Others

In this kind of contract-driven relationship, OEMs face multiple risks.

Late delivery. Delayed part deliveries have an immediate and substantial impact on assembly line operations, directly disrupting production schedules and revenue streams. In the automotive industry, where a single factory produces approximately 1,000 vehicles per day, even a one-day delay can translate into staggering financial losses. Assuming an average vehicle price of $30,000, a full-day production halt equates to a staggering $30 million in lost revenue.

Unseen cost drains. For suppliers to produce parts for OEMs, they require the corresponding tooling assets, such as molds and dies. To facilitate this, OEMs provide these toolings to their suppliers, operating on the assumption that they will be used efficiently and responsibly. 

In practice, tooling assets are often underutilized and poorly maintained by suppliers – yet OEMs remain largely unaware of these cost drains. Suppliers prioritize meeting production demands and typically lack incentives to maximize tooling efficiency. As a result, they frequently request more toolings than necessary, leading to CapEx hikes and misplaced assets. Under the current system, suppliers are also less inclined to extend the lifespan of existing toolings through proper maintenance. Instead, they opt to scrap tools that require upkeep and order replacements, driving up costs and contributing to unnecessary waste – all of which the OEMs are not aware of.

Quality issues. Supplier mismanagement can significantly impact parts quality, leading to defects, scrap, and increased costs. One common issue is tooling overload – when suppliers push their toolings beyond their capacity to meet production targets. This overuse shortens the tooling’s lifespan and results in defective parts. Additionally, delayed or reactive tooling maintenance further contributes to quality degradation, increasing the likelihood of faulty components and unnecessary waste.

For OEMs, closely monitoring every part for quality issues is neither practical nor cost-effective. As a result, many defects go unnoticed until they cause larger production setbacks or customer dissatisfaction.

Poor decision making. Without clear visibility and quantitative data on supplier performance, OEMs often rely solely on contract fulfillment as their primary evaluation metric. Over time, this lack of data-driven decision-making leads OEMs to select suppliers based on familiarity and past relationships rather than objective performance insights. This approach, while convenient, is neither logical nor optimal, as it fails to identify high-performing suppliers and address systemic problems.