In the future, fewer suppliers are likely to do more of an automaker's subassembly.
In the United States, BMW Manufacturing Corp. serves as a model for modularity.
The Spartanburg County, S.C., plant, which produces the Z3 roadster for worldwide distribution, was an early proponent of modular assembly through a small supply chain. Next year, the plant will use the same practice to launch a sport-utility.
Richard Boorne has been vice president of procurement for BMW Manufacturing Corp. since 1996. He previously worked in purchasing for Rover Group PLC, which BMW acquired in 1994.
In April, Boorne was interviewed by Staff Reporter Lindsay Chappell in Nashville, Tenn.
The industry trend is toward fewer suppliers doing more of the automaker's subassembly. Isn't BMW already there in the United States?
We use 19 modules, supplied by just 18 suppliers. That represents some 90 percent of the components on our product. In total, we have just short of 70 component and system suppliers.
That leaves about 50 suppliers delivering just 10 percent of your purchased content.
You will still have some specialty parts coming in. Many of those 50 suppliers are also supplying our first-tier suppliers as well.
But it does demonstrate the tiering of suppliers if you adopt a modular approach. I think it suggests that the supplier industry of the future will be largely in the hands of a very small number of module integrators.
Is it a good thing that the industry will have fewer suppliers?
I raise that question myself sometimes. There are some genuine questions to be answered. One is about the protection of core competencies. A company like ours will want to be able to share our core competence with our suppliers in the future, but without making it available to all of our competitors. How will we do that? The growing use of modules may come up against fairly significant barriers like that.
Another question is how to manage the value chain of the future. Over the past 10 years or so, most automakers have taken their first-tier supply base from a couple of thousand companies down to 200 to 300. Now, with the advent of module integrators, it would go down to 15 or so. But what happens at the second and third level? It potentially spreads out again. I know some companies are now questioning how they can effectively influence a supply chain made up of a lot of suppliers they previously had no relationship with.
How necessary will it be for module integrators to have technical expertise in all the various products they assemble?
Historically, there has been some level of competence within the system integrator. But is it necessary, for example, for the console producer to also have a competence in instrumentation and airbags? Probably not.
We as automakers must define those boundaries. But people can be integrators and not necessarily have a competence in all of the technologies they are delivering.
That raises a further question for the future: Who owns the relationship in that value chain? In the past, when we were sourcing components, it was straightforward. The vehicle manufacturer owned it. As we move more to systems integrators, contractually, they seem to own it.
Where do you see the industry going?
No longer will we see large manufacturing plants. The trend is toward smaller plants that are highly flexible to meet the requirements of customers anywhere in the world. That means that some of the automakers' responsibilities in capital and r&d will continue to move to the supply base. And as suppliers become more global, it will enable even more auto plants to be set up at a lower cost anywhere in the world.
BMW seemed to build a U.S. supply chain quickly.
We didn't simply arrive here and look for suppliers. BMW has had a U.S. purchasing group in New Jersey for some 20 years. They were already sourcing components and systems and services in North America. When we gave consideration to a U.S. plant, we already had quite a supplier base. To put it in perspective, we exported over $400 million in parts back to Germany last year.
Also, by focusing on a smaller supply chain, we were able to move faster than if we had been dealing with, say, 800 suppliers.
Whatever happened to the axiom that a supplier needs big volumes to make a profit?
It's a challenge for BMW, and it's a challenge for our suppliers. The market is increasingly moving toward more differentiation, with a more diverse selection of parts to help make that differentiation. Our suppliers see that BMW can be successful by providing choices in the marketplace. If they can be flexible enough to meet BMW's needs, they have a competitive advantage.
Where does the sourcing stand for the upcoming sport-activity?
We finished sourcing it about a year ago. We're now in the product refining stages, so there may be a few short-lead-time items or aftermarket parts. Almost all of our 18 major suppliers are involved.
We look to build on the supplier foundation we already have. We will have between 15 and 20 additional suppliers for particular products that were not necessary on the roadster. Headliners, for example, aren't used on the roadster. Instead of 70 total suppliers, we'll come close to 90 with the new vehicle.