THE AUTOMOTIVE MARKET

A GREAT OPPORTUNITY FOR MANY SUPPLIERS; BUT NOT FOR ALL OF THEM

By Giuseppe Toscano – Italian version published on INDUSTRIACOMO N. 8 January 2016

Since quite some time we hear saying that “we are out of the crisis”. And it’s clear that quite some indicators, as well as the sentiment of many of us, seems to confirm this statement.

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The Automotive market A GREAT OPPORTUNITY FOR MANY SUPPLIERS; BUT NOT FOR ALL OF THEM By Giuseppe Toscano – Italian version published on INDUSTRIACOMO N. 8 January 2016 Since quite some time we hear saying that “we are out of the crisis”. And it’s clear that quite some indicators, as well as the sentiment of many of... Read more

The Automotive market

A GREAT OPPORTUNITY FOR MANY SUPPLIERS; BUT NOT FOR ALL OF THEM

By Giuseppe Toscano – Italian version published on INDUSTRIACOMO N. 8 January 2016

THE AUTOMOTIVE MARKET: A GREAT OPPORTUNITY FOR MANY SUPPLIERS; BUT NOT FOR ALL OF THEMSince quite some time we hear saying that “we are out of the crisis”. And it’s clear that quite some indicators, as well as the sentiment of many of us, seems to confirm this statement.
But if it can be true taht we are going to see the light, it’s also true that it doesn’t concern all of us: surely among the companies that can better ride the positive wave there are the more exported oriented ones. And there are also business segments that drive the recovery.

Among these business one of the most significant is for sure the Automotive.

Automotive market, leaded by precise rules, is very peculiar; and, for very valid reasons, it is very attractive for a large range of companies potentially interested to get in; but, in order to avoid very dangerous disappointments, it has got to be approached with the right degree of knowledge and awareness. So, we will try now to analyze it frmm suppliers’ standpoint.

First of all, the strictly classified Automotive market includes suppliers that can occupy up to the third position in the chain, starting from car makers (Tier 3; when Tier 1 is the company that directly supplies the car maker); the consequence is that the typology of potentially interested companies is extremely wide: from mould making to metal parts blanking; from plastic parts moulding to electronic components; from turning to textiles; from enameled wires to chemicals; from printed circuit boards to cables. The list might continue for a while, but the meaning should be clear: image to disassemble a car till the smallest components. You would find almost everything! Moreover, you have to keep in mind that the “Automotive” doesn’t only concern cars but also motorcycles, trucks, buses, tractors, excavators and so forth. On top of them there is a continuously growing list of companies that, even relying to other business segments, decided to establish the relations with their suppliers following automotive standards; we will call them “Automotive like”. This is a very uneven group of companies, coming from lighting or biking or many other sectors. And it continuously grows; because they recognize that the automotive standards and methods are advanced and winning.

Will all be great then? Not at all! To get into the Automotive market is a critical decision, that needs to be taken only as outcome of a serious strategic analysis; having well understood the potential advantages (a lot!) but also what it requires. Automotive customer is extremely selective and very demanding; on the other side he normally offers continuity and good development opportunities. It’s a difficult to get in market; but once you are in it’s difficult to be kicked out; it only happens if you make big mistakes. If you do so, get in again, also with different customers, may be extremely difficult: Automotive it’s a kind of club.

Automotive customer needs to rely on high level suppliers, able to guarantee an excellent service, both in terms of quality and logistics. This is easy to understand when you think about the costs associated with a line stop in car making industry, caused for example by a late delivery: we are talking of millions of euro! Or try to image the costs of a car recall campaign… just crazy numbers. And, at the end, somebody has got to pay this. Because no one likes to pay, everybody tries to pass the charge to the next one in the supply chain. And here we have to introduce another specific subject of the automotive supplier: to prevent being the one on whom the big charge arrives, you certainly need to have worked in accordance with all the agreed rules and methods (just one example, among the possible many: if you have sourced your components from a supplier that is not in your declared and approved supplier list, no matter which were the good reasons why you decided to do so, you are finished); but having followed the rules is not enough: you also have got to be able to demonstrate to have done so. Which means that it is crucial that each process step is properly documented and recorded. And because something may anyway go wrong, automotive customers usually oblige their supplier to stipulate a special insurance (Product risk) to cover the potentially huge cost related to recall campaigns.

The approach used in the automotive market to bring the suppliers to work according to expectations is the QualitySystem defined by ISO TS 16949 standard. Incidentally, this standard is an unusual and appreciated example of successful standardization; till few years ago, each main country used to follow his own standard, defined by the main local car makers: QS9000 in the States, VDA 6.1 in Germany, AVSQ 94 in Italy and so forth. Today all these standards are combined in ISO TS 16949, that is recognized and accepted all over the world.
This Quality system was developed starting from the well-known ISO 9001; but it is largely enhanced. Working as per this standard is demanding and somehow expensive: it implies the use of qualified people, it force you to follow the rules, forgetting about the short-cuts that we often love so much, it implies that every step has got to be properly recorded and documented, and so forth. But on the other side it also gives you very important advantages: if you follow this system, using its typical quality tools (FMEA, SPC, APQP, etc.), your non-quality costs (line rejects, warehouse costs, customer claims, design mistakes, late deliveries, and so forth) will be drastically reduced. Which means that you will achieve a clear efficiency increase; that is nothing less than a strong competitiveness increase.

To get ISO TS 16949 certification is a crucial step that cannot be ignored by whom is planning to became an important player in automotive market. But you have got to know that only if you can prove to have already at least one automotive customer you can sign up and go for it. You have to prove that your products end up in the car.

To enter into this project, it is suggestable to follow a plan like this:


a) Perform a company assessment, to verify how far you are and what you still need to do to be in compliance with the requirements of this standard
b) Based upon the outcome, define the needed improvement plan and quantify the required time and costs
c) Confirm your intention to pursue the target and its timing (once you know where you start from, the sooner you want to get certified, the more you have to concentrate your investments)
d) Start the operative improvement plan, regularly monitoring the improvements
e) Shouldn’t you already have automotive customers, initiate commercial actions to get in: having a solid road to certification, eventually to be shared with customers, is usually enough for the supplier to be taken in serious consideration
f) When the new Quality System has reached a good level of implementation, get in touch with a certification body to set up together the action plan to achieve the certification.

There is one more point that I still would like to cover about ISO TS 16949 certification. We already said that the automotive market is a club; now I add that the companies certified ISO TS 16949 represent an exclusive club. It’s just in the numbers: at the end of 2014 in Italy there were only 1.236 certified companies; in Germany 3.331; in US 4.107 (font: IATF – International Automotive Forum Team). Ridiculous numbers, if compared for example with the ones related to ISO 9001: only in Italy we have more than 83.000 companies certified ISO 9001!

This situation is the result of a continuous effort of the car makers’ association (IATF) to make this certification as “reliable” as possible; which means a real warranty for the customer that the certified suppliers are really in line with the expected requirements. At the end of year 2013, IATF invited all the accredited certification bodies to a meeting in Detroit whose purpose was to raise the threshold for the approval criteria. And to be sure that the message was clearly received, they communicated that IATF inspectors would have randomly participated with the inspectors of the certification body to company audits. In this way they will monitor how the auditors will act during the certification, being sure that no lowering compromise would be accepted. Talking with some Italian ISO TS 16949 qualified auditors (by the way, few tens in total), they have