The US automotive industry needs to foster collaborative relationships between firms at all tiers in the supply chain if it is to prosper, according to a study by researchers at Case Western Reserve University in Cleveland, Ohio.
And it warns that adversarial relationships within the supply chain could impede the industry’s progress.
“In this future, instead of developing better products and thinking critically about how to remove inefficiencies from processes that span multiple firms, firms at each level of the supply chain generate profits by squeezing margins of firms in the tier under them. This path is a recipe for industry-wide stagnation,” said research leader Susan Helper, Weatherhead School of Management Cartlon Professor of Economics.
The report “The US Auto Supply Chain at a Crossroads” includes findings of the National Survey of Automotive Suppliers, conducted by researchers at Case Western Reserve as part of the Driving Change consortium, led by the Labour Market Information Offices of Indiana, Michigan and Ohio
Helper’s research team focused on smaller firms within the industry’s supply chain – usually tier 2 or tier 3 suppliers. They account for 30 percent of employment in the auto supply chain.
The report found evidence that many first tier firms continued to protect their profit margins by cutting the margins of their suppliers, rather than by trying to build positive-sum relationships.
In response, many suppliers focused on short-term cost-cutting and were reluctant to invest in modernising their operations. For example, barely a third of survey respondents have adopted Toyota-style practices such as involving workers in problem-solving groups, despite widespread evidence that such practices improve performance.
The study found some evidence that relationships are becoming more collaborative, as many firms report that their main customers are more likely now to work with them to reduce costs than they were in 2007 before the recession.