Speaking at the AFLA conference was fun.

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Prior to my presentation, an executive from Ford gave a presentation on the challenges that the automotive industry was facing. He briefly mentioned challenges with suppliers.

The specific supplier challenge was that so many automotive suppliers have gone bankrupt and this has hurt the OEM’s. He, of course, didn’t acknowledge that this may have been caused by the OEM’s reputations for taking such a hardball approach with those suppliers.

He said that the result will be that there are fewer, stronger suppliers after the bankruptcies shake out. I agree. But will those suppliers tolerate the old-school treatment in a new age?

If the supply base does shrink, that means that supplier capacity will be limited. And there is speculation that purchasing capacity, rather than products, will become more common.

So, could GM purchase capacity and leave Ford out in the cold or vice versa if one of them adopts a collaborative approach to supplier relationships and the other doesn’t?

If so, outsourcing becomes more risky. And this is a time when the US automotive industry cannot accept more risk.

Could this jeopardize the outsourcing trend? Could vertical integration return?

I think it could, but there are many variables involved that would make it difficult. Particularly, the union contracts that are in place with both the suppliers and the OEM’s. If the OEM’s are able to cut better deals with the unions, outsourcing could decline.

Of course, if the suppliers can negotiate better union contracts (and their bankruptcies could make this happen), outsourcing could actually increase.

And the already critical purchasing function in the automotive industry will become even more important!

We’ll see what happens closer to the end of the decade.

I’m at the Palm Springs Airport now getting ready to head back to Pittsburgh. I miss my family and will be spending every minute of the weekend with them, so please excuse me from blogging til Monday.

Talk to you then.

Categories: Procurement

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Published On: September 15th, 2006Comments Off on Auto Industry Purchasing
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