Formula One is often seen as a test bed for developments in the motor industry generally. Normally this refers to developments in technology rather than supply chain. But followers of F1 will be well aware of the supply chain difficulties being experienced by the Red Bull team at the moment.
Its cars are currently powered by a Renault engine. Unfortunately, the Renault unit is currently no match for the championship-leading Mercedes engine. There have been harsh words, and Red Bull is currently seeking a new supplier. There are very few engine suppliers in F1, and there have been suggestions that Red Bull might even quit the sport if no-one will supply a competitive unit.
While no-one is suggesting that a similar scenario is likely, or even possible, in the motor industry, a new report from DHL highlights the fact that an increasing proportion of the parts in the average car are now produced by component suppliers rather than the vehicle manufacturers and that is having a significant impact on the balance of power in the supply chain.
Not only that, the increasing use of high tech systems in cars means that technology companies are increasingly becoming the engine behind automotive innovation.
The trends are highlighted in a study by Lisa Harrington for DHL Supply Chain entitled: “The quiet revolution: convergence and the future automotive supply chain”.
Harrington, who is a senior research fellow at the University of Maryland as well as heading her own consultancy, argues that for automotive OEMs, competing with other industries is the norm now.
The study argues that the big suppliers have been investing in both global expansion and research and development. It gives the example of Bosch, which spent 9.9 per cent of sales on R&D in 2013. That compares to General Motors, which spent 3.5 per cent of sales on R&D.
It’s only fair to say that in cash terms GM is still spending more. In 2013, it had a turnover of $155.4 billion (€136.8bn) – 3.5 per cent of that is €4.8bn. In comparison, Bosch’s turnover was €46.1bn – 9.9 per cent of that is €4.6bn. Nevertheless, there is a clear shift in the balance.
At the same time the motor industry is becoming more entwined with the IT industry, and the study highlights the fact that increasingly motor manufacturers will be competing for supplier capacity with the tech industry which might be the larger customer.
Not surprisingly, Harrington argues OEMs will need to orchestrate the entire supplier ecosystem in a way that ensures future growth.
And it goes without saying that agility, strong collaborative relationships, and effective risk management will be even more critical in the future.