acquiring makers of other interior components and are positioning themselves to supply fully integrated automotive interiors. For example, in March 1999, Lear purchased United Technologies Corporation's automotive-parts business, enabling it to deliver modules that include instrument panels, electrical wiring systems, and electronic seat controls. The automakers, in turn, are further integrating with these suppliers by hiring them to help in the design process, a high-margin activity that benefits both the OEMs and suppliers.


As manufacturing operations become increasingly specialized and complex, suppliers are relying more heavily on their own suppliers (often referred to as "lower tier" suppliers), who, in turn, rely on still others. This extended, chain-like system of companies, brought together to fulfill an end-customer demand, has come to be called a "supply chain." Figure 2-2 shows a typical supply chain structure.

The committee defined a supply chain as an association of customers and suppliers who, working together yet in their own best interests, buy, convert, distribute, and sell goods and services among themselves resulting in the creation of a specific end product. Thus, every company is necessarily part of at least one supply chain. It is not a matter of choice. The chains in which a company participates are defined by (1) the OEM and its suppliers, who together provide all of the capabilities required to create and support the end product, and (2) the customers who purchase it.

The supply chain includes all of the capabilities and functions required to design, fabricate, distribute, sell, support, use, and recycle or dispose of a product, as well as the associated information that flows up and down the chain. Supply chains are typically comprised of geographically dispersed facilities and capabilities, including sources of raw materials, product design and engineering organizations, manufacturing plants, distribution centers, retail outlets, and customers, as well as the transportation and communications links between them. OEMs typically have a supply chain for each product line, although the same capabilities are often used in multiple chains. Many suppliers participate in the supply chains of more than one OEM.

Many companies are adopting a supply chain structure similar to that of the construction industry, in which general contractors subcontract most of the work on an ad hoc basis. Contractors solicit bids for the skills and capabilities required for a specific job from subcontractors they know and trust. Subcontracts are typically awarded to those with the best combination of capabilities and prices, not necessarily just the lowest prices.

The National Academies of Sciences, Engineering, and Medicine
500 Fifth St. N.W. | Washington, D.C. 20001

Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement