retained internally for competitive advantage. Traditionally, automakers competed on the basis of new products and manufacturing efficiency. Today, they are seeking allies to help them revamp their distribution systems, cut costs and inventories, and gain broad access to the Internet car-consumer market. Thus, one key to success is the ability to adapt the supply chain rapidly to changing conditions.

Benefits of Outsourcing

OEMs may reap the following benefits from outsourcing:

  • improved focus, quality, and simplification of remaining in-house operations

  • lower cost manufacturing operations, including reduction of in-house inventories

  • shorter product realization cycles (faster time to market) and lower product development costs if suppliers are directly involved in product design

  • access to capabilities and technologies that could not be readily developed or cost-effectively acquired

  • additional manufacturing capacity and faster response to changing market demands, often without additional capital investment by the OEM

Despite these benefits, OEMs may elect to retain aspects of vertical integration, such as capabilities that provide sustainable competitive advantage or identify a product with the OEM.

Outsourcing has also created substantial benefits for suppliers. Some of these opportunities, such as decisions by IBM and others in the 1980s to outsource PC operating systems to Microsoft and microprocessors to Intel, have led to the creation of huge fortunes. For example, automakers traditionally made or bought most of the parts for automotive seats and assembled the seats themselves. However, trends in the 1990s toward cost reduction, outsourcing, and reduction in the number of suppliers created expanded opportunities for surviving suppliers. Johnson Controls and Lear, which responded with cost controls, growth strategies, and acquisitions, have taken over the assembly task and are now the dominant Suppliers of fully assembled modular seating systems to GM, Ford, and DaimlerChrysler. The modules are delivered in sequence and installed directly into vehicles as they move along the assembly line.

On-time delivery, low costs, high quality, and low error rates are critical in this competitive, make-to-order business. Leveraging their low costs and global capabilities, Johnson Controls and Lear are now



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