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Supplier mergers: a new dawn of opportunity for the automotive supply chain

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Brad Brennan newAlthough the number of automotive supplier mergers and acquisitions is decreasing in frequency, the scale is increasing, and it’s going to have an affect on the supply chain.

With a continuation of the proactive, eyes-wide-open approach to supply chain management that we have seen displayed by vehicle manufacturers in the last 18-24 months in particular, an invaluable opportunity exists for the careful analysis and subsequent streamlining of logistics operations through supply chain consolidation.

In 2011, more than 300 supplier deals worth $10 billion were completed, whereas PwC forecasts that 2015 will end with closer to $50 billion of deals from a third fewer agreements. The emergence of an increased number of ‘mega-suppliers’ offers heightened supply chain control, dependability and greater visibility of operations, if vehicle manufacturers are prepared to review operations within an industry where fewer suppliers operate. We’ve seen vehicle manufacturers’ understanding of the supply chain, and in particular the importance of operational visibility, gradually develop, but supplier mergers and a hierarchal restructuring provides an opportunity to progress this approach and tighten supply control to a new level. 

Supply chain visibility is the regulatory Holy Grail. The opportunity to consolidate logistics due to supplier mergers not only offers vehicle manufacturers greater clarity, but improved operational efficiency and tighter control over part flow, component quality and lead times too. If vehicle manufacturers are prepared to examine supply chain activity where potentially fewer, more focused supplier relationships exist and seek streamlined logistics operations, then the benefits could be plenty.

Automotive suppliers have come under increasing pressure in a number of areas in the past 12 months, driven by time-contraction in the industry (more vehicles are being launched in a shorter space of time than ever before in reduced time windows), intensified production schedules, the operation of globalised supply chains, and the demand for a higher quality component (with no increase in unit price).

The support offered by a new generation of larger, progressively powerful suppliers provides manufacturers with more precise supply chain control. Alignment of lead times and assurance over deliverables could be complemented by the incorporation of greater in-built contingency – improved visibility allows manufacturers and suppliers to identify the warning signs of supply issues at an earlier stage, and for proactive measures to be implemented sooner, minimising the threat of disruption to production schedules.

Another benefit of an evolving, simplified automotive supplier hierarchy is that the flow of information between OEMs and suppliers is made smoother and more reliable, further aiding attempts to streamline supply chain activities and lead times. A larger parent company can oversee logistics operations, the global flow of components and act as a virtual watchtower to ensure that robust processes are maintained. Any opportunity to identify potentially fractious supply chain links is of benefit to the industry, and contingency measures can be triggered at an earlier time.

Large-scale mergers pose many business challenges in a number of areas, of which logistics is only one. However, it is an area that, with a proactive approach, can benefit from sustainable improvements to supply chain performance, integrity and visibility.

Brad Brennan is managing director of emergency logistics provider, Evolution Time Critical.