Auto Supplier Selection: Again, It\u2019s All About The Partner<\/h1>\n\n Munich, May 2023<\/span>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t\n\t\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t\t\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\n \n\n\n \n \n\n T<\/span>\n he transformation of the automotive business has changed the terms of supplier selection: OEMs moving to new technologies need to develop collaboration-first relationships, and recognize that they need new sorts of suppliers and to select them according to new criteria. \u00a0\u00a0<\/p>\n\n <\/div>\n\n \n\n <\/div>\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\tSupplier relationships have long been critical for auto manufacturers. OEMs that can work in partnership with suppliers to deliver innovation, quality and cost control are the companies that thrive.<\/p>
Yet the industry crisis that accompanied the Covid-19 pandemic showed the weaknesses in many automotive supply relationships. Companies that had already built collaborative relationships with suppliers of key software and electric technologies passed through the crisis relatively unscathed, and even thrived. However, companies that relied on older inflexible supply models based on rigid contractual obligations lost production volumes and market share.<\/p>
This should have been a wake-up call that the established auto supply model was breaking down. Manufacturers need to rethink their supplier selection processes to adapt to a faster moving world with shorter innovation cycles<\/a><\/span>. <\/span><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\tThe fragile supply chain<\/strong><\/h2>As the disruption inflicted by the Covid-19 pandemic began to ripple through the global industrial system many companies suddenly found they were more vulnerable than they had anticipated to shortages of key digital hardware. This was especially true of automakers dependent on microprocessors.<\/p>
In the first quarter of 2022 one large European automaker saw its vehicle deliveries in China, a key market, drop by almost a quarter. A large Asian auto manufacturer saw global sales fall by 9.1% in the same quarter. A premium brand European manufacturer saw sales fall from well over half a million units in the first quarter of 2021 to only 487,000 a year later. The common factor: falling semiconductor production at key suppliers.<\/p>
Yet some manufacturers escaped the crunch. In the first quarter of 2022 Tesla increased deliveries year-on-year by 69%. Clearly, Tesla is doing something right that some established carmakers are doing wrong. We think one big part of the answer lies in supplier selection and management.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\t\tFrom compliance to collaboration<\/strong><\/h2>The traditional model of supplier selection and management is based on highly detailed contractual negotiation and specification: deliverables, cost and timelines are all specified by the commissioning OEM and cascaded down to suppliers. Past product lifecycles have been relatively easy to calculate and product needs have been possible to forecast long in advance with only slow evolutionary change expected or demanded. As a result cost has inevitably been the primary driver of supplier selection and OEMs have retained the power to dictate supplier terms.<\/p>
That is changing. Manufacturers now have to come to terms with technology that is unfamiliar and changing rapidly, and with suppliers that are very different to the classic auto supplier profile. Above all manufacturers are entering a world that is volatile, uncertain, complex and ambiguous, where it is increasingly harder to specify all the characteristics of an automotive component in advance. This world demands that automakers shoulder a higher level of uncertainty risk in supplier relationships: the payoff is that they can also capture a higher rate of supply innovation.<\/p>
The new automotive world dictates a new supplier relationship culture<\/strong>. While OEMs have become accustomed to being bigger and more powerful than most of their key suppliers, that is already changing. Digital technology suppliers like Samsung, LG, Apple and Google are bigger than most automakers and have at least equal power in dictating the terms of the collaboration between OEM and supplier. At the same time manufacturers may even have to seek out new technology suppliers with no profile or history in the automotive business, suppliers who may be smaller but who do not share the control-and-compliance culture familiar to traditional OEMs and suppliers.<\/p>A world of uncertainty and volatility also dictates new timelines<\/strong> in the structure of supply relationships. In collaborative and risk-sharing supplier relationships, timing becomes more critical. The established pattern is for OEMs to integrate different suppliers late in the day and only after most specifications have been defined, leading to a loss of responsiveness and increased cost during improvement cycles. When suppliers are integrated into the design phase a faster and more efficient ramp-up can be achieved, avoiding costly late-stage improvisations.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\tRethink supplier selection<\/strong><\/h2>The emerging world of electric, autonomous and shared automobility poses a profound challenge to traditional procurement practices<\/a>. Many of the new technology suppliers that will be critical to OEM success in the transition to electro-mobility do not fit into the classic selection process. They may be from entirely different industries, they may have no history of operating within automotive processes, they may not yet be established in the industrial supply chain \u2013 and they may operate with cultures that are alien to automotive practices.