Footprint/ Alliance

Innovation/ Technology

End-Customer know-how

Quality, Cost, Delivery

Critical Pre-requisites
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 findings Innovation/ Technology & Design (1/2)

Access to technology presents new business opportunities, especially in Electronics and Infotainment, where Indian OEMs are seeking to bridge the global gap

Example: Feature Content Requirement: SUV

Height Adjustable Driver's Seat Anti-lock Braking System Airbags Steering Wheel Mounted Audio Controls Hands-free Communication Electrically Foldable ORVM Automatic Climate Control Navigation System Stability/ Traction Control Rear Seat Entertainment Automatic Transmission Cruise Control
38% 66% 54% 38% 18% 40% 22% 1% 9% 15% 9% 23%

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
33

Has

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Key Enablers for Continued Success

Engagement

Consolidation

Flexibility/ Adaptability

Common Purpose

Alignment

Trust

Organization/ Manpower

Global Footprint/ Alliance

Innovation/ Technology

End-Customer know-how

Quality, Cost, Delivery

Critical Pre-requisites
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 findings End-Customer know-how

The Trump Card

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.
35

Suppliers
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Challenges/ Pressures . . .

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Key findings Challenges/ Pressures (Near term)

MNC automotive suppliers in US and Europe are increasingly looking at China and India as possible LCC sourcing. Likely to scout for capable suppliers.

Perception of near term challenges

Lesser Challenges Pressure to reduce price Increase in raw material prices Pressure to increase productivity Pressure of sudden changes in production volumes Pressure to improve quality Change in demand for vehicles Pressure to innovate Pressure to guarantee product liability Pressure for investment in logistics and communication support Entry of foreign auto component majors
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COMMENTS

Greater Challenges

India China USA Europe

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

Create greater engagement

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.

Effectively manage transitions during & post consolidation

Likely to alter the competitive landscape leading to increase in JV/ M&A activity. Tier-1s may need to manage growing number of Tier-2 suppliers. Unless managed properly, Tier-1s may become the weakest link in the supply-chain

Create greater process orientation

Specific to home-grown companies. Challenge would be to convince internal as well as external stakeholders. Need to inculcate and develop professional managerial talent.

Explore joint-development opportunities with OEMs

Development of local R&D activities crucial for the industry. OEMs in China are supporting suppliers financially on proprietary research. Opportunities for joint development activities for new technologies should be explored.
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Key Takeaways

Significantly enhance end-customer know-how

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

Plan on creating a global footprint

Footprint could be in terms of alliances/ JVs/ Technical tie-ups as OEMs increasingly are looking at tapping their existing relationships in one market to establish presence in newer markets.

Enhance quality of working conditions

Increasingly being used by OEMs to assess Suppliers aspirations and management outlook. Need to ensure proper and safe working conditions for employees on the shop-floor.

Need for greater trust

OEMs and Suppliers need to bring in greater transparency in communication, adequate and timely sharing of information and respect for each others intellectual property rights.

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The way forward . . .

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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

R&D for new product development Opportunities in new markets

Achieving excellence in Industry and enhanced cultural fit for both parties

Transactional

Strategic

Symbiotic

Maturity of the relationship

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Different factors help achieve different stages of relationship

Core Drivers

Supporting Drivers Innovation Technology / Design

Product Quality

Manpower - Organization Structure

- Maintaining skilled force

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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Thank you for your attention!

Your contact at J.D. Power Asia Pacific:

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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