Supplying Fiat
SupplierBusiness, August 2009, Pages: 103
The last few months have underlined the importance of the OEM customer base of each supplier for medium- and long-term strategic success. This report, as a part of the Supplying OEMs series, provides guidance and insight into the OEM's strategic position on the purchasing side.
- OEM's current standing
- Production strategy (Locations, Platforms,etc)
- Procurement spending and organisation
- Levels of vertical integration
- Biases in supplier selection
- Business practices regarding pricing and quality
- R&D Spending and focusings
- Modules and systems outsourcing policy
- Forward Model Programs
- SWOT Analysis of Supplying the OEM
After having provided an overview on the current standing of the OEM with regards to various aspects including sales, financial performance, product line-up and the macroeconomic environment, the report analyses the production strategy of the car maker going through the operations, revealing where volumes are expected to occur at a geographical and program level and deciphering the car maker's platform strategy. The core topic is the analysis of the car maker's purchasing strategy with a focus on the most critical areas of the interface with its supply base involving supplier selection, price policy, quality approach, R&D and modules and systems.
Based on original research and SupplierBusiness' well–established surveys of working experiences with OEMs over the last few years, the report also provides the opportunity to grasp how current suppliers rate OEMs about a complete range of aspects that really matter to the supply base.
The report includes the SWOT analysis of supplying the OEM along with IHS Global Insight's much respected Forward Model Programs and a list of the major suppliers by component sector.
Thanks to its added value and unique insight, the report is a must for those suppliers looking to re–optimise their customer portfolio in light of the major changes currently underway in the global automotive sector
Background to this research
After having completed one of the most challenging turnarounds in automotive history, Fiat now is benefitting from scrapping schemes thanks to the strong bias of its product portfolio towards lower segments of the market. Fiat's supremo, Sergio Marchionne has been hunting for bargains and was able to finalise an alliance with bankrupt Chrysler. The Italian automaker now has to address several critical issues, including the turnaround of its North American partner and the rationalisation of production facilities in Italy. In addition it must refresh its product portfolio, despite development delays as a result of the economic downturn.
On the purchasing side, major changes have been evident to Fiat's strategy since it dissolved its joint-venture with GM. The "Global Sourcing" approach, one of the central planks of the car maker's approach to procurement in the GM-Fiat era, has been effectively replaced by global partnerships with those suppliers which are able to supply Fiat plants worldwide and are willing to expand their footprint to best-cost countries when needed. Fiat's relations with suppliers have improved significantly and suppliers acknowledge Fiat is a much more attractive car maker compared to three years ago. However some old bad habits remain – in areas such as payment terms and quality, for example.
As a special feature this report includes a special section focused on the recent alliance with Chrysler and on the potential implications this could have on the traditional supply base of the Italian car maker as well as on the North American supply base.
