The concept of supply chain management is based on the fact that no company exists in isolation in the market. A complex and interconnected chain of suppliers and customers, through which raw materials, intermediate products, finished products, information and money flow, is responsible for the viability of supplying consumer markets.
With the enormous competitive pressures that currently exist, the activity of managing the supply chain has had more and more space in business relationships. It is proposed that competition in the market actually occurs at the level of production chains and not just at the level of isolated business units.
According to Slack (1993), supply chains or networks can be seen at three levels (see figure 1 below). The total supply chain is the one that involves all customer-supplier relationships from the extraction of raw materials to the purchase of the product by the final consumer. The immediate supply chain is the one where the suppliers and consumers with whom the company does business directly are located. Finally, within the company itself is the local supply chain, with the internal flows of materials and information between departments, cells or sectors of the operation.
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The objective of this article is to understand how the change to a supply chain management paradigm affects the relationship between suppliers and automakers in the automobile developments recently installed in Brazil. The study is predominantly focused on the relationships of the so-called immediate supply chain, but it also brings evidence that OEMs have been increasingly concerned with coordinating the business between their suppliers and sub-suppliers. Interviews carried out in three of the main automakers with plants recently installed in Brazil were used in the preparation of this document.
Initially, the characteristics of the automobile industry are presented, which credit it as a valid reference to analyze advances in supply chain management. Subsequently, the characteristics of this industry in Brazil are presented, but specifically the boom of new enterprises that characterized the second half of the 90s and the beginning of the new millennium. Finally, the results of this study are presented, pointing out the main trends in supply chain management in this industry.
WHY THE AUTOMOTIVE INDUSTRY?
More than 50 years ago Peter Drucker defined the automobile industry as “the industry of industries”. This reference had as its main motivation the fabulous ability of this industry to indicate new ways of producing goods: it was like this with the introduction of the concepts of mass production led by Henry Ford and Alfred Sloan, and it was also like this with the concept of lean production outlined by Japanese Toyota with Eiji Toyoda and Taiichi Ohno.
In addition to this historic task of innovating in production concepts, the automobile industry has the particularity of facing one of the greatest challenges in supply coordination: the high degree of complexity in the production of a car, which involves the design and manufacture of more than 10 different parts. and its assembly into about 100 large components. It must be ensured that everything is combined on time, with high quality and low cost.
RECENT AUTOMOBILE DEVELOPMENTS IN BRAZIL
The Brazilian automotive sector has experienced an unprecedented modernization movement in the last seven years, generating both great exposure in the local media, as well as several studies carried out by the national and international academic community. Key issues for competitiveness are involved here, such as productivity gains, pioneering initiatives in the automaker-supplier relationship, specialization of the workforce, increased production capacity and installation of automobile developments in areas traditionally without expression in this industrial sector.
As a backdrop to these changes, the following events can be cited, among others: the entry of new players into the Brazilian market; the tax war between states in order to capture investments in the sector; the strong devaluations of the Brazilian currency that occurred in 1999 and 2002; the automotive agreement for the Mercosur economic bloc (Argentina, Uruguay, Paraguay and Brazil); the still timid advance of Brazil as an automobile exporting center and the frequent oscillations that occurred in domestic sales in the last seven years.
The end of the 90s was characterized by a true revolution in the Brazilian automobile industry which, with the construction of nine new modern factories – at a total cost of approximately US$ 5 billion (SIEKMAN, 2000) - has been referred to as a great laboratory of new organizational architectures for relationships with suppliers, which may eventually be replicated in other factories around the world.
These questions help to outline the current scenario of the Brazilian automotive sector, whose structural changes seem to be due to a progressive adaptation to new global paradigms regarding lean production methods and their consequences on supply chain management.
SUPPLY CHAIN MANAGEMENT IN THE AUTOMOBILE INDUSTRY
It is interesting to start the discussion on supply chain management from a strategic question: How much of the supply chain should belong to each company? What is the level of verticalization that the OEM should adopt?
There are several studies that indicate that functions in the supply chain of the automotive industry have undergone major changes in the last decade. More specifically, a model has been pointed out in which suppliers take on more and more value-adding functions, while automakers take on a coordination and management role in this chain.
Lamming (1993) proposes a model in which there is a growing reduction in the vertical integration of automakers, which, increasingly focused on their core business, transfer some of their activities, including technological development, to their first and second level suppliers.
