Capgemini, one of the world’s foremost providers of consulting, technology and outsourcing services, today announced the findings from a new study into the automotive supplier industry, revealing key strategies offering the potential for significant cost reduction, currently being overlooked.
Capgemini’s “Cost Management in the Automotive Supplier Industry” study, which included interviews with more than 20 leading tier 1 automotive suppliers, found that while cost reduction in traditional expense categories such as finance control, procurement, manufacturing, HR and admin have brought short-term benefits, suppliers could be doing more to address additional cost categories that have until now been overshadowed: customers, innovation, products and globalization.
In recent years, intense competition in the automotive supplier industry has resulted in significant changes to the landscape, with the emergence of new markets and new players. In this challenging environment,effective cost management has become vital for suppliers to maintain profitability. Yet, despite a growing emphasis on cost-reduction strategies, Capgemini’s research reveals a lack of true progress in the area of cost management.
The study highlights 4 additional areas of concern for automotive suppliers which should be addressed in order to achieve further cost reduction:
The research found that 90 percent of automotive suppliers incur costs of up to 7% of sales due to flexibility requirements for delivery schedules, highlighting the increasingly difficult challenge of fulfilling strict OEM requirements relating to quality and flexibility.
In many cases, a significant share of the supplier’s investment in innovations cannot be translated into sales or market share. Product or process innovations can provide companies with price or cost advantages through short-term monopoly positions but at the same time, innovations can involve both high costs and high risk when there is a lack of market acceptance.
The majority of suppliers surveyed are faced with an increasing range of more technically complex product variants, with an increasing number of electronic components, which can make it difficult to achieve planned targets related to time schedules, costs and quality in production. However, to a large extent, product requirements are influenced by the customer and relevant legislative bodies.
Some automotive suppliers have yet to realize the full expected cost advantages from procurement and production in low-wage countries, with just 11 percent of those surveyed achieving significant cost advantage here. Companies are beginning to discover that rising supply chain and logistics costs can partially neutralize the positive impact of lower wage costs.
Automotive suppliers have tended to overlook these four areas, viewing them as being more difficult to control than conventional cost categories. However, strategies for cost management here should be at the forefront of suppliers’ efforts for cost reduction and the study also outlines recommendations to improve cost management.
The study assesses the cost drivers in each of the four categories, assessing them in terms of their cost, impact and influenceability. The most important cost drivers are those which can be greatly influenced internally and, at the same time, have a high cost impact.
“From our study, it is evident that the influenceability/cost impact relationship should always be the basis for targeted and successful cost-cutting measures,” said Kai-Olaf Dammenhain, Head of Automotive SAP Practice, Central Europe, Capgemini.“As such, cost drivers, rather than the type of costs, should be the starting point for any cost-management initiative and knowledge of the extent of the influence for each driver is essential.”
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About the “Cost Management in the Automotive Supplier Industry” study
Capgemini’s “Cost Management in the Automotive Supplier Industry” research was designed to examine whether the automotive supplier industry is using the correct levers to reduce costs efficiently and effectively by examining the impact, causes and interrelationships of key cost derivers. The research was conducted by Capgemini’s Automotive Center of Excellence in Stuttgart, Germany, and included interviews with executives from more than 20 leading tier 1 automotive suppliers from around the world.
Capgemini, one of the world’s foremost providers of consulting, technology and outsourcing services, enables its clients to transform and perform through technologies. Capgemini provides its clients with insights and capabilities that boost their freedom to achieve superior results through a unique way of working, the Collaborative Business ExperienceTM. The Group relies on its global delivery model called Rightshore®, which aims to get the right balance of the best talent from multiple locations, working as one team to create and deliver the optimum solution for clients. Present in more than 30 countries, Capgemini reported 2009 global revenues of EUR 8.4 billion and employs 90,000 people worldwide. More information is available at www.capgemini.com.
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