1 OVERVIEW OF THE CARMAKER
1.1 After the bargain basement shopping spree, major challenges
1.2 Improved finances, but still not convincing
1.3 Slowdown in sales less than peers
1.4 First for light vehicles in Brazil, but falling behind in other BRIC countries
1.5 Overreliance on two markets likely to continue
1.6 Many delays and some cancellations in the product pipeline
2 ANALYSIS OF SUPPLYING FIAT/CHRYSLER
2.1 Basis for the turnaround: before and through bankruptcy
2.2 New corporate organisation
2.3 Product line-up revamp and overhaul of production
2.4 Procurement is the major source of savings in the alliance, but...
2.5 Reshaping of Chrysler's supply base in the turnaround
3 PRODUCTION STRATEGY
3.1 Italian production mission's organisation
3.2 Termini Imerese: a test for Marchionne's rationalisation plans
3.3 Tichy and the 500/Ka experience: An example to export?
3.4 Serbia: The new Poland?
3.5 Chinese production at last?
3.6 Plans for India and elsewhere
3.7 Platform rationalisation, standardisation and modular architecture: will plans be respected?
3.8 World Class Manufacturing: Toyotism in Italian sauce
4 PURCHASING STRATEGY
4.1 Changes shaping Fiat's purchasing strategy
4.2 The 2007–2010 plan
4.3 Direct materials: spurring group synergies through an appropriate corporate organisation
4.4 Direct materials: Turnover transfer to best-cost countries on track
4.5 From global sourcing to global partnership
4.6 Design to cost optimisation
4.7 Synergies, centralised management and optimisation for indirect materials and services
4.8 Supplier Selection
4.8.1 Outsourcing policy, then insourcing
4.8.2 Experience teaches the importance of continuous financial monitoring
4.8.3 Rationalisation of the supply base: Fiat wants fewer, bigger suppliers
4.8.4 There is always room for new suppliers
4.8.5 Best cost countries sourcing
4.8.6 Serbia: supplier wanted
4.8.7 General requirements for potential suppliers
4.9 Pricing Policy
4.9.1 Savings programs and reduced pressure on suppliers
4.9.2 Competency in negotiations
4.9.3 Payment terms
4.9.4 Offsetting of raw material fluctuations
4.10 Approach to Quality
4.10.1 Less demanding than other OEMs, but slightly improving
4.10.2 A cross functional Supplier Quality department
4.10.3 Production ramp-up critical phase
4.10.4 Cost creep in engineering change orders
4.10.5 Frequent arguments in warranty review of product liability guarantees
4.10.6 Management of quality of tier-2
4.11 Research and Development
4.11.1 Reduction of CO2
4.11.2 Hybrids not a priority and only for city cars
4.11.3 Internal R&D focus
4.11.4 Shorter development time
4.11.5 Suppliers' integration into development
4.12 Modules and Systems
4.12.1 Magneti Marelli absorbs the failed attempt to outsource
4.12.2 Modules and systems outsourcing
4.12.3 Supplier Parks: only Melfi and Betim
5 OEM-SUPPLIER RELATIONS SURVEY RESULTS FOR FIAT
5.1 Negotiations
5.1.1 Time-consuming negotiations
5.1.2 Demands for price reductions
5.1.3 Rating of payment terms
5.1.4 Keeping agreements on price
5.1.5 Willingness to reward cost saving ideas
5.1.6 Willingnesss to pay for development costs
5.2 Quality
5.2.1 Demands to achieve high quality
5.2.2 Demands for testing and validation
5.2.3 Product liability guarantees
5.3 Technology
5.3.1 Demands for best product technology
5.3.2 Technical competence
5.3.3 Opportunities for return on investment
5.3.4 Use of modules
5.3.5 Development of systems with suppliers
5.4 Organisation
5.4.1 Quality of communication
5.4.2 Support in avoiding problems
5.4.3 Quality and stability of volume planning
5.4.4 Preparation for model launch
5.4.5 Level of redesign required
5.5 Trust
5.5.1 Trust in commercial partnerships
5.5.2 Level of protection for suppliers' intellectual property
5.6 Attractiveness
5.6.1 Attractiveness
5.6.2 Long-term prospects
5.6.3 Openness to new suppliers
5.6.4 More or less business
5.6.5 Business in three years time
6 SWOT ANALYSIS OF SUPPLYING FIAT
7 MANUFACTURING FOOTPRINT
8 FORWARD MODEL PROGRAM
9 MAJOR SUPPLIERS BY COMPONENT SECTOR
9.1 Chassis/Underbody
9.2 Electrical/Electronic
