Procurement basics

1. TEN KEY TRENDS ARE AFFECTING OEM-SUPPLIER RELATIONSHIPS
Delphi
Visteon
Lear
Magna
TRW
Illustration
Suppliers
Bosch
Denso
Johnson
Controls
Aisin Continental
Seiki Faurecia
Dana
Development
Purchasing
Production
Sales
Development
Production
Sales
Purchasing
GM
Ford
Toyota
VW
Renault
Nissan
Illustration
OEMs
BMW
DC
PSA
Fiat
Hyundai
Honda
Supplier
Trends
Interface
Trends
OEM
Trends
1 Supplier consolidation
2 Supplier as systems integrators
3 Supplier as drivers of innovation
4 Partnership programs
5 New business models
6 Slower-than-anticipated
adoption of e-procurement
7
10
Shortening innovation
cycles
8 Increasing challenges
on quality
9 Increasing product
differentiation
Global sourcing

2. SIX LEVERS FOR OPTIMIZING THE OEM-SUPPLIER INTERFACE
ADVANCED
DEVELOPMENT
CONCEPT
DEFINITION &
COMPETITION
SERIES
DEVELOPMENT
RAMP-UP
- 120 months - 48 months - 36 months - 12 months Start of Production
CREATE AN
INNOVATION
FOSTERING
ENVIRONMENT
FOR SUPPLIERS
LEVERAGE
SUPPLLIERS’ R&D
CAPACITIES &
PRODUCT &
MARKET
KNOW-HOW
ALIGN THE OEM
ORGANIZATION
FOR EFFECTIVE
INTERACTION
WITH SUPPLIERS
DIFFERENTIATED REMUNERATION OF
SUPPLIERS’ R&D EXPENSES
CONSTRUCTION OF
INNOVATION
PLATFORMS
EARLY INVOLVEMENT OF
SUPPPLIERS IN THE
INNOVATION PROCESS
COOPERATION BETWEEN AND COLLOCATION OF INTERNAL R&D AND PURCHASING
TREND AND
SUPPLIER
SCOUTING
STABILIZATION OF THE INNOVATION PURCHASING PROCESS
1
2
3
4
5
6
OEM’s CAN USE SIX (6) LEVERS TO OPTIMIZE THE OEM-SUPPLIER INTERFACE

3. Volume
Approach
OEM’s APPROACHES TO THE INNOVATION-PURCHASING PROCESS
VARY BETWEEN TWO EXTREMES
B
A Suppliers
Involved
- 36 months
A
SERIES
DEVELOPMENT
HIGH
Relationship
Stability and
Transparency in
Development phase
- 12 months Start of Production
RAMP-UP
SERIES
PRODUCTION
X
- 120 months - 48 months
ADVANCED
DEVELOPMENT
CONCEPT
DEFINITION AND
COMPETITION
A
A
B
OFTEN
Supplier
Involvement
In advanced
development
MEDIUM
Competition
Intensity in
Bidding
phase
A
A
B
C
D
B
A
X
B
B
Dual
Development
Last-minute
competitor
Premium
Approach
RARE HIGH LOW
6 LEVERS FOR OPTIMISING THE OEM-SUPPLIER RELATIONSHIPS

4. OEMs HAVE TWO BASIC OPTIONS FOR POSITIONING
THEIR PURCHASING ORGANIZATIONS
ORGANIZATION
STRUCTURE
PROs
CONs
PURCHASING
R&D PRODUCTION
CEO
PURCHASING
R&D PRODUCTION
CEO
Allows bundling of purchasing
volumes, especially in multi-brand
companies
Allows bundling of purchasing
Volumes, especially in multi-brand
companies
Allows optimal purchasing integration
with R&D and suppliers in order to
drive innovation
Can diminish the drive for cost
reduction because of the dominant
technology focus
Purchasing is independent,
top level function
Purchasing is combined with
R&D and Production
Strategic
Supplier
Management
Logistics
Project Quality
Sourcing Management
STRUCTURING A SUPPLIER and TECHNOLOGY- ORIENTED PURCHASING
ORGANIZATION

5. A BEST PRACTICE STRUCTURE FOR AN OEM PURCHASING ORGANIZATION
INCLUDES STRATEGIC SUPPLIER MANAGEMENT
Systems
Purchasing
Components
Purchasing
Non-production
Purchasing
Strategic Supplier
Management
PURCHASING
Brands/
Platforms/
Models
System Groups 1 Component Groups 2
Regions
New Business
Models 3
General
Supplies
Production
Facilities
Cost
Engineering
Supplier
development
Trend and supplier
scouting
Partnership
Programs
Quality
Management
Currently in place at most OEMs Partly in place Absent from most OEMs
1 Complex systems & modules are provided by a few suppliers – relationship management is needed (e.g. integrated
interiors.
2 Components are provided by a large number of suppliers – sourcing takes place through standardized processes
and business-to-business platforms (e.g. tyres and batteries).
3 This department handles BOT (build-operate-transfer) models and supplier parks.

6. TREND AND SUPPLIER SCOUTING BEGINS WELL AHEAD OF THE
PRODUCTION CYCLE
Trend
Sources
Trend
Identification
Supplier
Pre-screening
Supplier
Monitoring
Technology
Matching
Vehicle
Project
Start
Advanced Development Stage
Concept
Definition
Stage
Market
Research
Strategic
Supplier
Management
Advanced
R&D
Market
Trends
Supplier
Trends
Technology
Trends
Trend Supplier Scouting
Find appropriate
Suppliers for
identified trends
Initiate first contacts
Assess
new suppliers
Determine prices for
new technologies
Ensure on-going
supplier
benchmarking
Maintain regular
contacts
Check financial
evolution of
suppliers
Adjust prices for
technologies
Project
Sourcing
Platform
Engineering
Identify new, relevant
Technologies …
… assess corresponding suppliers and
include them in an “observatory panel” …
… and choose the
best to include in
new projects
Handoff
About 10 years before the start of
production
Four to five years before the start of
production

7. PURCHASING DEPARTMENT CAN BE STRUCTURED IN FOUR WAYS
Brand Committee
Leading Role Joint Decision Minor Role Platform Committee
BRAND
POSITIONING
NUMBER OF BRANDS
1
MODEL
1
MODEL
2
CEO
R&D/
Purchasing Production
4
BRAND
1
BRAND
2
R&D/
Purchasing
CEO
Production
MODEL A
MODEL B
MODEL C
MODEL D
2
MODEL
1
MODEL
2
R&D
CEO
Purchasing Production
3
CEO
R&D Purchasing Production
PLATFORM
MODEL A
1
MODEL B
PLATFORM
MODEL C
2
MODEL D
SINGLE MULTIPLE
VOLUME
PREMIUM