roland berger supplier procurement study 2008 20080101

8/10/2019 Roland Berger Supplier Procurement Study 2008 20080101

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STR-90008-481-02-02-E.ppt 1

Automotive suppliers procurement study

February 2008

Main success levers to master the procurementchallenges are not exhausted



Management Summary

150 international supplier executives of the automotive industry were questioned regarding

future procurement market trends and to the usage of optimization levers within their companies.

73% of the suppliers assume tougher market conditions for the future, especially by a further increase of raw material prices in combination with constantly high price pressure from the OEMs.

STR-90008-481-02-02-E.ppt 2

cost savings are not exhausted, eg. joint design-to cost approach with sub suppliers before SOP

Common experiences reveal that by the best possible combination of all procurement levers costsavings of up to 20-25% are possible. Due to daily internal routines the average realizes 3-4%

Additional topics like ‘low cost country sourcing’ or professional ‘negotiation management’ get

higher priority and amend classic purchasing topics like standardization or make-or-buy analyses

In this context the suppliers have to redesign the department interplay of project and serialpurchasing in combination with R&D as well as the quality department to reveal the best results

The procurement departments face the necessity to align their organizational and process require-

ments – a balancing act of organizational efficiency and realization of cost savings



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A. The challenge: Despite continuous efficiency increases theprocurement of the supplier industry still faces many hurdles



The pressure on automotive suppliers has significantly increasedover the past years – Suppliers are in a "sandwich" position

The automotive powerplay

END USERS • Stagnation of demand in triad markets

• Increasing price sensitivity and focus on total cost of ownership

• Growing awareness for environmental issues

• Decreasing brand loyalty

STR-90008-481-02-02-E.ppt 5Source: Roland Berger/Rothschild

SUPPLIERS

s • Proliferation of product portfolio

• Growing attention to low cost car concepts

• Strive for technology innovations in the Powertrain to reduce vehicle emissions

• Further reduction of vertical integration, also in product design/engineering

• Shift of investment focus to emerging markets (esp. Russia and India)

• Attempts to reduce structural overcapacities (e.g. through increasedmanufacturing plant flexibility)

RAW MATERIALPROVIDERS

• Ongoing raw material price increases

• High bargaining power driven by consolidation (e.g. steel & aluminum)

Ongoing intense pressure on margins



Procurement saving targets of suppliers are mainly defined by acontinuous demand for decreasing prices of all OEMs

Overview on main OEM cost saving programs

OEM Cost savingprogram

Targeted savings[EUR bn]

Estimated pricepressure on suppliers

STR-90008-481-02-02-E.ppt 6

.

6.0

7.0

2.0

For Motion/For Motion Plus

OLYMPIA

Efficiencyoptimizationprogram

- . .

-4/-6% p.a.

-6/-7% p.a.

-6% p.a.

OEMs requireyearly pricereductions of

4% to 7% p.a.



The market is widely expected to become even tougher – Further increasing raw material prices are considered as main challenge …

Market trends development – Survey results

Increase of market trends during next years

84%Raw material prices

Market conditions for suppliers

STR-90008-481-02-02-E.ppt 7

"Increase"/"strong increase" in % of all respondents

73%Low-cost country sourcing

68%Competitor consolidation

68%Part/product variety

42%Development cycle times

37%Multiple sourcing of OEMs

21%Joint procurement platforms

Harder

Same

Easier 3%

73%

24%



2.000

3.000

50

100

Raw material price and US-dollar development

… which might be caused by the price increases of main rawmaterials for the automotive industry during the last years

Crude Oil-Brent Cur. Month FOB [USD/BBL]

[USD]

Aluminium Alloy Cash [USD/MT]

[USD] +61% +28%

STR-90008-481-02-02-E.ppt 8

0

1.000

Jan

2006

Dec Jan

2007

Dec

0

Jan

2006

Dec Jan

2007

Dec

Steel, Hot rolled Coil [USD/MT]

World steel/price index

US-Dollar [USD/EUR]

USD decrease

0,0

0,5

1,0

Jan

2006

Dec Jan

2007

Dec

0

200

400

600

800

Jan

2006

Dec Jan

2007

Dec

+57% -20%



Influencing factors of current supplier procurement

Purchasing departments are acting in a field of various differentrequirements – Performance pressure further increases

PROCUREMENT

• Continuous high saving targets per purchaser each year

• Capacity reduced in the past for efficiency reasons

• More internal interfaces by internationalization

INTERNAL FACTORS

STR-90008-481-02-02-E.ppt 9

Highest operationalefficiency

and

highest materialcost savings

• High data availability and transparency demanded

• Additional requirements from production and quality dep.

• Earlier involvement in R&D projects

• …

EXTERNAL FACTORS

• High price pressure of OEMs

• Increasing/fluctuating raw material prices

• Currency exchange rates• New competitors from emerging markets

• Professionalization of global procurement

• Shorter innovation cycles lead to decreased supply times

• Multiple OEM sourcing strategies

• ...



26%100%

Cost breakdown example of automotive suppliers

Material costs count for more than 50% of all costs in the supplier industry – Main optimization lever with an 1:1 profit impact

Average supplier P/L breakdown 2006

• Des ite continuous rice decreases

REMARKS

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5%5%

54%

9%

1%

Source: IKB; Roland Berger research

in all sectors, the relative share of material cost is rising

• In this context, the realization of potential cost savings in thepurchase can mainly contribute

to an optimum company result

• Besides the pure cost reduction of materials, the optimization of theintegrated procurement process

can deliver additional reductionsTotal

outputPersonal

costsMaterial

costsSG&A D&A Interest EBT



Summary of study objectives and approach

Key objective of this study: Identify main market trends and leversfor automotive suppliers to optimize their procurement business

Study objectives

APPROACH• Provide an overview on the assessment of

STR-90008-481-02-02-E.ppt 11

automotive supplier industry

• Identify main success levers for automotive suppliers to optimizetheir procurement business

• Understand the different degree of using

optimizing levers within the companies

• Indicate possible solutions and potentialcost savings by project examples

• Procurement survey with a questionnaireat 150 international automotivesupplier executives

• Desk research

• Analysis and benchmarking of operational procurement data

• Incorporation of Roland Berger project experience



STR-90008-481-02-02-E.ppt 12

B. Status quo: The material cost saving potential of the procurementis not exhausted – many key levers are not fully implemented



High cost reduction potentials of an integrated material groupstrategy and of a design-to-cost approach only insufficiently used

Optimization priorities of suppliers reflected to cost saving ranges

• Internal / external data

POSSIBLE OBSTACLES

69%

Optimizationpriority

Procurementmodules

Material group strategy

Saving rangeof projects

5-10%

STR-90008-481-02-02-E.ppt 13

"High"/"very high" in % of all respondents

ava a ty an transparency

• Incentive systems not in line withoverall targets (eg. discounts)

• Long lasting relations betweenpurchaser and sub supplier

• Interface responsibilities notclearly defined / measured

• Contradictionary targets of R&D,quality and procurement

• Capacity restrictions caused bydaily routines

• Time pressure, especially in theproject phase

58%

53%

47%

42%

28%

1) Not included in survey. Derived from project experience

Design-to-cost

Negotiation management

Sourcing strategy

Supplier management

Organization/processes1)

10-12%

3-6%

7-12%

2-5%

4-12%



Despite clearly defined material groups in the companies theinternal strategy realization seems to be challenging

Material group strategy – Survey results

• Maximum saving potentialre ardin the addressed volume

REMARKS

84%Clear definition/differentiation

Indirect

ImplementationModule levers Saving impact1)

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is 5-10%

• 68% of the suppliers consider the internal degree of animplemented material groupstrategy as high/very high

• Additional cost cutting potentialis ‘high/very high’ say 69% of the

executives• Main obstacles are the time

consuming data research andthe missing internaltransparency

63%Transparency of market and

internal supply data

42%Regular performance/realization

of make-or-buy analyses

32%Periodic performance/realization

of standardization analyses

Indirect

Direct

Direct


Optimization focus

1) Project experience

low to high cost savings



Bundling and realization of current payment conditions are veryefficient negotiation levers – Used by just 50% of the suppliers

Negotiation management – Survey results

• Maximum saving potentialregarding the addressed volume53%

Negotiation planning, preparationIndirect


REMARKS

STR-90008-481-02-02-E.ppt 16

is 3-6%

• Just 21% of the suppliers con-sider the internal degree of animplemented negotiationmanagement as high/very high

• Additional cost cutting potentialis high/very high say 53% of the

executives• Main obstacles are established

comfort zones, sub supplier relations, time pressure or misleading incentive systems

47%Realization of current payment

conditions

42%Bundling of project and serial

volumes during awarding

5%Usage of reverse auctions for

awarding of new volumes

Direct

Direct

Direct



Optimization focus




Only the half of all suppliers use the cost cutting potential of mainsourcing levers like volume bundling or LCC sourcing