<\/p>New entrant EV-focused OEMs already know this. They typically collaborate with suppliers who can enhance their speed to market and innovation potential<\/a>. For them, the component development and supply process is neither centralized within the OEM nor decentralized through a fully defined specification \u2018handover\u2019 to the supplier. Rather they are \u2018semi-centralized\u2019 through a process of product development through collaboration.<\/p>Where traditional OEMs award supply contracts for individual components at a single point in time, companies such as Tesla and Apple periodically define and then re-define an overarching sourcing strategy for all product families, with contracts awarded within a cross-functional supplier strategy which is designed to unlock synergies across components and develop partnership.<\/p>
- \u00a0Example: having already paid particular attention to innovation and the ability to adapt quickly when selecting suppliers, during the COVID-19 pandemic Tesla<\/strong> worked closely with its suppliers to develop new solutions for sourcing critical parts and components. This included exploring alternative supply chains and developing new manufacturing processes to ensure that the company could continue to produce electric vehicles despite disruptions in its supply chain.<\/span><\/li>
- Example: Chinese EV automaker BYD<\/strong> has also worked closely with suppliers of electric vehicle components to ensure high quality and on-time delivery: these include extended development and supply contracts, such as the company\u2019s long term battery supply contract with CATL.<\/span><\/li><\/ul>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t\t\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t<\/div>\n\t\t\t\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t
\n\t\t\t\t\t\tAutomotive Transition Demands Culture Change\t\t\t\t\t<\/h2>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\n\t\t\t\t\t\tThe transition to collaborative working models and shared innovation processes will represent a significant culture change for established OEMs, especially where western OEMs are dealing with the growing number of capable Chinese suppliers, and where western suppliers are working with fast-growing Chinese EV manufacturers.\nSuppliers in China and elsewhere are becoming more self-confident, with strong sales growth and success with \u2018Made in China\u2019 brands making them independent of Europe and the US market. European purchasing managers in both OEMs and suppliers may be reluctant to accept the changing balance of power and the need for cultural re-alignment. \nChinese organizations are characterized by \u2018high power distance\u2019 \u2013 they rely more heavily on consensus building and a decision-making process within a group that shows deference to those with authority. This has important implications for supplier management. Western automakers and suppliers will need to adapt to an organizational culture where individual teams may not be able to make final decisions and where open criticism of processes may be counter-productive. \n\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\t\tRethink the purchasing skillset<\/strong><\/h2>Supplier selection is often determined by the skills and assumptions of the OEM purchasing function \u2013 and in many cases these skills have not changed for years. There is firm evidence that purchasing managers in traditional OEMs continue to lack the cultural and technical skillset needed to build new technology supplier relationships, while emerging OEMs are more likely to ensure their purchasing staff have a new technology background and an understanding of these suppliers.<\/p>
This is confirmed by our analysis of more than 100 job descriptions for OEM purchasing roles which shows that among newer OEMs, around 50% of roles specify new technology experience, while no more than 25% of established OEM job postings specify knowledge of these technologies. New technology OEMs are also more likely to emphasize technology rather than automotive experience, while established OEMs are likely to focus on automotive purchasing experience alone.<\/p>
With a typical short job rotation period in established OEM purchasing roles, it is unsurprising that supply managers do not have time to fully absorb and understand new automotive technologies, and lack the motivation to make long-term changes to collaboration strategies.<\/p>
The result is that established OEM supplier selection and management is optimized for a world that is disappearing. Existing supplier selection principles are designed to reduce risk \u2013 but they cannot respond to the new risk of losing the capacity to innovate in new automotive technologies.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\t\tWe understand supplier selection<\/strong><\/h2>At Berylls we have extensive hands-on experience in supplier selection. We support companies at both the selection and ongoing partnering phases, and we employ a holistic view of supplier relationships that embraces both culture and competence.<\/p>
We believe that if traditional OEMs do not break with their established approaches to supplier selection for new automotive technology, where time to market is critical and innovation capacity is key, they will end up blocking the necessary evolution of their business models.<\/p>
