Manufacturers are going all out to forge disruptive supply relationships

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Manufacturers operating in high-value sectors such as the aerospace and automotive industries are going all out to forge relationships with businesses i...

Manufacturers operating in high-value sectors such as the aerospace and automotive industries are going all out to forge relationships with businesses in other sectors in order to secure a clear, competitive advantage.

In today’s fast-developing markets, businesses across many industry sectors realise that continuing to do what they do is no longer enough to achieve sustained growth. To maintain and grow their market share, they need to think laterally about their business structure and, in particular, their supply base. By teaming up with businesses operating in other sectors, some are finding novel ways to align their products or services more closely to the needs of the end user. For example, in the automotive sector, powertrain and chassis refinements are taken as standard and consumers are increasingly looking for differentiators that car makers are unable to produce for themselves such as in-car infotainment systems.

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Leading the way, a number of automotive and aerospace manufacturers have recently established some innovative supply partnerships. These relationships are designed to import the expertise necessary to either make existing products or services more appealing to the end user, or to develop new ones.

Toyota’s strategic alliance with technology-led Kymeta Corporation has recently resulted in the launch of a new research vehicle equipped with satellite antennas. The overall design is lighter weight than earlier prototypes and the flat-panelled antenna technology can be easily built in to the vehicle so it doesn’t have to be on the roof. In the aerospace sector, Airbus has also recently teamed up with Uber – an unlikely collaboration on paper – to develop an on-demand helicopter service capable of competing with US operator, Blade.

These businesses are demonstrating how a bit of lateral thinking and a clear sense of what end users want can create some unlikely and yet productive partnerships. This type of cross-sector collaboration is becoming increasingly critical to businesses in sectors where fast-developing technologies are disrupting or threatening to disrupt the marketplace.

In the automotive sector, Apple is already well on the way to developing its own driverless car and Google has already been showing off its latest technology with its own self-driving vehicle. These technology-led businesses could easily steal a march on the more established players if they are first to market. Some are already involved in mainstream production due to their investment in the development of infotainment systems, which have replaced the inferior systems originally developed by vehicle manufacturers.

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For all high-value manufacturers operating in these sectors, it is now business critical to establish supply partnerships that will enable them to work together to innovate new products and services and bring them to market more quickly. Moreover, it might be a chance for manufacturers to reclaim the upper hand in the innovation race, having lost ground to their first tier suppliers.

Of course, there are significant risks attached to such supplier collaboration. For example, when inventing new products or services, things may not go according to plan and there is greater scope for failure. There is also a risk that managers take their eye off the ball when it comes to managing existing supply relationships.

When forging cross-sector partnerships, larger, more established businesses have more to lose and this should be taken into account. For example, problems can arise if light-footed tech partners get too involved in the production side of the business. It makes sense, therefore, to separate out R&D from industrialisation and manage them separately. This approach will also help to minimise any risk of disruption to existing supply chains and increase stable revenue streams for tech companies.

Depending on their attitude to risk, some businesses may be reluctant to establish partnerships with organisations that lack market knowledge, or are less established and have different operating systems.

While these concerns are valid, there is more to gain than to lose. In the past, businesses may have become more efficient by consolidating their supply base but this isn’t going to be enough to secure growth in the future. Taking a cross-sector approach to innovation has the potential to deliver value far beyond any current capabilities.

Julien Brunel is senior consultant and automotive sector specialist at Vendigital

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