9.3 Exterior
9.4 Interior
9.5 Powertrain
Table of Figures
Figure 1: Fiat share price (FIA.MI) (Source: Reuters)
Figure 2: Procurement Plan – Supplier Concessions Chrysler Base Plan in $million (Source: Chrysler)
Figure 3: Chrysler 2008 Breakdown of purchasing activity (by number of purchases)
Figure 4: Fiat's Italian Plants
Figure 5: Fiat production breakdown by platform (2012 Forecast) (Source: IHS Global Insight)
Figure 6: Fiat's World Class manufacturing principles across the value chain (Source: Fiat)
Figure 7: Breakdown of the Annual Purchase value Group Company in 2006 (Source: Fiat)
Figure 8: Best Cost Countries purchasing spending breakdown (Source: Fiat)
Figure 9: Fiat hybrid drive powertrain solution for city cars (Source: Fiat)
Figure 10: SupplierBusiness 2009 OEM-Supplier relations survey – Length of negotiations with mass car makers
Figure 11: SupplierBusiness 2009 OEM-Supplier relations survey – Contract negotiations between 2008-2009
Figure 12: SupplierBusiness 2009 OEM-Supplier relations survey – Contract negotiations between 2006–2009
Figure 13: SupplierBusiness 2009 OEM-Supplier relations survey – Demand for price reductions
Figure 14: SupplierBusiness 2009 OEM-Supplier relations survey – Price reductions percentage change 2008–2009
Figure 15: SupplierBusiness 2009 OEM-Supplier relations survey – Price reductions percentage change 2008-2009
Figure 16: SupplierBusiness 2009 OEM-Supplier relations survey – Rating of payment terms
Figure 17: SupplierBusiness 2009 OEM-Supplier relations survey – Payment terms percentage change 2008–2009
Figure 18: SupplierBusiness 2009 OEM-Supplier relations survey – Payment terms % change 2006–2009
Figure 19: SupplierBusiness 2009 OEM-Supplier relations survey – Keeping price agreements
Figure 20: SupplierBusiness 2009 OEM-Supplier relations survey – Keeping price agreements percentage change 2006–2009
Figure 21: SupplierBusiness 2009 OEM-Supplier relations survey – Willingness to reward cost saving ideas
Figure 22: SupplierBusiness 2009 OEM-Supplier relations survey – Willingness to reward cost saving ideas percentage change 2008–2009
Figure 23: SupplierBusiness 2009 OEM-Supplier relations survey – Willingness to reward cost-saving ideas percentage change 2006–2009
Figure 24: SupplierBusiness 2009 OEM-Supplier relations survey – Willingness to pay for development costs
Figure 25: SupplierBusiness 2009 OEM-Supplier relations survey – Paying development costs percentage change 2008–2009
Figure 26: SupplierBusiness 2009 OEM-Supplier relations survey – Paying development costs percentage change 2006–2009
Figure 27: SupplierBusiness 2009 OEM-Supplier relations survey – Demands to achieve high quality
Figure 28: SupplierBusiness 2009 OEM-Supplier relations survey – Demands to achieve high quality, percentage change 2006–2009
Figure 29: SupplierBusiness 2009 OEM-Supplier relations survey – Demands for testing and validation
Figure 30: Demands for testing and validation, percentage change 2006–2009
Figure 31: SupplierBusiness 2009 OEM-Supplier relations survey – Product liability guarantees
Figure 32: SupplierBusiness 2009 OEM-Supplier relations survey – Product liability guarantees, percentage change 2008–2009
Figure 33: SupplierBusiness 2009 OEM-Supplier relations survey – Product liability guarantees, percentage change 2006–2009
Figure 34: SupplierBusiness 2009 OEM-Supplier relations survey – Demands for best product technology
Figure 35: SupplierBusiness 2009 OEM-Supplier relations survey – Best technology demands, percentage change 2008–2009
Figure 36: SupplierBusiness 2009 OEM-Supplier relations survey – Best technology demands, percentage change 2006–2009
Figure 37: SupplierBusiness 2009 OEM-Supplier relations survey – Technical competence
Figure 38: SupplierBusiness 2009 OEM-Supplier relations survey – Technical competence, percentage change 2008–2009
Figure 39: SupplierBusiness 2009 OEM-Supplier relations survey – Technical competence, percentage change 2006–2009
Figure 40: SupplierBusiness 2009 OEM-Supplier relations survey – Opportunities or return on investment
Figure 41: SupplierBusiness 2009 OEM-Supplier relations survey – Opportunities for return on investment, percentage change 2008–2009
Figure 42: SupplierBusiness 2009 OEM-Supplier relations survey – Opportunities for return on investment, percentage change 2006–2009
Figure 43: SupplierBusiness 2009 OEM-Supplier relations survey – Use of modules
Figure 44: SupplierBusiness 2009 OEM-Supplier relations survey – Development of systems with suppliers
Figure 45: SupplierBusiness 2009 OEM-Supplier relations survey – Quality of communication
Figure 46: SupplierBusiness 2009 OEM-Supplier relations survey – Quality of communication
Figure 47: SupplierBusiness 2009 OEM-Supplier relations survey – Support in avoiding problems
Figure 48: SupplierBusiness 2009 OEM-Supplier relations survey – Support in avoiding problems, percentage change 2008–2009
Figure 49: SupplierBusiness 2009 OEM-Supplier relations survey – Support in avoiding problems, percentage change 2006–2009
Figure 50: SupplierBusiness 2009 OEM-Supplier relations survey – Quality and stability of volume planning
Figure 51: SupplierBusiness 2009 OEM-Supplier relations survey – Volume planning quality, percentage change 2008–2009
Figure 52: SupplierBusiness 2009 OEM-Supplier relations survey – Volume planning quality percentage change 2006–2009
Figure 53: SupplierBusiness 2009 OEM-Supplier relations survey – Preparation for model launch
Figure 54: SupplierBusiness 2009 OEM-Supplier relations survey – Model launch preparation, percentage change 2006–2009
Figure 55: SupplierBusiness 2009 OEM-Supplier relations survey – Level of redesign required
Figure 56: SupplierBusiness 2009 OEM-Supplier relations survey – Level of redesign required, percentage change 2008–2009
Figure 57: SupplierBusiness 2009 OEM-Supplier relations survey – Level of redesign required, percentage change 2006–2009
Figure 58: SupplierBusiness 2009 OEM-Supplier relations survey – Trust in commercial partnerships
Figure 59: SupplierBusiness 2009 OEM-Supplier relations survey – Trust in commercial partnerships, percentage change 2006–2009
Figure 60: SupplierBusiness 2009 OEM-Supplier relations survey – Level of protection of suppliers intellectual property
Figure 61: SupplierBusiness 2009 OEM-Supplier relations survey – Intellectual property protection, percentage change 2008–2009
Figure 62: SupplierBusiness 2009 OEM-Supplier relations survey – Intellectual property protection, percentage change 2006–2009
Figure 63: SupplierBusiness 2009 OEM-Supplier relations survey – Attractiveness for suppliers
Figure 64: SupplierBusiness 2009 OEM-Supplier relations survey – Attractiveness for suppliers, percentage change 2006–2009
Figure 65: SupplierBusiness 2009 OEM-Supplier relations survey – Long term prospects
Figure 66: SupplierBusiness 2009 OEM-Supplier relations survey – Long-term prospects, percentage change 2008–2009
Figure 67: SupplierBusiness 2009 OEM-Supplier relations survey – Long-term prospects, percentage change 2006–2009
Figure 68: SupplierBusiness 2009 OEM-Supplier relations survey – Openness to new suppliers
Figure 69: SupplierBusiness 2009 OEM-Supplier relations survey – Openness to new suppliers, percentage change 2008–2009
Figure 70: SupplierBusiness 2009 OEM-Supplier relations survey – Openness to new suppliers, percentage change 2006–2009
Figure 71: SupplierBusiness 2009 OEM-Supplier relations survey – More or less business expected
Figure 72: SupplierBusiness 2009 OEM-Supplier relations survey – More or less business expected, percentage change 2008–2009
Figure 73: SupplierBusiness 2009 OEM-Supplier relations survey – More or less business expected, percentage changed 2006–2009
Table of Tables
Table 1: Fiat S.p.A. Financial Data (Source: Reuters, Moody's, Fitch, S&P)
Table 2: Chrysler's top creditors (suppliers)
Table 3: Fiat purchasing savings forecasts (Source: Fiat)
Table 4: 2008 CO2 Emissions (based on sold vehicles, by brand) (Source: JATO)
Table 5: R&D expenditure vs. revenues for Fiat and Fiat Powertrain Technologies (Source: Fiat)
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