Automobile outsourcing

In standard internal combustion engine drive trains, about 60% of the added value results from the vehicle industry. This share may be reduced to only 10% for fuel-cell drive trains if the outsourcing potential is fully exploited. This shift is because the components of the fuel-cell propulsion system are not suited to current production structures in the automobile industry. Therefore, it can initially be assumed that they will be manufactured by other sectors. However, if there is a breakthrough of fuel cells, it is possible that the automobile industry will start to manufacture many of the components that are assigned to other sectors in Figure 13.13. 

As companies rely more on their suppliers to decrease overhead and asset levels, managing suppliers is now an important capability. To get a sense of the magnitude of the suppliers role, consider that, in the automobile industry, estimates suggest that Chrysler outsources over 80% of the parts it assembles into cars Ford, over 65%, and GM, over 55%. In the electronics industry, Cisco System partners provide final assembly for almost half of its switches and routers ([51]). Table 3.1 (from [51]) shows that suppliers and buyers have closely intertwined relationships with one another across a range of industries, from automobiles to banking and electronics to pharmaceuticals. 

Explain with examples the outsourcing strategy of an automobile manufacture. What types of suppliers would be appropriate for supplier partnerships and for SLAs (service level agreements) ... 

The basic philosophy of co-makership is that the supplier should be considered to be an extension of the customer s operations with the emphasis on continuity and a seamless end-to-end pipeline. As the trend to outsourcing continues so must the move towards co-makership. Nissan Motors in the UK have been one of the leading advocates of this concept. A key element of their approach is the use of supplier development teams, which are small groups of Nissan specialists who will help suppliers to achieve the requirements that Nissan places upon them. The overall objective of the supplier development team is to reduce the costs and increase the efficiency for both parties - in other words a win-win outcome. Because the cost of materials in an automobile can be as high as 85 per cent, anything that can reduce the costs of purchased supplies can have a significant effect on total costs. 

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