Electrical/electronic component suppliers ranked last among the six automotive segments – exterior, powertrain, interior, electrical, body and chassis – reviewed in PwC's North American Automotive Supplier Supply Chain study. While electrical/electronic component suppliers ranked first in gross profit margins, which suggests low raw material component costs, low-cost labor and lower-than-average total landed costs, said PwC, this segment had the lowest performance in cash-to-cash and inventory turns. Inventory turns ranked low when compared across segments and these suppliers had the lowest year-over-year (YoY) improvements. This translates into some opportunities for improvement in working capital and inventory management.
The electrical components sector also experienced below average revenue growth, and days of sales outstanding (DSO) performance is among the lowest of all segments. However, the study finds that cost of goods sold (COGS) growth relative to revenue growth “appears favorable,” which suggests to analysts that component suppliers have focused on COGS control and cost reductions.
PwC assessed supply chain performance based on 17 metrics segmented into planning, sourcing, and delivery performance. Rankings were developed based on the weighting of these key metrics to derive an efficiency and effectiveness score. The combined score determined the overall segment level ranking.
Planning involves activities around supply chain strategy and network design; cross-enterprise supply/demand planning; and inventory management and schedule stability. Sourcing includes strategic procurement, supplier-managed inventory and purchased materials cost management. Delivery covers capabilities for demand management, order management and customer delivery, and supply-chain asset management.
Electrical/electronic component supplier scores for effectiveness and efficiency.
Who’s leading the pack? Interior suppliers are the leaders among the six automotive segments with a median revenue growth of four percent. This segment showed strong performance in working capital management indicated by strong performance in current year and YoY improvement in inventory turns, days payable outstanding (DPO) and cash-to-cash performance, according to PwC.
The study finds the majority of suppliers performed better on effectiveness (revenue) than they did on efficiency (cost). Exterior suppliers improved in effectiveness, while powertrain, chassis and electrical component suppliers declined in effectiveness.
"Automotive suppliers who view and manage their supply chain as a strategic asset have achieved higher financial performance as well," said Rajiv Jetli, principal, PwC US Automotive consulting practice, in a statement. "We've observed a direct correlation between supply chain performance and financial performance for many automotive suppliers. Integrating performance improvement discipline is key to gaining a competitive edge."
The survey also resulted in feedback from respondents about how they view the five key core disciplines for achieving top supply chain performance.
- Core Discipline 1: Viewing the organization’s supply chain as a strategic asset
“Although, virtually all respondents agreed/strongly agreed their supply chain strategy is aligned with the business strategy, 33 percent agreed/strongly agreed that investments in supply chain are not given the same importance as those for other business functions.”
- Core Discipline 2: Developing an end-to-end process architecture
“73 percent of survey responses strongly agreed there is an inadequate investment in demand and capacity tools, potentially leading to a lack of a clear transparent planning process.”
- Core Discipline 3: Designing the supply chain for performance
“When it comes to having the right supply chain talent in place, 42 percent of respondents disagreed/strongly disagreed that their companies have the right resources, while 33 percent said that their organization did not have a management structure that manages the end-to-end process.”
- Core Discipline 4: Building the right collaborative model
“Over 40 percent of respondents agreed/strongly agreed that their companies should pursue opportunities to better utilize resources and improve unit costs through horizontal collaboration, i.e., sharing supply chain assets for mutual benefits.”
- Core Discipline 5: Using metrics to drive supply chain performance
“As for metrics, 25 percent to 42 percent of respondents agreed that their companies could do a better job in terms of both internal and customer-facing supply chain metrics.”
Based on survey results, companies that perform well in the five core disciplines experience higher financial performance, said PwC. The survey finds that sales growth for best-in-class companies is almost 50 percent higher than non-best-in-class companies. They also have 20 percent higher profitability. Strong performance in these five core disciplines will further drive supply chain efficiency and effectiveness, said PwC.
PwC also identified five global megatrends – demographics shifts, shifts in economic power, accelerating urbanization, climate change and resource scarcity, and technological breakthroughs such as big data and cloud computing – that could have potential implications on the automotive supply chain. With these megatrends in mind, it is important that suppliers continue to focus on improving supply chain efficiency and effectiveness, said PwC.