Supplier-Buyer Relationship in the Automotive Industry - Research Proposal Example

Table of contents Introduction 2 2. Research problem 2 3. Research Objectives 3 4. Research purpose 3 5. Literature review 4 6. Methodology 5 7. Data analysis 6 8. Expected outcome 6 References 7 Introduction The buyer/supplier relationship in any industry has been revolutionized due to changes in technology and the market dynamics. Each organization is trying to enhance value and achieve economies of scale so as to remain sustainable. Debate ensues over what is the best way to get the maximum out of the buyer/supplier relationship in the automotive industry as the Japanese sourcing strategies that were viewed as a benchmark are no more valid in today’s circumstances. Japanese problems had been widely adopted by the western automotive manufacturers but they could not achieve the same efficiency. This is because competence in buying requires a detailed knowledge and understanding of both the buyer and supplier exchange circumstances (Cox, 2004). Research problem The automotive industry has undergone turbulent changes due to changes in technology, global sourcing, intense competition and shorter product life cycles. In short the dynamic business environment has forced the industry to change from its traditional model of business. The original equipment manufacturer (OEM) or the automobile assemblers and the suppliers have been experiencing disruptions. Each manufacturer is attempting to achieve greater scale and cost efficiencies through better relationship with the suppliers. Technology has made it possible to source supplies from low-cost Asian countries. Hence different markets now share platforms, parts and capacity supply giving rise to need for more information sharing and mutual trust. Buyer/supplier relationship in this industry has to be based on mutual trust and typically should be long-term to maximize benefits for both. Hence the research questions are: 1. Is there lack of mutual trust due to lack of effective communication? 2. Do buyers have short-term focus due to availability of several suppliers? 3. Do both sides fully understand the mutual benefits that can be achieved through the right relationship? It is no more practical to carry stocks as customer demand keeps changing. At the same time it has become essential to fulfill the customer demand as the demand is recognized. This makes it essential to determine the right relationship to cope with the changes in the business environment. Research Objectives The research objectives would be: 1. To identify the level of mutual trust between the automotive manufactures and their vendors especially with their low-cost Asian vendors. 2. To determine the capability of the vendors to respond to the demand of supplies by the OEM. 3. To determine whether trust and information sharing can lower the transaction costs. Research purpose There is a shift in the way buyers and suppliers relate to each other in the supply chain especially due to suppliers being dispersed globally. While costs may be the major factor in global sourcing, to what extent the OEMs achieve the economies of scale and what are the tradeoffs? This research would help the OEMs to identify if they are actually able to achieve the savings in cost. Lack of mutual trust and a sound vendor relationship can jeopardize the very purpose of global sourcing. This research would help them to identify where they need to make changes in order to meet the customer demands timely. Literature review The car industry is the most globalized industry in the world (Donnelly, Mellahi & Morris, 2002) where the car manufacturers are attempting to improve their global position through an efficient supply chain management (SD, 2002). The Japanese practices have been found to be typical to the Japanese culture and society as it has not given the same results to the western manufacturers (SD, 2003). This study found the emergence of a new outsourcing model known as ‘new adversarial’. This has become essential because the suppliers are becoming larger and are no more willing to accede to the demands of the OEM. The European car manufacturers typically enter into short-term contracts with their suppliers and remain confined to their region (Donnelly, Mellahi & Morris, 2002). The industry lacked awareness to improve the competitiveness. Cox (2004) used the general theoretical approach and contends that dyadic exchange between the buyer and the supplier has to be understood in depth because this relationship is the fundamental building block in all relationships. This study focuses on the power regime perspective and the relationship management and highlights the reasons for failure in the buyer supplier relationship. This is why Toyota and Honda are trying to build closer relationships with their suppliers and their efforts have enhanced the suppliers’ productivity (SD, 2005). This confirms that close relationships matter in business and can help reduce costs in different ways. The relationship is not of dependency but of inter-dependency. Dyer and Chu (1997) focused on the economic value of trust but this study was conducted more than a decade ago when markets were not so turbulent and technology had not pervaded the sourcing of supplies from low-cost economies. Vehicle manufacturers today focus on supplier segmentation which is based on a dyadic approach between the OEM and its suppliers. The OEM has to be fully aware of the business environment and the suppliers’ approach which is essential to develop the right relationship strategy towards the suppliers (Svensson, 2004). Supplier segmentation has become crucial because of a large number of large suppliers. It has also been recognized that long-term relationships with suppliers can lead to better quality products (Theodorakioglou, Gotzamani & Tsiolvas, 2006). The literature review suggests that there is a global need to enhance the buyer supplier relationships in the automotive industry as the traditional model as well as the Japanese model is no more applicable. OEMs realize the need for a long-term relationship based on mutual trust and understand of the benefits from this relationship. This has become essential because of a large supplier base and determining the benefits or transaction costs has become essential. Transaction cost theory has been most widely used by researchers in determining the buyer/supplier relationship (Dyer & Chu, 1997). The framework for this research would be based on the transaction cost theory as it would help to determine the trade off that OEMs consider against low material costs in purchasing from Asian countries. All insist on a dyadic exchange between the buyer and the supplier. The framework for the research would take into account, the tradeoffs used by both the buyer and the supplier. Methodology Information for this research will be collected from various sources of secondary data. Ample information is available through search engines like Google, Yahoo and Altavista. Academic journals will be downloaded from Emerald, EBSCO HOST, PROQUEST, and business articles from Business Magazines. The research framework would be based on the transaction cost theory. Since plenty of secondary data is available, it is not considered necessary to collect primary data. A qualitative study allows for greater insights and prolonged contact with the field of study. Data analysis Data analysis would be done through the three stage process of data reduction, data display and conclusion. No primary data needs to be collected and hence no software is required. In fact data reduction itself is the process of data analysis. Expected outcome It is expected that the research would reveal that mutual trust is the essence of any relationship. In the case of the automobile industry trust is paramount cannot be used as a trade off against cost benefits. Short-term focus allows for achieving the short-term goals blocks the buyers and the suppliers from progressing. It also limits the communications between the buyer and the supplier. The research is thus expected to demonstrate that automobile manufacturers need to be aware of a large supplier base that caters to more than one buyer. This could enhance the buyer-supplier relationships. References Cox, A 2004, The art of the possible: relationship management in power regimes and supply chains, Supply Chain Management: An International Journal, vol. 9, no. 5, pp. 346–356 Donnelly, T Mellahi, KM & Morris, D 2002, The European automobile industry- escape from parochialism, European Business Review, vol. 14. no. 1, pp. 30-39. Dyer, JH & Chu, W 1997, THE ECONOMIC VALUE OF TRUST IN SUPPLIER-BUYER RELATIONS, retrieved online 4th March, 2009 from http://imvp.mit.edu/papers/98/145a.pdf SD, 2002, Peugeot, VW and Renault keep the wheels turning, Strategic Direction, vol. 18, no. 7, pp. 13-15 SD, 2003, Back to the future with Fiat, Strategic Direction, vol. 19, no. 5, pp. 13-15. SD, 2005, Strategic sourcing, Strategic Direction, vol. 21, no. 11, pp. 29-32. Svensson, G 2004, Supplier segmentation in the automotive industry, International Journal of Physical Distribution & Logistics Management, vol. 34, no. 1, pp. 12-38 Theodorakioglou, Y Gotzamani, K & Tsiolvas, G 2006, Supplier management and its relationship to buyers’ quality management, Supply Chain Management: An International Journal, vol. 11, no. 2, pp. 148–159 Read More