Establishing internal supply chains and mastering bifurcated procurement strategies will require stakeholders to:
- Stay focused on innovation — keep abreast of innovations coming out of academic incubators and understand how they might fit into the future ecosystem.
- Remain proactive — evaluate partnership and acquisition decisions.
- Engage meaningfully with one another.
In all these endeavors, automakers and suppliers will benefit from a more nuanced approach to their relationships. While it’s true that price rules the supply chain roost, the impact of relationships on profitability can’t be overlooked. Time and again, surveys such as the Working Relations Index indicate a positive correlation between profitability and a close working relationship. Amid industry disruptions, survival often depends on how quickly new relationships are developed and existing ones are strengthened.
Suppliers should also take time to reevaluate their value through the lens of the impending electric vehicle landscape. Discussions with potential partners need to focus less on the supplier’s current output and more on what that output reveals about the company’s core competency.
For example, say that 80 percent of a company’s revenue historically comes from components designed for internal combustion engines. The question the company now faces is, “How do our capabilities address the growing EV sector?”
Although this type of evaluation is not novel, now is a good time for a deeper exploration of suppliers’ ability to address automakers’ evolving needs, which include three primary options:
1. Organically develop a new product set, which could involve substantial changes in engineering/production.
2. Acquire relevant companies, which could entail record-high valuations given today’s market.
3. Produce integrated solutions, which typically requires a blend of organically developed, acquired and purchased products.
Regardless of the approach, companies will need to continue investing in product development/acquisition and their marketing strategy. Automakers must believe suppliers will be reliable, credible and long-term providers as they evolve their product portfolios.