Automakers are reducing the number of suppliers as a result of declining sales

Filed in archive Market Overview on August 18, 2008

The declining sales in the car industry has put extra pressure on automakers and the big three in the U.S. are not an exception. That's why a while ago all of the chief purchasing officers in big three giants announced that they are considering the option of reducing the number of suppliers.

For example, Detnews reported that "Chrysler LLC purchasing chief John Campi is targeting a 25 percent reduction in supply chain costs within three years and plans to trim his supplier rolls. He noted that 50 percent of Chrysler's 800 suppliers together supply just 5 percent of its parts."

In GM, Bo Andersson, group vice president for global purchasing and supply chain, said that as the automaker shrinks truck and SUV production, it is reducing the number of suppliers it uses. It also plans to shift a big chunk of its total contracts to larger suppliers. GM has cut the number of suppliers it has in North America over the last five years from 2,500 to 1,700 today.

My impression is that in current situation, the small suppliers will be highly affected as they are not able to become core suppliers (the size is not that big) and they have to improve the quality much more to stay in the chain of the suppliers for the core suppliers. What do you think?