No mention of Win-win any longer
Instead, negotiations between automotive industry and suppliers are heading towards a lose-lose situation
Is there any substance to BMW’s alleged “torture chamber”?
And where is the automotive industry heading if suppliers are continuously driven into a corner?
There seems to be no end to the negative headlines the automotive industry is making. In fact, BMW is currently being put on the chopping block for its buying methods, lined out in a recent press article which drastically describes negotiations between the car builder and suppliers on BMW premises. The article compares the meeting room to a “torture chamber” and tells a story of hour-long, grueling conferences without daylight or water to drink, of cruel negotiating tactics which aim to corner the negotiating partner, indulging in the destruction of the respective counterpart while taking the liberty to axe the results of the negotiations after just a few hours. Both buyers are compared to ferrets and vultures, using highly aggressive tactics to practically force their counterparts to give up in order to obtain the best price and conditions for their company. The final figures are what counts, and approval from superiors is guaranteed. But at which price!
The profit is made in purchasing – and the loss?
All salespeople on the suppliers‘ side with whom I have discussed the „torture chamber-article“ with in the past few days agree that such a scenario is most definitely common in this sector of the industry, which makes me wonder when this will finally come to an end. I am especially annoyed by the fact that the blame is so easily put on the purchasers alone, as they only pass on the pressure that management exerts on them. Not the suppliers alone suffer from such “negotiating battles” – they are equally exhausting for the buyers! I would even go as far as saying that this pressure causes illness in many employees on both sides. A high fluctuation and a shortness of expert staff in the purchasing departments speak for themselves. After all, it is not the purchasing department but the management who continue to stick to an obsolete practice of pressuring suppliers into enormous discounts while putting major company targets on the line.
Power games lead to a dead end
Desperate suppliers who react with counter pressure are still rare, but there has certainly been a development in this direction since last summer which has been described as a fight of “David against Goliath”. The disreputable customs of the industry have thus gained public attention for the first time, tainting its image significantly. Moreover, VW as the company in question has lost a lot of money, but these losses are “peanuts” in comparison with the damage that this company (and others) has caused through recall campaigns and compensations due. The outlook for this year - with the US situation in mind – gives no hope for a bright future ahead. Every new car sold in 2016 was outbalanced by three recalls, and it is to be feared that this ratio could become even more unfavorable unless measures are taken to stop the downward movement. But how?
Pressuring buyers have no future
The purchasing departments of the automotive industry succumb to power and pressure, and this is what they exert on the suppliers, leading to insecurity and fears on the part of the companies who want to enter into business with them. This leaves no room for new ideas with great potential. But these innovative impulses are what the automotive industry needs more than anything else. It is common knowledge that nowadays, 75 % of a car is built by automotive suppliers. Their motivation to elaborate innovative solutions is indispensable, not to mention the importance of their willingness to invest in technical progress. Global competition results in growing demands, which leaves no room for price dumping. This makes the price pressuring buyer a thing of the past.
Building bridges instead of digging trenches
You cannot squeeze a lemon infinitely; this should be obvious to everyone. A negotiation strategy that doesn’t aim for a win-win situation is doomed, considering the enormous challenges the automotive industry is facing. China wants to implement a quota for electric vehicles sooner than initially planned, and the emission scandal with all related problems has not yet been resolved. The next company to be targeted by US authorities is Audi. The innovation leader is now taking a substantial risk if nothing changes. In my opinion, a fair cooperation between car builders and suppliers is what is needed now, as the necessary innovations can only be realized together. Moreover, fairness as a management strategy might just be the way to prevent a further loss of prestige for the automotive industry.
From „price dumper“ to industry trendsetter
What should change? What can be improved? Where are the new chances for the automotive industry to be found? According to my current knowledge of the industry, a change of structure and image is indispensable for a company looking for new opportunities. Those who continue to do „business as usual“ and focus only on short-term goals will go from one recall campaign to the next one. In both cases, the purchasing department plays a key role. As a matter of fact, this role has to be redefined entirely – the industry needs the courage to give the purchasers more freedom and creativity in their decisions. This means amendments to the given company structures: more „cross-functional“ teams staffed with experts instead of disciplinatory hierarchies. The buyer must play an active role in outlining the future of the company. Car builders develop innovate solutions in cooperation with their suppliers, and such a partnership enhances the willingness to invest in innovations in both parties. Motivated suppliers play a major role in developing and marketing a new product successfully. Their know-how can tip the scales when it comes to competing with other manufacturers.
With 25 years of experience as a purchasing expert – particularly for the automotive sector, the toughest buying market -, Tanja Dammann-Götsch has been pursuing her vision of giving purchasing departments a new role in the industry all over the world. She has been self-employed since 2006, acting as a consultant and provisional manager for global players in the automotive sector as well as their components suppliers all over the world. She has been to every international production site and understands the targets, concerns and requirements of purchasing departments in the USA, Mexico, or China just as well as those of companies in Eastern, Central or Southern Europe. Her experience shows how important a fair cooperation of car manufacturers and suppliers really is. In her work, she sees the aftermath of price dumping on a daily basis and employs her strategies to overcome these obsolete strategies. With her support, buyers are becoming ambassadors for their companies.
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*Source: So rabiat wird in BMWs „Folterkammer“ verhandelt, WeltN24 online, published on 24.10.2016