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Figure 2 presents this chronological model proposed by Lamming: at first, it is considered that technological development activities are fundamentally carried out by automakers. In a second moment, technological responsibility activities are gradually being absorbed by 1st level suppliers. Finally, we arrive at a scenario in which technological leadership is divided between the assembler and the 1st level supplier. Sub-suppliers then begin to absorb development functions as well.
In a context of growing outsourcing of activities such as assembly and product development, automakers have had strong reasons to pay special attention to managing the relationship with their main partners. Among the various relationship practices with these suppliers, the following can be highlighted: a) Selection and Reduction of the Supplier Base; b) Development of Suppliers; c) Use of Specialized Assets; d) Joint Product Development.
Selection and Reduction of the Supplier Base: Partnership relationships in the automotive industry have taken as their starting point the careful selection of a small and talented supplier base.
The selection process for this type of customer-supplier engagement has involved characteristics such as pre-selection based on multiple criteria, long-term contracts, focus on total cost of supply, single supplier with involvement in the project, complex performance evaluation and investments substantial contributions in coordination mechanisms and specific assets.
The supplier base selected in this philosophy is substantially smaller than the one traditionally used. Several authors in the specialized literature believe that the administrative or transactional costs associated with managing a large number of suppliers are typically greater than the benefits. It is also considered that splitting purchases among multiple suppliers significantly reduces their opportunity to achieve economies of scale.
In new Brazilian automobile developments, there is a high degree of adoption of single sourcing supplies for each of the modules/parts purchased. Worldwide, automakers have typically sought two or three world class companies to supply all their plants.
It is interesting to point out that despite the option to relate to a smaller number of direct suppliers, automakers have not lost sight of the importance of their sub-suppliers: certifications and training in quality are being increasingly demanded from second-tier suppliers. ; and commercial negotiations are often carried out directly with your direct supplier's suppliers.
A potential risk related to the adoption of the single sourcing strategy is the increase in the automaker's dependence on its supplier. Despite considering a real risk, all the automakers interviewed identified the profile of long-term partnerships, with businesses in several countries, as mitigating this risk, since the choice for each new project is based on the historical performance record of each pre-tested supplier. -selected.
The main benefits perceived in relation to the reduction in the number of suppliers are related to: fewer problems with the quality of parts/modules; the reduction of transaction costs for both the automaker and the supplier (lower fixed costs for both); scale gains; and gains in agility and quality of service (by becoming that supplier's main billing).
- Supplier Development: Essentially, it consists of analyzing the value chain of the main suppliers, with a view to investing in cost reductions and increasing the quality of the supplied product.
Interestingly, knowledge transfer mechanisms for supplier development require a high level of investment in time and capital, which is only compatible with long-term relationships.
Some authors consider the supplier development policy as a natural consequence of sharing costs between suppliers and customers, since, based on cost transparency, joint efforts can be made to rationalize the process of adding value.
In Brazil, there are automakers with entire teams allocated full time to analyzing these opportunities, adopting this practice with most of their suppliers and involving structured value engineering programs, process analysis, total quality and continuous improvement (eg Kaizen, six sigma, etc. ). The presence of engineers from suppliers residing at the assembler for a certain period of time is also a usual practice.
The policy of sharing gains related to the development of suppliers plays an important role in this strategy, with great motivational potential for both parties. These policies, which can vary significantly from company to company, were the subject of an article published in the February issue of this magazine (“Forms of Remuneration of Logistics Service Providers – from Price Tables to Gain Sharing”).
The risk that a certain automaker's investment may be reversed in technology / know-how gains, to be used in other supplier relationships are considered inherent to the business. Some also consider that the potential cost/price reductions obtained with the investment would not be passed on by the supplier in a contract with another assembler.
- Use of Specialty Assets: The term “asset specificity” refers to the extent to which an investment, made to be used in a particular transaction, has a higher value for that transaction than if it were used in any other function. High specificity investments therefore have very low, or negligible, value outside of their original function.
The use of specialized assets has a high potential for enabling opportunities for “win-win” relationships in which a mutual investment makes possible increases in efficiency and cost reductions, with a possible and desirable sharing of gains obtained.
The literature on the specificity of assets additionally identifies that if the parties – buyer and supplier – do not contribute equivalently to the investment of the specific asset, a post-contractual dependency may appear, causing an imbalance of power in the relationship. This would be because the side that made most of the investment would be reluctant to end the relationship, because it would mean losing the investment initially made.
In the case of new ventures in Brazil, there is heavy investment, both by automakers and suppliers, in geographically specific assets. Suppliers' investments are amortized directly in the price of parts sold.
