The automotive industry is undergoing a fundamental transformation, placing a heavy financial burden on all major players. In addition, the ongoing crisis, which is repeatedly fueled by extraordinary events (e.g. wars, pandemics, shortages, etc.) is dividing the automotive industry. While Tier N suppliers are struggling under rising pressure, OEMs are generating record profits.
Rising inflation further aggravates the situation.
In a nutshell, high product cost increases of +10 to 15%, due to inflation, in many areas of the value chain are threatening suppliers’ existence.
While OEMs increase profitability, Tier N suppliers face push and pull challenges that threaten their existence
Whereas OEMs solve the problem by forwarding the additional, inflation-related costs to the end customer, the situation is by far more complex for Tier N suppliers. They must not only limit cost increases from their own supply base, but also must pass through extra costs to their customers to remain profitable.
Most Tier N suppliers are not fully utilizing their recovery potential
TC’s experience shows a realistic recovery rate of 40 to 50%, on average, of inflation-related costs for automotive suppliers.
Unstructured data, poor data transparency, and lack of standardized approaches prevent organizations from performing successful recovery management and lead to a profit gap up to 40% compared to best-in-class suppliers.
The understanding of the Push & Pull relationship is crucial to successfully addressing core challenges
On one hand, incoming demands must be validated to prevent subcontractors from taking advantage of the current market situation to impose general terms to improve their business position.
On the other hand, claims must be properly submitted in order to rebut a categorical rejection of any supplier price demands by OEMs referencing current market conditions.
TC’s END-TO-END INFLATION MANAGEMENT is a game changer for successful inflation recovery
Establishing a holistic, cross-functional approach that addresses the five key questions is key to minimize inflation risks and maximize recovery rates.
- How to avoid silo thinking by establishing cross functional teams?
- How to optimize data competence for best-in-class preparation of negotiation?
- How to install end-to-end processes to increase cost and price transparency?
- How to deal with growing data sources and evaluation requirements to avoid analytic islands?
- How to manage agreements, deals & frameworks for contractual transparency & fit?
TC is the driving force to step up to best-in-class results and beyond.
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