Automotive Supplier Excellence: Achieving Continuous Cost Reduction

Automotive suppliers are in a challenging position. Over the last several years, OEMs have issued mandates to their suppliers to reduce costs, and those pressures have only continued to increase. For example, in early October 2002, General Motors accelerated its schedule to negotiate and incorporate its calendar-year 2003 supplier cost reductions. Ultimately, an inability to reduce internal costs year after year to meet the OEM mandates will result in eroding margins that may put the suppliers' future business at risk.

From the supplier community's perspective, most OEM supply-chain improvement initiatives rely on transitioning the operational burden from the OEM to the supplier. According to AMR Research, "...OEMs have done little more than force suppliers to carry a larger burden of inventory …The cost of maintaining inventory has remained the same; it's just shifted to suppliers." Increased inventory burden and additional responsibility to coordinate more of the OEM's supply chain has put additional pressure on the supplier community's margins and increased their operational responsibilities.

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