Report: U.S. auto supply chain at a crossroads
A troubled but enduring automotive supply chain in the United States can become stronger if a more collaborative strategy can gain wider acceptance, a research team at Case Western Reserve University has determined.
The report, The U.S. Auto Supply Chain at a Crossroads, includes findings of the National Survey of Automotive Suppliers, conducted by researchers at Case Western Reserve as part of the Driving Change consortium, led by the Labor Market Information Offices of Indiana, Michigan and Ohio.
Suppliers in tiers serve the nation's automotive industry, which has played a critical role in the expansion of America's middle class for nearly a century. The industry, facing intense global competition in recent decades, was also profoundly affected by the recession of 2008-2009 -- auto sales fell by 40 percent and two of the Detroit Big 3 automakers entered bankruptcy.
Studies of the auto industry have tended to focus on original equipment manufacturers (OEMs), and their large tier 1 direct suppliers. Susan Helper, Weatherhead School of Management Carlton Professor of Economics, led a research team concentrating on smaller firms within the industry's supply chain (those with fewer than 500 employees). These firms typically do not supply automakers directly; that is, they are usually tier 2 or tier 3 suppliers.
These smaller firms account for 30 percent of employment in the auto supply chain, but are sometimes difficult to identify as auto suppliers in existing data. By combining multiple databases the researchers have been able to construct a clearer picture of the industry as a whole.
"Throughout our research, we find evidence of two possible futures for America's automotive industry," Helper said. "One future is characterized by collaborative relationships between firms at all tiers of the supply chain, wherein firms share cost savings from identifying and eradicating inefficiencies that they might not have been able to address on their own."
In contrast, adversarial relationships within the supply chain could impede the industry's progress.
"In this future, instead of developing better products and thinking critically about how to remove inefficiencies from processes that span multiple firms, firms at each level of the supply chain generate profits by squeezing margins of firms in the tier under them. This path is a recipe for industry-wide stagnation," Helper said.
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The study finds that large segments of the automotive supply chain are characterized by each of these two scenarios, demonstrating certain elements of both.
The research report notes evidence that many first tier firms continue to protect their profit margins by cutting the margins of their suppliers, rather than by trying to build positive-sum relationships. In response, many suppliers focus on short-term cost-cutting and are reluctant to invest in modernizing their operations. For example, barely a third of survey respondents have adopted Toyota-style practices such as involving workers in problem-solving groups, despite widespread evidence that such practices improve performance.
On a more positive note, the study also found some evidence that relationships are becoming more collaborative, as many firms report that their main customers are more likely now to work with them to reduce costs than they were in 2007 before the recession. In addition, about 20 percent of suppliers have adopted "high road" practices, which include high wages, worker training and investment, and empowerment at all job levels. Such firms experienced 10.9 percent less sales loss during the recession than did the group of firms that least exhibited these high road characteristics.
The study concludes by arguing that the high road scenario has significant social benefits, and proposes public policies that would help firms realize this potential.
The Case Western research was generously funded by an American Recovery and Reinvestment Act grant through the Department of Labor's Employment and Training Administration.
Edited by Kevin Scarpati
Will Public Procurement Budgets Increase in 2021?
Procurement is more than just a private enterprise. COVID-19 reminded us that sourcing materials is an essential part of the government’s role. Throughout 2022, tiny departments sourced massive amounts of personal protective equipment (PPE), medical supplies, and emergency vaccines and testing kits. Even non-procurement professionals were pulled into the fray, as frantic timelines demanded nothing less.
According to Celeste Frye, co-founder and CEO of Public Works Partners, the crisis brought procurement to the attention of skilled employees who had never considered it. As non-procurement personnel stepped up to help their coworkers, many found that they’d stumbled upon a critical and rewarding job. “Existing public employees have seen the essential nature of the work”, Frye said. “[They’ve] gained some critical skills and possibly [grown] interested in pursuing procurement as a longer-term career”.
Small, Local Suppliers Take Charge
Frye, whose firm helps organisations engage stakeholders and develop long-term procurement strategies, thinks it well worth the effort to open one’s mind to new opportunities. Cooperative contracts, for instance, can help public departments and municipalities save money, time, and effort. By joining together with other towns or cities in the region, public procurement teams aggregate their purchasing power and can drive better deals.
These cooperative contracts have the added benefit of advancing equity. Smaller suppliers that struggle to compete with established firms for government contracts can act as subcontractors, helping big suppliers fulfil bits of the project. Once they get their foot in the door, small, local, and disadvantaged suppliers can then leverage that government relationship to take on additional projects.
Especially as governments start to pay attention to procurement resilience, public procurement departments must expand their requests for proposals (RFPs) to take into account innovative solutions and diverse suppliers. According to Frye, Public Works Partners—a certified female-owned firm—has benefitted from local and state requirements that specify diversity.
Post-Pandemic Funding Swells Procurement Budgets
And the pandemic won’t be the end of it. City governments need to build sustainable energy infrastructure such as solar panels, charging stations, and recycling plants, ensure that masks and medicines are never in short supply, and source new technologies to keep up with cloud and cybersecurity concerns.
Public procurement budgets will likely increase to match demand. As Peter Ware, Partner and Head of Government at Browne Jacobson, explained, “in a non-pandemic world, the [U.K.] government spends on average around £290 billion on outsourced services, goods, and works...anywhere between 10% and 14% of Gross Domestic Product (GDP). Post-pandemic, city procurement will only increase as national governments provide local divisions with emergency funding.
And in truth, government employees might jump at the opportunity. Frye noted that public procurement could give immediate feedback on new programmes: “[Procurement] is where new laws and policies ‘hit the road’ and are implemented”, she said. “Professionals in these fields get the satisfaction of creating real change and seeing quantifiable outcomes of their work”.