Executive Summary
More likely than not, today's automotive supplier has either thought about, or ventured into a partnership agreement with another supplier. With rapid changes occurring in the automotive industry, suppliers have made drastic changes in the way they conduct business. Changing regulations, a consolidation of the supply base, and changing consumer demands are some of the market forces that have played a role in the growing number partnerships among suppliers.
Supplier partnerships are either defined as a formal partnering activity or a more informal partnership arrangement. Formal partnerships include such ventures as mergers, acquisitions, joint ventures, and licensing agreements. More informal partnerships include strategic alliances. Although many suppliers have formed relationships with other suppliers, truly strategic alliances are characterized by synergy, collaborative strategy development, sharing of benefits and risks, joint problem solving activity, mutual incentive to improve products and processes, working towards common goals, trust, amity, a long term commitment, increased information sharing and increased communication.
Among survey participants, the most common type of partnership arrangement is an informal strategic alliance. This is due largely to the ease and speed of forming these partnerships to meet changing industry needs. Joint ventures and acquisitions are also quite common among suppliers. Less common among survey participants are partnerships in the form of mergers or formal licensing agreements.
Supplier partnerships are being created between all types of suppliers in all product areas. Most partnerships are formed between suppliers of dissimilar size. As global sourcing becomes more prevalent, partnerships between suppliers on different continents or in different countries is becoming more prevalent. In terms of product area, suppliers are partnering both within and outside of their product area to meet changing needs of their customer base.
Suppliers have used partnerships as a tool to try to achieve a number of goals. Many suppliers have formed partnerships in hopes of expanding their customer base, expanding their product line, increasing their global capabilities, becoming a full service supplier, or enhancing profit margins. Others have partnered due to a request or demand of one or more of their OEM customers.
In many cases, partnerships have been an effective way for suppliers to accomplish business goals. Most suppliers are moderately to highly satisfied with the success of their partnerships. For most suppliers, partnerships have led to an increase in sales. For many, it has improved the quality of their product or services and has positively affected profit margins. For a few, it has shortened lead time. However, other suppliers report high dissatisfaction with their partnership experience. For these suppliers, the partnership led to decreased sales and profitability, lower quality and a longer lead time.
For some suppliers, partnerships can be a highly effective component of a business strategy. For others, this type of venture makes little sense. Although each supplier's situation must be carefully examined on a case by case basis before a partnership is considered, ACG did uncover some common elements of the most successful partnerships which include:
- Companies involved in partnerships where partners have equal decision making control tend to report a higher level of success
- Effective and frequent communication among partners is a critical element in a partnership agreement
- Companies with distinct cultures and managerial styles can still form highly effective partnerships. The key is the ability to manage and monitor these differences prior to and during the partnership. It is also important to position these differences as strengths to complement the other partner's weaknesses
- Some of the most successful partnerships are formed between traditional rivals who have approached the partnership with "cautious trust"
- Suppliers have been most satisfied with partnerships in the form of acquisitions and strategic alliances
- Companies who form partnerships to expand their product line, increase their global capabilities or become full service suppliers report the highest success rates
- Suppliers involved in successful partnerships tend to conduct thorough up-front research on their potential partner (s)
- Suppliers involved in the most successful partnerships rely more heavily on written contracts where all of the terms of the contract are specified
- Companies that take on the additional workload that often comes with a partnership are generally more likely to be involved in a successful partnership
- Highly successful partnerships most often have top executives who actively support the partnership
- Highly successful partnerships most often have core groups to manage and monitor the partnership
Study Background
In total, 131 supplier companies were surveyed for this analysis. All participants were involved in at least one partnership with another supplier. From these participants, 185 distinct partnerships were analyzed. Participants were questioned about their perceptions and activities regarding their partnering activities with other suppliers. In addition, in-depth follow-up interviews were conducted to gain further insight into the issues related to supply base partnering activities and the relative success or failure of the venture. Individual respondents were contacted from all functional areas of management, including general management, engineering (including product development, design, quality, manufacturing, and R&D), marketing and sales, supplier relations, purchasing, human resources, and accounting.
The results for individual survey findings are presented in aggregate form for all respondents. For purpose of comparison, the data is also sorted and analyzed to segment findings by supplier type, product area and partnership success ratings.
For supplier type, respondents are sorted into:
- systems or subsystems suppliers
- component suppliers
- material suppliers
- tooling suppliers
Product area is divided into
- electrical suppliers
- body interior suppliers
- powertrain suppliers
- body exterior suppliers
- chassis suppliers
Partnership success ratings are categorized as:
- least successful partnerships (a rating of 1 - 3 on a ten point rating scale)
- somewhat successful partnerships (a rating of 4 - 7 on a ten point rating scale) and;
- most successful partnerships (a rating of 8 - 10 on a ten point rating scale)
Distribution of suppliers is as follows:
- sixty percent of respondents supply components while thirty percent supply systems or subsystems
- fifteen percent supply materials
- sixteen percent are tooling or equipment suppliers. The heavy emphasis on components suppliers reflects their widespread distribution in the automotive industry.
All product areas were well represented and distributed in the survey:
- thirty-nine percent of respondents make body interior products
- thirty-eight percent manufacture powertrain parts
- twenty percent produce electrical/electronics
- thirty-five percent make products for the chassis
- thirty-one percent of survey participants supply body exterior parts.
Winning Strategies in Partnering:
