Despite the fact that automobile suppliers have become a crucial component of a car’s design and production, they are facing a wide range of challenges. Increasingly global competition, the need to meet ever-rising demand, and low-cost manufacturing in low-wage countries have all conspired to make them more competitive. Automotive suppliers must make major investments to stay on top of these challenges, as well as maximize productivity.

In an industry rife with disruption and internal complication, automakers must learn to be more agile. In a world where price volatility and shortages are widespread, suppliers will need to find ways to remain relevant and profitable while navigating new market conditions. Smart suppliers will align their portfolios with their strengths and products to provide added value, and they will reap the benefits of a coherent business model. And in an age of digital transformation, this is critical.

During the financial crisis, automakers were forced to raise prices. With fewer margins and tighter competition, suppliers were forced to cut costs. With the increased complexity of manufacturing, suppliers must be ready to innovate to survive. This will require greater collaboration between OEMs and suppliers. This bidirectional visibility is crucial in a time of price volatility, widespread shortages, and intense competition. Fortunately, the smartest suppliers will align their portfolios with capabilities and products that add value and will reap the rewards of a cohesive business model.

While the automotive industry has adapted to new technology and lean manufacturing practices, it still has a long way to go. Several Tier 1 automakers have streamlined their operations and cut inventory levels to near zero. However, due to high-cost components and parts, lead times can extend for manufactured components, leading to a breakdown of the supply chain. While many suppliers have already embraced keiretsu principles, others have resisted.

The automotive industry has been slow to adopt the keiretsu model, a global supply chain where multiple Tier 1s cooperate to ensure the quality and supply of their products. In the past, this was only possible if the automotive industry could compete and innovate in a global fashion. But now, the automotive industry is reversing this trend and implementing a supply chain management platform. This strategy has helped automakers to reduce their inventory and increase their profitability.

Traditionally, automakers have relied on small, local suppliers. But as the automotive industry has expanded globally, the industry has become more centralized and consolidated. The largest automaker has cut the number of Tier 1 Suppliers to three and is now using global platforms for manufacturing. This has made it much more difficult for small automakers to compete in the same market. Ultimately, this has resulted in a more competitive environment for the automotive industry.