Don´t you feel that the business scenario now being played in front of you is a repeat of an old business movie? The big original equipment manufacturer, in need of relief. Their costs are too high! Their profits are too low! Their cars are not selling as well as they did! To whom do they turn? Guess again. Toward their suppliers!
It appears that every time there is a problem in the car industry the big companies try to generate revenue by taxing their suppliers, rather than implementing their own cost reduction and organization streamlining.
Some time back, I warned companies about the dangers of surrendering their independence. You remember: You were asked to cut your price in exchange for the assurance that you would become a priviledged supplier. Then, you had to face the same request at the next business cycle. You were asked to implement companywide quality standards like ISO or QS 9000. You were asked to bear some of the upfront cost for product development or mold financing. You were told that the schedules will be maintained in such a way that your plants would be capable to operate economically.
We are hearing now that some suppliers are under the weather, hurting bad. Some of the most dynamic and astute have realized that to be totally immersed in OEM supply preoccupation is a dangerous business practice. They are hurrying to diversify through new acquisitions, mergers or additions to their product lines. Others look at the bottom line and ask themselves how badly it will hurt if the downturn lasts too long?
We have, for a long time, proclaimed that suppliers must organize to insure that the OEMs respect them and honor their supply contracts. Suppliers must look at their contracts and oblige the OEM to respect their agreements and provide adequate compensation when the suppliers have been hurt by changes that are not of their making.
The OEMs´ motto is always the same: "You know if you don´t do this for us, we can go elsewhere." Often these practices are ignored by or hidden from the OEMs´ top management. But in the command chain of all engineering, purchasing, scheduling and manufacturing cycles, there are often OEM people with shortcomings and or personal goals who do not hesitate to blackmail and sometimes harm the suppliers that don´t surrender to their will.
Our advice to suppliers is clear: Check your contracts and covenants. We have often found that there has been a slow erosion of practices and processes that have driven suppliers to accept changes that have never been renegotiated and for which they didn´t receive proper compensation.
There is no reason for a supplier to buckle in to a customer making unwaranted changes that affect the legal terms of a supply contract, unless they are adequately compensated for that change.
MGA International Inc.
Fort Wayne, Ind.