Traditionally, launching high-volume production programs has been the primary goal of OEMs to generate economies of scale and profitability. As a result, their supply base strived to land high-volume programs, and low-volume programs, often unprofitable, were relegated. OEMs and suppliers are now changing their mindsets on low-volume programs, driven by innovative manufacturing and supply chain processes, and technologies being adopted by forward-thinking startups, transplants, and incumbents, that allow for higher profits at low volume.
Companies are starting to target low-volume programs to provide more of the mass customization optionality consumers demand, increasing market share and profit in doing so. OEM Ford, has launched the GT, a niche product to create a marketing “halo” effect for their brand and to test future technology. Tier I Bosch, has developed a specialized division, Bosch Engineering Group, to provide better customer support for lower volume programs and expand into new markets. The rapid industry pivot toward more low-volume programs, has resulted in limited capacity among premier low-volume suppliers, leaving companies with major challenges to locate and source capable supply partners.
Sourcing the right low-volume supply partner is challenging due to both internal and external factors. Internally, challenges are often rooted in corporate cost reduction initiatives and supply optimization programs that limit supply base size. These strategies curb low-volume program success by rewarding the lowest cost at the expense of quality, speed, and innovation, while capping the bid list to high-volume preferred suppliers that are ill-suited and unwilling participants.
Externally, the high-overhead facilities coupled with the near-max capacity of some suppliers, heightens the supply risk of low-volume programs. Usually, supply partners are not qualified and developed specifically for low volume, which results in launch delays and cost overruns. Further complicating the already immense challenges facing low-volume programs, most OEM’s and supplier’s teams, processes, and software is optimized for high-volume production, rightfully so, as it makes up a majority of their business.
What Defines Low Volume?
Low-volume programs typically produce 1,000 units per month and less than 100,000 units annually, production numbers more in line with prototype and service programs. Supplier capabilities vary widely from company to company, regardless if a supplier’s focus is on low or high volume. The right low-volume supply partner will offer a plethora of services that can range from injection molding plastics to sand casting, to the fabrication of alloys, and finish machining. Leading supply partners will offer additional value-adding services such as welding, plating, heat treating, coating, and painting. A supply partner that serves as a one-stop shop significantly benefits a program because it reduces the points of contact, boosting efficiency, while increasing their opportunity. Below are eight tips for low-volume automotive sourcing success.
8 Tips for Low Volume Sourcing
1. Maintain a Preferred Low-Volume Supply Base
Conventional high-volume buy leveraging approaches to limit the number of suppliers in your supply base dramatically hinder success of low-volume programs. Low-volume programs are different, thus a unique low-volume preferred supply base must be maintained and leveraged to optimize supply performance.
2. Develop Internal Process Efficiencies
Align your organization’s low-volume people, processes, and systems with prototype, service, and aftermarket models, separate from high-volume business. Build scalable, routine procurement processes across your organization and require different levels of information in standard documents like RFQs, Supplier Audits, and Purchase Orders to streamline operations.
3. Analyze Supply Partners’ Core Competencies
When considering the capabilities of a potential low-volume supply partner, analyze every offering they provide or have the capacity to provide. It is important to then distill the supply partner’s true core competency to reduce execution risk. Ideally, this core competency will be what you are seeking to procure.
4. Ensure Business Model Alignment
Leading low-volume suppliers’ operations are honed toward high mix, small batch manufacturing. Limiting engagement to, or strong-arming, high-volume preferred suppliers to support low-volume programs is a recipe for disaster and creates unnecessary supply risk, as a higher-volume suppliers’ business model might not be profitable at low volumes.
5. Implement Flexible Quality Systems
ISO/TS quality certifications are often a price of entry, however, it is important not to over specify component technical requirements; at lower volumes, manual quality checks may be used, as opposed to automated higher-cost gages. Flexibility is key, involve potential suppliers early in the critical-to-customer requirements definition discussions to strip out costs.
6. Foster Competition to Drive Out Costs
Companies should seek to attain at least three quotes from highly qualified potential supply partners to foster competition. Understand the entirety of a program’s costs before rushing into any sourcing decision. Consider full program life, net present value, minimum order quantity, set up costs, logistics, customs, and duties, to reduce buy costs.
7. Cultivate Partnerships Through Supplier Development
Be a champion for suppliers to transition to, who are developing necessary capabilities and could potentially receive RFQs, by inviting them to quarterly supplier development meetings. Investing this time in building strong relationships with potential suppliers provides greater flexibility to source capacity, technologies, and innovation in the future.
8. Use Technology to do More with Less
Low-volume sourcing requires the same type of commercial information be collected, analyzed, and processed, so leverage technologies that improve project management and collaboration among individuals and teams. Separate agile, scalable, and on-demand software systems should always be promoted selected in place of rigid, high-volume systems to increase execution speed.
Today’s consumer trends of more custom and personalized products, along with the mad rush of technology adoption in vehicles, are fueling many new low-volume production programs. To properly source these programs, numerous commercial data inputs need to be considered, which present a major challenge.
Additional challenges will continue to proliferate, but forward-thinking OEMs and Tier suppliers who establish strategic sourcing plans and execute production at low-volumes will be able to tackle them head on, increasing market share and profitability in the process. Successful low-volume performance will also position these companies to participate in the evolution of innovative light-weight, propulsion, and autonomous technologies, currently developing in low volumes.
Keeping these eight tips in mind will ensure your organization successfully sources the low-volume production programs of tomorrow.