Collaboration is king

Munich, May 2023

Innovation inflection point in the auto industry: suppliers must react

Munich, May 2023

rue collaboration between OEMs and suppliers holds the key to future competitiveness

When times get hard, you find out who your real friends are – and automotive suppliers did not receive as warm a welcome as they might have expected when they sought higher prices from OEMs in the face of lower sales volumes and a jump in costs last year. With a shortage of components for new cars, OEMs focused on higher-margin vehicle sales and protected their profitability, but declined to pass their pricing power down through the supply chain. Figure 1 below shows the difference between supplier and OEM margins in 2022 as a result:

Figure 1:


Source: Berylls Strategy Advisors 

Yet as cars are increasingly defined by software, the balance of power is changing: OEMs have had to acknowledge they simply don’t have the know-how in this area. When working with large and experienced tech partners, they have far less negotiating power than they have with long-established suppliers. OEMs are also increasingly partnering with technology companies and start-ups with no automotive industry experience. This is both an opportunity to shape mutually beneficial ways of working, and a source of risk.

To address all these forces, we believe successful collaboration is more critical than ever in modern automotive operations and supply chains. The transformation that needs to occur is that all parties see the car as a technology platform. The OEM is moving from being an original equipment manufacturer to an original platform provider (OPP). From this starting point, the new way of working becomes clear: manufacturers and tech companies move from simultaneous to collaborative engineering.

A good source of inspiration already exists in the keiretsu model pioneered in Japan in the twentieth century – keiretsus are business networks made up of manufacturers, supply chain partners, distributors and banks, which work together in close collaboration. The companies sometimes take small equity stakes in each other, but remain operationally independent. There are no conflicting goals because the focus is on economic sustainability throughout the keiretsu. At the end of the day it is all about building cars. Successfully. Together.

Here, we will look at how OEMs and suppliers can successfully work together to strengthen their global competitiveness, starting from the early development phase, through to procurement and series production.

Development: Collaborative engineering holds the key

Better collaboration in the development phase brings together cross-functional teams to work on product design and development, leveraging each team member’s strengths. Using a systems engineering approach is the first step in the right direction, so that both OEMs and suppliers are no longer thinking in terms of individual components. Engineers working on the overall vehicle development project, as well as production, purchasing and component teams and suppliers, should all be in regular contact from the point of defining the product requirements onwards.

Working in this way means relevant suggestions for changes to the vehicle’s systems architecture can be openly discussed among the wider team. This leads to more innovative and reliable products and helps to avoid expensive, time-consuming problems as the car gets closer to series production. As things stand, architecture and design approaches offered by the supplier or external engineers often get rejected, because the OEM has already gone too far along in the development process. 

A solid understanding of the requirements of both sides is the foundation of collaborative approaches. Currently, requirements are often only defined in one direction, from the OEM to the supplier. But by collaborating with the supplier in the development process and taking their feedback on requirements such as material sourcing into account, OEMs can reduce their costs. 

However, as the automotive industry continues to evolve, it is likely that suppliers will become even more closely integrated with OEMs, with many companies developing highly specialized products and technologies specifically for particular automakers or vehicle models. A true development partnership means jointly working on specifying requirements and jointly working on solutions. It requires integrated systems thinking to find the best way forward in terms of both performance and efficiency, and for all sides to be willing to put the facts on the table and corporate as equals.

To sum up, the course of action to jointly master product and process maturity is clear:

  • Move to collaborative engineering: OEM and suppliers together as joint team developing together, rather than in parallel, based on a joint culture and working model fostering efficiency
  • Think in systems: Leverage integration into the vehicle systems architecture be integrating the vehicle perspective for every component based on a strong interface 
  • Challenge requirements – together: Relentlessly challenge requirements which are relevant and focus on the minimum system relevant in order to ensure efficiency and foster innovation which is relevant to master competition 

Procurement: The hunt for cost efficiency and the right partnerships

The automotive industry has faced significant external challenges over the past three years, starting with the pandemic and followed swiftly by the chip crisis, the war in Ukraine, and inflation. Unfortunately, many automotive supply chains were ill prepared to handle these severe and sometimes sudden challenges. However, to deal with the disruption, we have seen a move away from purely transactional relationships between OEMS and suppliers, and toward strategic collaborations and joint requirements engineering. Greater pricing flexibility within contracts will become increasingly necessary and work in both directions, to enable companies to adapt to the ever-changing market conditions.

To detect potentially critical situations earlier and jointly find solutions, it has been important to increase visibility over the financial and operational performance of lower tier suppliers. In addition, divisions between development and purchasing have been broken down, bringing in new cross-functional ways of working.

The benefits have been to reduce procurement costs and improve quality. Cost efficiencies can be achieved by integrating supplier knowledge into the product specification, and quality improves by considering design-for-manufacturing with the input of suppliers. Both elements change the competitive focus in the bidding process from price alone, to the development of concrete improvement proposals.

Building a collaborative procurement network means OEMs playing a role in the design of the supply chain through all the various tiers of suppliers, to ensure the availability of materials and components. All parties should champion flexibility to ensure cost efficiency and a resilient supply chain. Drawing on the knowledge of each partner also avoids risk and unnecessary spending. Transparency is the responsibility of everyone and becomes a virtuous circle – if OEMs don’t exploit supplier transparency, it becomes an opportunity rather than a burden for suppliers, which in turn makes them more inclined to be open.