Sourcing strategy – Survey results

• Maximum savings potentialregarding the addressed volume58%

Volume bundling opportunitiesDirect


REMARKS

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is 7-12%

• 58% of the suppliers consider the internal degree of an imple-mented sourcing strategy ashigh/very high

• Additional cost cutting potentialis high/very high say 47% of theexecutives

• Main obstacles are internationalexperiences, data sources andlong lasting supply relations

53%Regular analyses of low-cost

country sourcing opportunities

53%Optimum of actual supplier

portfolio

47%Clear definition of supplier

categories/pyramids

Direct

Indirect

Indirect



Optimization focus




Active improvement of quality and logistics performance of subsuppliers rarely used – Excellent lever in yearly price negotiations

Supplier management – Survey results

• Maximum saving potentialregarding the addressed volume68%

Continuous supplier quality

assessments in lo istics Indirect


REMARKS

STR-90008-481-02-02-E.ppt 18

is 2-5%

• 53% of the suppliers consider the internal degree of animplemented supplier management as high/very high

• Additional cost cutting potentialis high/very high say 42% of theexecutives

• Main obstacles are sharedinterface responsibilities withproduction and quality depart-ments as well as missingconcepts/processes

58%

Regular performance of supplier

improvement workshops

Continuous supplier quality ass-

essments in project/serial phase

54%Optimum of the actual PPAP/

MPA approach

32%

Indirect

Indirect

Direct



Optimization focus




Balancing organizational efficiency and realization of cost savingsis a challenging issue due to company individual requirements

Organization/processes – Survey results

Company ratios on procurement

• Benchmarking of operational figures

REMARKSProcurementvolume/sales%

Employeesprocurement/totalem lo ees %

Procurementvolume/purchaser EUR m

STR-90008-481-02-02-E.ppt 19

has to be reflected to organizational

structures and purchased materials

• Material cost depends mainly on thecompany's degree of value added

• Degree of internationalization andorganizational complexity defines

the ratio of necessary purchasers – next to the material groups

• Procurement volume per purchaser depends on the supply materialsand products

42%

Min.

51%

Ø

92%

Max.

4.4

Min.

8.8

Ø

18.0

Max.

0.3%

Min.

0.9%

Ø

1.7%

Max.



Top performers achieve purchasing cost reductions of 5-6 % per year – Saving potential especially before SOP is much higher

Potential cost savings and dimensions

Annual material cost reduction[% of total material cost]

Levers to reduce purchasing cost[total procurement cost reduction potential in %]1)

High5-6%

STR-90008-481-02-02-E.ppt 20

1) In relation to purchasing volume addressed

Potentialcostsavings

Low

Project Productphase

Series

10-20%

7-12%

5-10%

3-6%

2-5%

4-12%

Design-to-cost

Organization/processes

ourc ng

strategy

Negotiationmanagement

Supplier management

Material groupstrategy

Average Benchmark

3-4%

Weak

1-2%



STR-90008-481-02-02-E.ppt 21

C. Solution: Need to setup a holistic procurement approach designedto master the upcoming challenges



Procurement in the supplier industry – Optimization and costreduction programs should consist of the six correlated modules

Overview pyramidal module system and objectives

1

Material group

strategy

1 Optimization of material demandstructures

STR-90008-481-02-02-E.ppt 22

2

Sourcing

strategy

4

Supplier

mgmt.

5

Negotiation

mgmt.

3

Design-to-

cost

6

Organization/

processes

2 Optimization of the supplier portfolio

3 Cost reduction of products duringproject/development phase

4 Improvement of supplier manage-ment processes

5 Advanced negotiation managementfor cost reduction

6 Streamlined organization/processesaccording to defined strategies



In our projects an explicit defined material group strategy is thebasis for the derivation of optimization levers in all other modules

Material group strategy – Project fact sheet

PROJECT KEY RESULTS

• Transparency on actual material demand

• Concept Make-or-buy/standardization

• Evaluated catalog of improvement levers

OBJECTIVE

Optimization of complete material demand structure:

• Determination of Make-or-buy for selected parts,components

•

1 MATERIAL GROUP STRATEGY

STR-90008-481-02-02-E.ppt 23

Main sub results1 2 3 4 5 6 7 8

M T W T F S S M T

Team Roland Berger

Henkel

Schmitt

Hagenmeyer

Hollmann

Kaiser Florian

Kohr

Renzow

Schnieper

Trenkwalder

January

Docu-

ments

, . .

