Thursday, 3 September 2015

Automotive players should strive to be independent


Traditionally Original Equipment Manufacturers (OEMs) were dominant over the entire automotive value creation, including development and production of parts and components, system and modules integration, vehicles assembly, sale and marketing.
Generally suppliers were dependent on the OEMs only to be involved in the hierarchical tier system relationships, manufacturing parts and components and to a certain extent modules and systems assembly, whilst the OEMs assumed the whole vehicle integration responsibilities and the final assembly.
In recent years the mods operand of automotive manufacturing has changed. OEMs main activities are now centered on vehicle conceptual design and assembly, branding and downstream activities, while engineering design and development, parts and components production and assembling of modules and systems are outsourced to automotive suppliers and service providers.
The suppliers’ value creations within the automotive manufacturing ecosystem have since increased substantially and consequently the so-called tier zero (0) suppliers or “little OEMs” have now emerged in the automotive supply chain.
The new manufacturing scenario has somewhat freed the automotive supplier from totally dependent on the OEMs to becoming free enterprises able to innovate their products to the full extent of their abilities in support of the OEMs parts and components, modules and systems requirements.
However, this new approach requires tighter cooperation between OEMs and suppliers requiring higher levels of process integration, from product design and engineering to supply chain and quality management on the part of the suppliers.
The above evolution of the automotive industry within the local vicinity will depend largely on the development of the local automotive parts manufacturing sector. The OEMs outsourcing trends will be influenced by the availability of local suppliers of competitive-cost but high quality parts, which are also able to take responsibility for product R&D, design and development, tool-making, manufacturing and testing.
The onset of the regional integration of the ASEAN Economic Community (AEC) will open up larger automotive market opportunity for most OEMs in the region and as such demand for parts and components, modules and systems from the supply chain.
Therefore, the upgrading of the local automotive parts and components industry by focusing on capabilities and identifying future strategic development path is crucial for Malaysia to participate in the regional and global automotive growth.
Generally many of the local automotive parts manufacturers are not linked to OEMs from equity stand point but remain dependent on, and to a certain extend dictated by, the OEMs for their businesses. The keiretsu mentality of the local suppliers is minimal, which is an advantage, and as such developing some of the local vendors to tier zero (0) status may not be impossible.
However, on the part of the local suppliers strategic planning in setting the right direction towards becoming a regional independent parts and components manufacturer and module integrator must proceed. Capability along the supply chain in areas of R&D, design and development, tool design and making, manufacturing processes enhancements and testing must be inculcated and expanded.
Local vendors must continuously perform bench-marking exercises to provide better products to customers.
The way forward is that the industry players must be able to accommodate global platform in their manufacturing capabilities and are able to develop strategic regional plan and direction and execute them effectively to face the challenges ahead.
The inspiration is for the local vendors to be able to attain the status of indigenous “little OEMs”, in parallel to that of Proton and Perodua, capable of supplying parts, components, module and integrated system independently within the automotive supply chain.

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