Suppliers Positive, Again, per OESA Survey

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OESA recently released its Automotive Supplier Barometer for May 2014, Focus on Production, Technology, Globalization. Suppliers continue to hum along in their positive attitudes, sending OESA’s May Supplier Sentiment Index (SSI) to 59, a light increase from that of 56 in March 2014. In fact, the SSI has been on the positive side of the spectrum since November 2012. Astonishingly, this is 18 months of positive outlook from Automotive Suppliers. The positive outlook is not surprisingly considering that capacity utilization rates hit upwards of 80-95%.

While positive, suppliers did note risks and challenges. Chief among these was a lack of engineering talent. By more than a two-to-one margin, 37% of suppliers identified this as the number risk to new product launches. A distant second was production capacity and technology development. When asked which system area had the most significant supply chain constraint, suppliers fingered “Electrical/Electronics.” They noted that such products were so scarce that they feared “possible allocation” in the foreseeable future. Lead-times for some suppliers for these key components were going out to 20 weeks, or more.

When asked about their long term sourcing strategy for North America, suppliers echoed a common theme in the manufacturing industry: re-shoring and localization. Suppliers stated that they wanted to localize production and supply base further in the southern US and Mexico. They wanted to decrease their reliance on overseas sources, in particular, moving sourcing from Asia back to North America. As one supplier stated in response to the survey, “We will continue to source within North American whenever possible.” Another was even more blunt, “Domestic sourcing only, as unreliable vendors net a cost increase from countries like China and India.”

Lastly, it will be no surprise that suppliers have been impacted by the increased number of recalls. As foreshadowed right here in the Dashboard, the recalls are impacting suppliers. In particular, product and process validation have been heavily impacted according to the survey. Proactive suppliers are increasing their review of their terms and conditions with customers and their down-stream suppliers. The engineering talent shortage is also impacted by the recalls as more employees are forced to divert their attention from their regular jobs to assist with defect investigations, warranty analysis and recall management.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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