Methodical approach/toolslow high

Effort to use tool

1.1

1.2

1.3

1.4

1.5

1.6

Supply data/market analysis

Supplier and part catalogs

Risk assessment

Make-or-buy analysis

Standardization analysis

Modularization evaluation

Morphological raster

Transparency on actual demands

Concept of commodity structure

Concept/measures Make-or-buy

Risk analysis in commodity groups

Measure catalog standardization

Revised implementation plan



PROJECT KEY RESULTS

• Classified/revised supplier portfolios

• Potential saving targets (e.g. volumebundling/LCC souring)

OBJECTIVE

Optimization of supplier portfolio for each material group:

• Identification of possible cost advantages in low costcountries

•

Sourcing strategy – Project fact sheet

A clear sourcing strategy should be developed by a proved approach – Comprehensive perspective essential for the implementation

2 SOURCING STRATEGY

STR-90008-481-02-02-E.ppt 24

Main sub resultsMethodical approach/toolslow high

Effort to use tool

2.1

2.2

2.3

2.4

2.5

2.6

Supplier pyramids/categories

Supplier portfolio optimization

Volume bundling/reallocation

Low cost country sourcing

Scoring models for relocations

Internal Sourcing Committee

Market analysis/supplier visits etc.

Concept target supplier portfolio

Concept supplier requirements

Demand/target volume bundling

Catalogue of LCC sourcing options

Brief supply market assessment


Docu-ments

+ =



Design-to-cost – Project fact sheet

How we try to maximize cost reductions during the developmentphase – Involvement of sub suppliers for design-to-cost activities

3 DESIGN-TO-COST

PROJECT KEY RESULTS

• Realizable optimization measures pro part

• Significant product simplifications

• Quantified cost reduction potentials

OBJECTIVE

Cost optimization of projects/products duringdevelopment phase:

• Identification of design and specification simplifications

•

STR-90008-481-02-02-E.ppt 25


Effort to use tool

3.1

3.2

3.3

3.4

3.5

3.6

Life cycle assessment

Product benchmarking

Product disassembling

DFMA analysis

Cost driver analysis

Complexity analysis

Workshops with suppliers

Documented approach/process

Benchmarking results pro product

Cost driver/complexity catalogue

Evaluated re-design levers

Project/product priority catalogue


ABC

ABC

ABC

Docu-ments



Negotiation management – Project fact sheet

Overall planning and preparation of yearly price negotiations aswell as monitoring the sustainability of results is essential

5 NEGOTIATION MANAGEMENT

PROJECT KEY RESULTS

• Material price reductions (project/series)

• Optimized bonus/one time payments

• Improved payment conditions (e.g. discount)

OBJECTIVE

Material cost reduction by optimal preparednegotiations:

• Planning of negotiation schedule and detailed preparation

•

STR-90008-481-02-02-E.ppt 27


Effort to use tool

5.1

5.2

5.3

5.4

5.5

5.6

A/B/C supplier initiative analysis

Negotiation preparation/planning

Cost structure (BoM)1) analysis

Negotiation performance

New payment conditions

Comprehensive result tracking

Workshops/trainings with buyers

Supplier list incl. targets, volumes

Material price calculation models

Finance model payment conditions

Checklist negotiation preparation

Master negotiation presentation

Controlling/monitoring tool

231.423056.156812.685231.423

231.423056.156812.685231.423

231.423056.156812.685231.423

231.423056.156812.685231.423

1 2 3 4 5 6 7 8

M T W T F S S M T

Team Roland Berger

HenkelSchmitt

Hagenmeyer

Hollmann

Kaiser Florian

Kohr

RenzowSchnieper

Trenkwalder

January

_______

Checklist

_______

ABC

ABC

ABC

231.423056.156812.685231.423

231.423056.156812.685231.423

1) BoM = Bill of Material



Organization/processes – Project fact sheet

The purchasing organization has to be enabled to realize thedefined strategies and to continuously improve the performance

6 ORGANIZATION & PROCESSES

PROJECT KEY RESULTS

• Strategy related purchasing organization

• Improved processes/interface functions

• Trained employees

OBJECTIVE

Optimized purchasing structures as basis to realize thestrategy:

• Adjusted organization/processes

•

STR-90008-481-02-02-E.ppt 28

1) BoM = Bill of Material

Main sub results

. .

