restricted access Chapter 5. Supplying the Suppliers
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109 5 Supplying the Suppliers They were a very minor supplier to us, so we don’t have an issue. We have replaced them.1 The supply base of today’s carmakers is structured like a pyramid. On top of the pyramid is the carmaker. Below the carmakers are a small number of Tier 1 suppliers that sell parts directly to carmakers. Tier 1 suppliers in turn purchase materials from Tier 2 suppliers, who purchase from Tier 3 suppliers, and so on down the supply chain. Tier 1 suppliers and carmakers have different perspectives on the motor vehicle industry than do lower-tier suppliers. For example, is a motor vehicle essentially an aggregation of several thousand parts, or is the whole greater than the sum of the parts? Carmakers favor the holistic view. A motor vehicle is greater than the sum of the individual parts because it is ultimately defined and distinguished primarily through such features as performance, handling, and styling. Large Tier 1 suppliers , responsible for integrating modules and systems, reinforce this holistic perspective. The perspective of lower-tier suppliers is fundamentally opposite. They are in the business of building a motor vehicle one part at a time.A smoothly performing engine depends on tight-fitting pistons and valves and on well-built brackets and hinges. An attractively styled interior depends on tight-fitting doors and mirrors and on well-built latches and knobs. Enthusiast magazines such as Car & Driver and Motor Trend reinforce holistic perspectives in their reviews and commentaries. The quality of an engine is characterized by overall performance in speed and acceleration, and the quality of the interior is characterized by harmonious integration of materials and controls. On the other hand, consumer surveys such as those by J.D. Power and Associates and Consumers Union reinforce a particularistic perspective. Quality is measured by aggregating the frequency with which dozens of specific items cause trouble in particular vehicles. 110 Klier and Rubenstein Ultimately, of course, a motor vehicle is both an aggregation of thousands of individual parts and something greater than the sum. The fundamental challenge—and opportunity—for lower-tier suppliers derives from differences with carmakers and Tier 1 suppliers concerning the relative importance of the two perspectives. TYPICAL Lower-tier SUPPLIERS Getting a handle on lower-tier suppliers is difficult for the following reasons: • Lower-tier suppliers are much more numerous than Tier 1 suppliers ; major Tier 1 suppliers number in the dozens, whereas lowertier suppliers number in the thousands. • Leading databases do not distinguish between Tier 1 and lowertier suppliers. • Lower-tier suppliers may make objects with multiple uses, not just for use in motor vehicles. • Some lower-tier suppliers provide commodities and raw materials from which other suppliers actually fashion the parts. • Suppliers rarely fall 100 percent into only one tier, so classification is a case-by-case determination based on the tier occupied by most of a supplier’s customers. It is even possible for a supplier to operate some of its plants as Tier 1 plants and others as lower-tier plants. Leading data sources do not permit straightforward identification of a supplier’s tier. In the case of a publicly traded company, the annual report and Form 10-K may name the major customers and share of business if it is more than 10 percent. But most lower-tier suppliers are privately owned and therefore do not reveal this information. The U.S. Census of Manufactures classifies about one-sixth of all suppliers as “other” or “NEC” (not elsewhere classified). Similarly, the database developed for this book, derived from ELM International, classifies one-sixth of all suppliers as providing so-called generic parts, such as brackets, clamps, and fasteners. Another one-sixth of all sup- Supplying the Suppliers 111 pliers are allocated to “miscellaneous” categories within particular systems , such as “miscellaneous engine components.” Based on all available information about individual plants, it is likely that most of the companies making “generic” parts are lower-tier suppliers, but this is not a certainty. Characteristics of Lower-Tier Suppliers A walk through a typical lower-tier supplier plant reveals little that looks like a contribution to putting together a motor vehicle. Oddly shaped parts are cut or pressed and perhaps several of the pieces are screwed or welded together to form another unfamiliar shape. The motor vehicle industry includes several thousand lower-tier suppliers, most of which are unfamiliar even to carmakers, let alone to the wider public. Given this arithmetic, summarizing...


Subject Headings

  • Automobile supplies industry -- United States.
  • Automobiles -- Parts.
  • Automobile industry and trade -- United States.
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