It is clear, however, that the existence of geographically specific assets has not been a reason for opportunistic behavior by the automaker. On the contrary, there are reports of commercial pressure from suppliers who, with the power to stop production, try to renegotiate prices. In general, what is verified is that the possible opportunistic actions are again mitigated by the profile of long-term relationships worldwide. In addition, there is an interdependence between companies, creating greater incentives for mutual cooperation.
- Joint Product Development: In the automobile industry, the joint development of products between automakers and suppliers is an established practice. It relies heavily on information technology and aims to involve suppliers (with all their know-how) a few years before production starts. Within this context, technological training for the joint development of products is rapidly becoming a necessary condition for becoming a direct supplier to automakers.
Therefore, a growing transfer of value-added functions in product development to the major global suppliers can be seen.
It should be noted, however, that there are different possible levels of outsourcing of product development activities. At one of the extremes, the assembler maintains its technological leadership in development, with large investments in R&D (research and development) and the supplier participates only in small adaptations of the product. At the other extreme, the supplier invests in R&D, takes the lead in the process and supplies “black boxes”, with the automaker concerned only with how the component fits into the car.
While the supplier's collaborative involvement at different levels is already an accepted and widespread practice in the automotive industry, the supplier's leadership in development with consequent loss of the automaker's technological leadership is still a controversial issue with divergent opinions.
In interviews with Brazilian automakers, it was possible to verify the adoption of different strategies. In one of them, it was verified that there is already a certain module supplied as a black box, with the supplier's patent. This vision of technological leadership for the development of some products could be summarized through the chart in Figure 3 below.
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In this table in Figure 3, a vision of the future is identified in which suppliers move from mere parts manufacturers to assume a leadership position in the development of certain types of products (generally whole systems). These products become the supplier's patent, with the automaker having little interference in their development.
There are, however, risks implicitly assumed in a strategy of outsourcing the development of products with loss of technological leadership. The increase in dependence on suppliers who now hold all the know-how of some supplied parts is undeniable. Only in long-term relationships and a lot of mutual trust can one imagine that opportunistic behaviors will not arise.
In practice, there are already cases of automakers that reversed their policy of outsourcing the technological development of some parts/modules. In one of the interviews, it was reported that the automaker realized the increase in its vulnerability by completely losing the know-how of important parts for the assembly of the automobile. Opportunistic behaviors began to appear in the relationship.
CONCLUSION
- As a starting point for analysis of supply chains, the important role of establishing relationships of mutual trust between customers and suppliers at different levels should be highlighted. Failure to achieve this type of goal tends to limit potential gains from this management. Reference is made to the work of Oliver Williamson (1985) who studies business behavior and the “economic man's propensity to act opportunistically”;
- Functions in the supply chain of the automotive industry have undergone major changes in the last decade. More specifically, it appears that suppliers have increasingly assumed value-adding functions, while automakers have taken on a coordination and management role in this chain.
- Partnership relationships in the automobile industry have had as their starting point the careful selection of a small and select base of suppliers. From the selection of these partners, policies involving investments in training, specific assets and the collaborative development of products become viable.
- It is noted that the relationship practices presented in this study tend to increase the degree of dependence of the customer/supplier on that relationship. This increase in mutual dependence between companies tends, in turn, to unite the destinies of companies, mitigating the risks of opportunistic behavior
- There is evidence of a growing concern with relationships at other levels in the chain – for example: quality certifications and training are increasingly required of second and third tier suppliers; Commercial negotiations are often being carried out directly between the assembler and sub-suppliers.
- Based on the results of this study, it can be seen that, in recent automobile developments installed in Brazil, the immediate relationship in the supply chain has been characterized by several initiatives to bring customers and suppliers closer together. These initiatives are considered to be an important and necessary step towards a more comprehensive total supply chain management policy.
BIBLIOGRAPHY
LAMMING, R. Beyond Partnership: Strategies for Innovation and Lean Supply. Hemel Hempstead: Prentice Hall International (UK), 1993.
SIEKMAN, P. In Brazil the Best of Automakers. Fortune Americas, p.9-11, Jan 2000.
SLACK, N. Competitive Advantage in Manufacturing. São Paulo: Atlas, 1993
WILLIAMSON, OE The Economic Institution of Capitalism, Free Press, New York, NY, 1985.
WOMACK, JP; JONES, DT; ROSS, D. The Machine that Changed the World. New York: Harper Perennial, 1991.