Methodical approach/toolslow high

Effort to use tool

6.1

6.2

6.3

6.4

6.5

6.6

Assessed gap analysis

Concept target organization

Concept target processes

Evaluated interface scoring

Training concept buyers


1 2 3 4 5 6 7 8

M T W T F S S M T

Team Roland Berger

HenkelSchmitt

Hagenmeyer Hollmann

Kaiser FlorianKohr

RenzowSchnieper

Trenkwalder

January

___ ______ ___ ______

Top-down benchmarking

Process gap analysis

Best practice organization

Scoring model interface assessment

Basic manpower evaluation

Employee skills analysis

Buyer workshops/trainings



Example for an integrated optimization program in parallel to dailyprocurement routines – High return on implementation

Integrated project example

Portfolio management/sourcing strategy

Project description PROJECT MODULES

PROJECT SCOPE

• Development of anintegrated supplier management program

OPTIMIZATION LEVERS

1 PORTFOLIO MANAGEMENT

• Definition of bundling strategies

• Reorganization of the supplier portfolio

STR-90008-481-02-02-E.ppt 29

• Optimizedprocesses

and instru-

ments

• Additional

saving

potential of EUR 75 m

(in 3 years)

Supplier management/

development

Value engineering/design-to-cost

Quick wins

• Increasing procurement

efficiency• Development of valueengineering with subsuppliers

CLIENT

• Tier 1 supplier of interior components

• Revenues of EUR 2 bn,thereof EUR 650 mwithin the project scope

DURATION

• Launch period (3 weeks)

• Detailing/implementation(9 months)

2

SOURCING STRATEGY

• Optimization of sourcing strategies• Adaptation of sourcing instruments

3 SUPPLIER MANAGEMENT

• Development of an sub supplier assessment and improvement system

• Optimization of management until andafter SOP

4 DESIGN-TO-COST

• Integration of supplier innovations

• Development of joint value engineering

5 QUICK-WINS

• Material group related optimization

• Optimization of supplier contracting

• Improvement of discount conditions



STR-90008-481-02-02-E.ppt 30

D. Roland Berger experience – Strong expertise in procurementfor the automotive industry drives superior project results



Within our competence center we advice the leading internationalcompanies of the automotive industry

Overview selected international clients

OEMs SUPPLIERS SERVICE PROVIDERS

STR-90008-481-02-02-E.ppt 31



Our global team successfully realized procurement projects for theglobal TOP automotive players

Roland Berger Automotive Team

PROJECT EXAMPLES

Overview – Extract of automotive procurement projects

• Product cost reduction program for aRUSSIA

1 Partner

STR-90008-481-02-02-E.ppt 32

• Chinese sourcing strategy andimplementation for a Tier 1

• Make-or-buy strategy and LCCsourcing evaluation for a Tier 1/2

• Global purchasing strategy for anGerman OEM

• Integrated supplier managementsystem at a Tier 1

• Cost reduction program for general/investment goods at a Tier 2

• Developing a purchasing KPI-systemat a Tier 2

WESTERN

EUROPE

8 Partners

50 Consultants

USA

1 Partner

5 Consultants

SOUTH AMERICA

EASTERN

EUROPE2 Partners

15 Consultants

10 Consultants

JAPAN4 Partners

20 Consultants4 Partners

20 Consultants

USA

CHINA

2 Partners

20 Consultants



With recent automotive studies we inject highly valuable know-how from day one in each client project

Overview on recent automotive studies (selection)

Powertrainstudy (2007)

China study(2006)

Low cost car study (2007)

REGIONS TECHNOLOGIES MARKET STRUCTURE

STR-90008-481-02-02-E.ppt 33

Automotivesupplier study(2007/2008)

Electronicsstudy(2006/2007)

• Developments in Powertraintechnologies

• Strategies how to meet the newemission regulations

• Supplier benchmarking

• Identification of Top/lowperformers

• Success factors for suppliers

• Key trends/ challenges inautomotive E/E

• Implications for OEMs andsuppliers

• Development of the Russianautomotive market

• Implications for OEMs andsuppliers

Russia study(2005/2006)

• Assessment of automotivetechnologies/ capability

• Opportunities for sourcing fromChina

• Trends in low cost car (LCC)segment and implications

• Implications for R&D of Lowcost cars



Authors of the automotive suppliers procurement study

Marcus Berret

Partner

Leader of the global

automotive supplier team> 12 years of internationalconsulting experience

STR-90008-481-02-02-E.ppt 34

Dr. Marcus Hoffmann

Senior Project Manager

+49 89 9230-8060

marcus_hoffmann@

de.rolandberger.com

+49 89 9230-8737

[email protected]

Leader of the automotiveprocurement team

6 years of internationalconsulting experience

roland berger supplier procurement study 2008 20080101

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