The lessons of the past three years have highlighted four key steps to enable collaborative risk management and crisis response in procurement:

  • Joint risk assessment: OEMs should work collaboratively with their suppliers to identify and assess potential risks in their supply chains, to develop a shared understanding of the potential issues they face and work together to mitigate them. Digital industry platforms are already the ideal starting point 
  • Contingency planning: Collaborative contingency planning to prepare for potential crises and minimize their impact means developing alternative sourcing strategies, identifying backup suppliers, and implementing supply chain risk management tools.
  • Early warning systems: Early warning systems can help companies detect and respond to potential risks and crises before they escalate. 
  • Loyalty and partnership: Furthermore, do not devalue your Investment in a long-term cooperation by choosing another partner for a new variant and starting all over again

Manage the series: collaboration for better decision-making and lower costs

Currently, OEMs make their demands for parts and suppliers are expected to deliver, whatever the size and scope. Closer alignment will definitely improve this process, rather than OEMs unilaterally changing batch sizes, timing of production and a range of other factors.

A good example of better collaboration at work is what happened during the recent semiconductor crisis. Suppliers did not have enough clout with semiconductor manufacturers and so did not receive sufficient chips to meet their orders. OEMs stepped in to take an active role, consolidating the chip requirements of their suppliers and gaining a far stronger negotiating position with semiconductor manufacturers because of the size of the total order. Sticking to this practice in future would offer the best result for all parties.

Following the chip example, we believe that closer collaboration will improve efficiency and reduce costs throughout series production. Currently, once vehicles reach this stage, suppliers are pretty much on their own. There is an expectation they will continue to improve efficiency and reduce costs throughout a contract, but OEMs don’t give much practical support when it comes to taking concrete steps to do so, instead citing regulations and compliance issues. 

OEMs and suppliers should be pulling in the same direction to make cost improvements – by sharing the responsibility, OEMs would benefit from suppliers’ ideas and suppliers would not have to fear losing their margin because the OEM requests a price reduction every time they successfully make a saving. When it comes to the production part approval process (PPAP) for example, production is approved by the OEM for a specific plant. Changing production location often becomes difficult for the supplier because there is a cost to making the switch. 

Increased collaboration would also result in more product improvement once vehicles are on the road. Today, when defects are discovered, the follow-up is more about who has to pay to put it right than about what the manufacturers can learn from it. Working together to diagnose problems would save time and money. 

For example, suppliers might not have the facilities to diagnose a battery failure in every part of the world, whereas the OEM has some form of technical infrastructure wherever they sell cars. Shipping broken batteries to a particular facility, for example, is slow, potentially dangerous and in some cases even impossible. Instead, the OEM and the supplier could jointly analyze the battery wherever it is when the fault occurs, depending which of them has better infrastructure there. That would speed up the process and save a great deal of money, as we set out in our assessment of how OEMS can reduce the millions they spend on warranty costs

In conclusion, the joint focus for series phase efficiency is:

  • Make demands and changes in demand transparent regularly: Well established supply chain architecture will profit from transparency – joint elaboration if things are changing is more relevant than simply pushing for “contract follow plus aligned flex rates” 
  • Never stop to improve the product: It will always be a joint key to master competitiveness to enable cost down during series phases, therefore cle collaboration without protective negative attitudes is important – let’s realize great ideas together instead on pushing for 3% yearly lifetime savings
  • Learn from field issues: Especially within the electrified drivetrain, it is important to enable quick learning ability to avoid future risks in the field, therefore sometimes it is more important to react quick before challenging responsibilities between OEM and suppliers


The growing importance of software in the automotive value chain and the supply crises of recent years mean fundamental changes in the relationship between OEMs and suppliers are already taking place. Previous ways of working, in which true partnership and the principles of give and take were not a priority, are outdated. 

Now, both groups need to embrace a common purpose rather than arguing about an unclear set of requirements and line-by-line cost breakdowns. The time has come to recalibrate the way OEMs, supplier and tech companies’ collaborate, as they move toward treating the car as a technology platform.

Fritz Metzger


Philipp Stütz

Associate Partner

Steffen Hage

Senior Consultant

Bolko von Hochberg


Fritz Metzger

Fritz Metzger (1986) joined Berylls Strategy Advisors, an international strategy consultancy specializing in the automotive industry, in February 2021. He is an expert on automotive operations.

Since 2011, his focus has been on strategic alignment and operational efficiency improvement of automotive manufacturers and suppliers. He also advises top management in critical situations, including R&D and industrialization task forces and relocation and restructuring initiatives of plants and complete suppliers. The challenges of e-mobility are always in focus.

Before joining Berylls, he was a director at international strategy consultants PwC Strategy&, as well as a sales and project manager at a medium-sized supplier and mechanical engineering company.

Fritz Metzger is a trained industrial engineer with a degree from ESB Business School Reutlingen. He also holds an MBA from the University of Salzburg.

Philipp M. Stütz

Philipp M. Stuetz (1981) joined Berylls at the beginning of 2021. He has over fifteen years of experience in the automotive industry. Thereof he spent seven years at an international automotive supplier with assignments in Spain, the USA and Mexico and over eight years in consulting. His focus is in operations excellence, especially in large transformation programs, process optimizations and efficiency improvements in administrative functions and indirect operations areas. He counts suppliers and OEMs to his clients alike.

Philipp M. Stuetz graduated in business administration from the universities of Stuttgart and Strasbourg.