Some developing trends in manufacturer-supplier relationships

An analysis of past developments in the relationship between "supplying" and "supplied" companies leads to the conclusion that "best-in-class" OEMs have initiated a new and more radical evolution of their supply chain. Their key long term objective is the creation of a truly integrated value-adding chain from raw materials to customer, devolving and decentralising investment risk, operational accountability and complexity management to a new hierarchy of managerially, financially and technically more competent suppliers. The competitive impact has been the emergence of extended organisations with distinctive skills in fast innovation, fast realisation and/or fast supply. This has given "time" a certain strategic credence as a measure of efficiency and effectiveness, whilst masking more radical and important organisational developments. The net effect has been an acceleration of the trend towards fewer, but more closely interlinked, direct suppliers and a further relegation of many to secondary or tertiary providers, competing on price/quality ratio alone. Surviving suppliers benefit from a shift of focus from piece-part cost to value-added contribution, increased volumes of bought-out materials and services, and greater contractual security. In Northern Europe at least, supplier requalification would seem well advanced. The present paper attempts to catalogue the needs and identify the critical success factors for future first tier direct OEM suppliers through a consideration of first-hand experience, specific case-studies and industrial sector surveys for mechanical and electro-mechanical enterprises. It is concluded that, to qualify, the new breed of first tier suppliers is obliged to choose whether to develop its technological abilities and "know-how", its manufacturing and assembly skills, or both. Failure to do so would imply relegation to "component supplier" competing on a "lowest cost" basis. The inherent dependency, trust and "open-book" dealing required calls for a difficult cultural shift for Western companies. At least one OEM, faced with strong negative reactions, is evaluating the economic and competitive disadvantage of abandoning a well-advanced supply chain integration strategy.