Cole: "The quality of the relationahip between manufactuers and suppliers has been an issue for a long time. It is still an issue. Another is just the fact that we are in an industry ... where there is overcapacity on both the manufacturer and supplier side."
How can suppliers turn out innovative products in such a tough pricing environment?
I think that's one of the great challenges suppliers are faced with because reasonably they have to be expected to make a profit.
Generally, the higher the risk the greater the profit expectations should be. I don't think anybody has any real answers today. It's an extraordinarily competitive environment for both the manufacturers and suppliers. It's very difficult to make money. We have said in this environment where we have high volume, the business model needs to change. The industry is not appropriately profitable.
What can suppliers and manufacturers do to alleviate the pricing pressure?
I think the most important thing is to significantly increase the intimacy of the relationship. If you look at some of the most successful suppliers and manufacturers - to cite one example, Toyota and Aisin Seiki and Denso - all three of those companies are achieving record profits, which means it's not us vs. them, but us as a team working together. I think that only comes through a deep and intimate relationship that you can find ways to reduce cost and improve quality. Unfortunately, today we don't see that level of intimacy.
Why is that?
If you go back and look at what's happened at the Big 3 for example, between 1995 and last year more than 40 percent of their people - both hourly and salary - retired. So what's happened is that a lot of those long-term relationships between manufacturers and suppliers have been broken because the individuals who were a part of those relationships have retired.
What we are finding is that there is an increased difficulty in achieving a level of intimacy that would let people deal with one another on a very frank and candid basis. It's driven by the transaction. It's driven by rules. And I think this is unfortunate.
You've been a part of the Management Briefing Seminars since the 1970s. What are some of the key unresolved issues from earlier conferences?
The quality of the relationship between manufacturers and suppliers has been an issue for a long time. It is still an issue. Another is just the fact that we are in an industry in the U.S. and in other places where there is overcapacity on both the manufacturer and supplier side. That forces a competitive environment that is almost unending. So these are not new issues, but they are particularly important right now during the level of hyper-competition that we see.
Is quality also an unresolved issue?
Quality has improved dramatically. There still are quality issues. There will always be quality issues. The quality of components and component systems has improved very significantly.
Of course, one driver of that is the fact that suppliers are increasingly being held responsible for warranty costs related to their parts and systems. So there is a very clear financial incentive to make sure your quality is what it should be.
What issue do you think executives will be talking about most among themselves?
I think the overwhelming challenges the industry faces. That's why we selected the theme of The Perfect Storm. We have some large forces coming together at roughly the same time. In this case the hyper-competition is a force, the lack of appropriate profitability brought on by that; a whole new set of tools becoming available; the Internet and modeling simulation tools; and rapid emergence of mega-developing areas of the world like China and India. These countries have developed into a factor in the industry very quickly.
Another mega-force is the speed in which things are happening. There's not much time to rest and collect your breath. Things are moving at an incredible pace.