We know that the standard approach is easy to set up but difficult to override, steeped as it is in decades of automotive experience. \u00a0<\/p>
But we also know it must change. Together we can achieve that.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\n\t\t\t\n\t\t\t\t\t\t\n\t\t\t\t\n\t\t\tInsight download and author information\n<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\n \n \n \n\n\t Authors<\/h2> <\/div>\n \n \n \n Christian Grimmelt<\/p>\n
Partner<\/p>\n
christian.grimmelt@berylls.com<\/p>\n <\/div>\n
\n \n <\/div>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n\n <\/div>\n \n \n Valentin Froh<\/p>\n
Project Manager<\/p>\n
valentin.froh@berylls.com<\/p>\n <\/div>\n
\n \n <\/div>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n\n <\/div>\n \n \n Eren Duygun<\/p>\n
Senior Consultant<\/p>\n
eren.duygun@berylls.com<\/p>\n <\/div>\n
\n \n <\/div>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n\n <\/div>\n \n \n Peter Nuck<\/p>\n
Senior Consultant<\/p>\n
peter.nuck@berylls.com<\/p>\n <\/div>\n
\n \n <\/div>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n\n <\/div>\n \n \n Tristan V\u00f6lker<\/p>\n
Senior Consultant<\/p>\n
tristan.v\u00f6lker@berylls.com<\/p>\n <\/div>\n
\n \n <\/div>\n <\/div>\n <\/div>\n <\/a>\n <\/div>\n\n <\/div>\n
he transformation of the automotive business has changed the terms of supplier selection: OEMs moving to new technologies need to develop collaboration-first relationships, and recognize that they need new sorts of suppliers and to select them according to new criteria. \u00a0\u00a0<\/p>\n\n <\/div>\n\n \n\n <\/div>\n \t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
Supplier relationships have long been critical for auto manufacturers. OEMs that can work in partnership with suppliers to deliver innovation, quality and cost control are the companies that thrive.<\/p>
Yet the industry crisis that accompanied the Covid-19 pandemic showed the weaknesses in many automotive supply relationships. Companies that had already built collaborative relationships with suppliers of key software and electric technologies passed through the crisis relatively unscathed, and even thrived. However, companies that relied on older inflexible supply models based on rigid contractual obligations lost production volumes and market share.<\/p>
This should have been a wake-up call that the established auto supply model was breaking down. Manufacturers need to rethink their supplier selection processes to adapt to a faster moving world with shorter innovation cycles<\/a><\/span>. <\/span><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t As the disruption inflicted by the Covid-19 pandemic began to ripple through the global industrial system many companies suddenly found they were more vulnerable than they had anticipated to shortages of key digital hardware. This was especially true of automakers dependent on microprocessors.<\/p> In the first quarter of 2022 one large European automaker saw its vehicle deliveries in China, a key market, drop by almost a quarter. A large Asian auto manufacturer saw global sales fall by 9.1% in the same quarter. A premium brand European manufacturer saw sales fall from well over half a million units in the first quarter of 2021 to only 487,000 a year later. The common factor: falling semiconductor production at key suppliers.<\/p> Yet some manufacturers escaped the crunch. In the first quarter of 2022 Tesla increased deliveries year-on-year by 69%. Clearly, Tesla is doing something right that some established carmakers are doing wrong. We think one big part of the answer lies in supplier selection and management.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t The traditional model of supplier selection and management is based on highly detailed contractual negotiation and specification: deliverables, cost and timelines are all specified by the commissioning OEM and cascaded down to suppliers. Past product lifecycles have been relatively easy to calculate and product needs have been possible to forecast long in advance with only slow evolutionary change expected or demanded. As a result cost has inevitably been the primary driver of supplier selection and OEMs have retained the power to dictate supplier terms.<\/p> That is changing. Manufacturers now have to come to terms with technology that is unfamiliar and changing rapidly, and with suppliers that are very different to the classic auto supplier profile. Above all manufacturers are entering a world that is volatile, uncertain, complex and ambiguous, where it is increasingly harder to specify all the characteristics of an automotive component in advance. This world demands that automakers shoulder a higher level of uncertainty risk in supplier relationships: the payoff is that they can also capture a higher rate of supply innovation.<\/p> The new automotive world dictates a new supplier relationship culture<\/strong>. While OEMs have become accustomed to being bigger and more powerful than most of their key suppliers, that is already changing. Digital technology suppliers like Samsung, LG, Apple and Google are bigger than most automakers and have at least equal power in dictating the terms of the collaboration between OEM and supplier. At the same time manufacturers may even have to seek out new technology suppliers with no profile or history in the automotive business, suppliers who may be smaller but who do not share the control-and-compliance culture familiar to traditional OEMs and suppliers.