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News Release from: KPMG
Edited by the Manufacturingtalk Editorial
Team on 01 October 2002
Automotive still taking risks with
single sourcing
Results of a recent survey suggests that automotive businesses across the UK are risking damaging their business through weak policing of single sourcing policies.
Results of a recent survey conducted by business advisory firm KPMG suggests that automotive businesses across the UK are risking damaging their business through weak policing of single sourcing policies While it is widely accepted that - when done properly - single sourcing can bring genuine benefits in terms of falling costs and rising quality, the survey points towards a perception that too many businesses are not paying enough attention to their supply policies
This article was originally published on Manufacturingtalk on 6 Jan 2004 at 8.00am (UK)
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In particular, the survey highlights how many businesses would be unaware of trouble within their supply chain until it was too late.
Of the Tier 1 suppliers and Original Equipment Manufacturers (OEMs) who were surveyed, less than twenty percent have a policy on the maximum percentage of a suppliers' total sales they will take.
In addition, the measures employed for monitoring suppliers' financial health mean that many may still not see any forthcoming problems.
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Commenting on the results, Mike Bacon, KPMG's Automotive Sector Senior Partner, said: "Not having a policy which restricts how much of a supplier's business the customer is responsible for is a worry as the customer may not be fully aware of how exposed the supplier is to them.
The problem is exacerbated when you look at how the survey shows that an average of 70% of supplies are single sourced.
Having such a high proportion of single sourced components coupled with a lack of understanding of supplier exposure could spell trouble." "Every one of the businesses surveyed stated that they did monitor their suppliers' financial health.
Unfortunately, some of the methods used for this monitoring leave a lot to be desired.
For example, some claimed to be using only Dun and Bradstreet reports while others would only examine the situation annually or even once every three years.
Most worryingly are the responses of checking `periodically` or `when necessary` or even `when we hear something on the grapevine`.
It should be noted that the responses suggested that OEMs were looking at the financial health issue more closely than Tier 1's but this in itself raises fresh concerns, showing that, at a time when OEMs are giving the Tier 1 suppliers more responsibility, these businesses may not be keeping on top of their own supply chain." "In light of some of the responses on supplier monitoring, it is refreshing to see that the vast majority of the OEMs are planning to revisit their supplier policies.
However, not one Tier 1 supplier said they would be undergoing a similar review." The survey results also highlighted how 65% of the businesses questioned are still looking to reduce the number of suppliers they deal with.
On top of that, over half of them cited price as the key driver behind their plans to reduce supplier numbers.
Mike Bacon commented: "Quality was hardly ever mentioned as a reason for cutting down to a handful of suppliers.
Indeed improved quality, based on historical experience, seems to be taken for granted.
However, you have to wonder how long that assumption can realistically continue to be made as long as the price squeeze culture continues." When asked whether single sourcing had met key objectives such as reduced cost or better delivery statistics, several OEMs led the way, claiming that most of their goals had been fully met.
This is seen as testament to how they combine their strategic supply policies with a well-defined platform strategy which has seen them moving towards greater product commonality across their ranges.
Another area where the OEMs were to the fore was in the area of transferring risk.
All but one of the OEMs questioned admitted that they have transferred risk (e g on development costs or legal liabilities) to their suppliers thus demonstrating how the OEMs are benefiting in two ways - profiting from the dilution of risk as well as in cost terms through the reduction of the supply base.
Mike Bacon concluded: "Throughout this survey, we are seeing the problems inherent in single sourcing.
For example, two-thirds of the Tier 1 suppliers believe that their customers know the extent to which the supplier single sources material yet only two OEMs claim they know this information.
It is this sort of disconnect which can make the process dangerous.
While single sourcing policies will, generally, make very good business sense, the risks are there for all to see unless businesses make large strides in tightening up single sourcing checks and processes.".
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