The US automotive industry suffered a fatal blow. But any individual who claims that the industry’s demise is usually linked to a single root-cause of failure is sadly mistaken. I spent a higher portion of 10 years inside that industry a lot of which is an executive or managerial role.
However, there is no silver bullet that triggered the fall. I say regrettably due to the fact a single lead to failure may be prevented inside the future. In this case, the blame may be placed only on the system as a whole producing it hard to guard against a repeat occurrence.
What the automotive industry suffered was a catastrophic failure brought on by several points of failure. We’re talking systemic failure in its truest form. As an insider within the industry, I can personally attest to several of the actions (or lack thereof) that pushed the industry to a collapse.
Among the biggest gremlins that undermined the industry was a myopic focus on piece price (expense). More than the years the automobile manufacturers became engulfed in driving (no pun intended) suppliers to decrease sell costs in an attempt to lessen the production expense of a car or truck and hence boost the bottom line.
This shortsighted concentrate on decrease piece price was so powerful that supplier relationships have been sacrificed. In truth, certainly one of the Massive 3 automotive companies believed that if a single supplier went beneath that an additional would always step up.
How is the fact that arrogant?
The stress for reduced piece cost was so intense that suppliers have been forced to seek low-cost nations for the procurement of parts and their very own manufacturing processes. Around the surface, this method may well appear logical. However, what was lacking was a holistic view in the situation to find out that lower piece price tag demands were leading to other systemic difficulties:
Reduced good quality and elevated life-cycle fees resulting from overseas outsourcingSuboptimal designs as a result of shortcuts to cut down costsJobs being pushed out from the collapse of strong, reliable suppliersTarnished relationships with the legacy supply base
The situation went as far because of the automotive companies demanding payments from suppliers to maintain existing enterprise or to become awarded new companies. These payments had been generally identified in the industry as “givebacks”. These givebacks began as checks that had been written for absurd amounts of money and then changed into piece cost concessions over the length of a provided contract (the SEC wouldn’t important just like the check approach, i.e. purchasing enterprise).
Enterprise is about far more than just the bottom line. How you go about producing profit makes a difference. Our good friends in the automotive industry discovered the difficult way that relying upon myopic, dictatorial, and selfishly driven income at the expense of one’s suppliers and shoppers will not be sustainable.