<\/p> A world of uncertainty and volatility also dictates new timelines<\/strong> in the structure of supply relationships. In collaborative and risk-sharing supplier relationships, timing becomes more critical. The established pattern is for OEMs to integrate different suppliers late in the day and only after most specifications have been defined, leading to a loss of responsiveness and increased cost during improvement cycles. When suppliers are integrated into the design phase a faster and more efficient ramp-up can be achieved, avoiding costly late-stage improvisations.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t The emerging world of electric, autonomous and shared automobility poses a profound challenge to traditional procurement practices<\/a>. Many of the new technology suppliers that will be critical to OEM success in the transition to electro-mobility do not fit into the classic selection process. They may be from entirely different industries, they may have no history of operating within automotive processes, they may not yet be established in the industrial supply chain \u2013 and they may operate with cultures that are alien to automotive practices.<\/p> New entrant EV-focused OEMs already know this. They typically collaborate with suppliers who can enhance their speed to market and innovation potential<\/a>. For them, the component development and supply process is neither centralized within the OEM nor decentralized through a fully defined specification \u2018handover\u2019 to the supplier. Rather they are \u2018semi-centralized\u2019 through a process of product development through collaboration.<\/p> Where traditional OEMs award supply contracts for individual components at a single point in time, companies such as Tesla and Apple periodically define and then re-define an overarching sourcing strategy for all product families, with contracts awarded within a cross-functional supplier strategy which is designed to unlock synergies across components and develop partnership.<\/p> Supplier selection is often determined by the skills and assumptions of the OEM purchasing function \u2013 and in many cases these skills have not changed for years. There is firm evidence that purchasing managers in traditional OEMs continue to lack the cultural and technical skillset needed to build new technology supplier relationships, while emerging OEMs are more likely to ensure their purchasing staff have a new technology background and an understanding of these suppliers.<\/p> This is confirmed by our analysis of more than 100 job descriptions for OEM purchasing roles which shows that among newer OEMs, around 50% of roles specify new technology experience, while no more than 25% of established OEM job postings specify knowledge of these technologies. New technology OEMs are also more likely to emphasize technology rather than automotive experience, while established OEMs are likely to focus on automotive purchasing experience alone.<\/p> With a typical short job rotation period in established OEM purchasing roles, it is unsurprising that supply managers do not have time to fully absorb and understand new automotive technologies, and lack the motivation to make long-term changes to collaboration strategies.<\/p> The result is that established OEM supplier selection and management is optimized for a world that is disappearing. Existing supplier selection principles are designed to reduce risk \u2013 but they cannot respond to the new risk of losing the capacity to innovate in new automotive technologies.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t At Berylls we have extensive hands-on experience in supplier selection. We support companies at both the selection and ongoing partnering phases, and we employ a holistic view of supplier relationships that embraces both culture and competence.<\/p> We believe that if traditional OEMs do not break with their established approaches to supplier selection for new automotive technology, where time to market is critical and innovation capacity is key, they will end up blocking the necessary evolution of their business models.<\/p> We know that the standard approach is easy to set up but difficult to override, steeped as it is in decades of automotive experience. \u00a0<\/p> But we also know it must change. Together we can achieve that.<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t Christian Grimmelt<\/p>\n Partner<\/p>\n christian.grimmelt@berylls.com<\/p>\n <\/div>\n Valentin Froh<\/p>\n Project Manager<\/p>\n valentin.froh@berylls.com<\/p>\n <\/div>\n Eren Duygun<\/p>\n Senior Consultant<\/p>\n eren.duygun@berylls.com<\/p>\n <\/div>\n Peter Nuck<\/p>\n Senior Consultant<\/p>\n peter.nuck@berylls.com<\/p>\n <\/div>\n Tristan V\u00f6lker<\/p>\n Senior Consultant<\/p>\n tristan.v\u00f6lker@berylls.com<\/p>\n <\/div>\n The fragile supply chain<\/strong><\/h2>
From compliance to collaboration<\/strong><\/h2>
Rethink supplier selection<\/strong><\/h2>
\n\t\t\t\t\t\tAutomotive Transition Demands Culture Change\t\t\t\t\t<\/h2>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t
Rethink the purchasing skillset<\/strong><\/h2>
We understand supplier selection<\/strong><\/h2>
Insight download and author information\n<\/h2>\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
Authors<\/h2> <\/div>\n \n
![](\"https:\/\/www.berylls.com\/wp-content\/uploads\/2022\/07\/Grimmelt-Christian.png\")
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