Ricardo Valenzuela
Director of Innovation, Incubation, and Development
ITESM
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Insight

Transition From Supply Chain to Supply Network

Mon, 09/01/2014 - 14:27

Universities are content to align their courses and services to provide the industry with capable and trained human capital. However, ITESM has driven off the beaten track to find itself a far more ambitious mission: implementing innovation initiatives within the supply chain and elevating the competitiveness of suppliers and OEMs. The Development Center of the Automotive Industry in Mexico (CeDIAM) is where both of these goals meet. Ricardo Valenzuela, Director of Innovation, Incubation, and Development of ITESM describes that as this initiative gained momentum, CeDIAM drafted a strategic plan that began with the enhancement of logistics capabilities. The first objective was to create synergies between companies, especially those involved in the ferrying of auto parts. Valenzuela admits that creating synergies between suppliers and OEMs can be tricky, though. “It depends on the culture of the OEM and the type of relationship it has with its suppliers. Japanese OEMs have a big influence over their suppliers but also have a more solid commitment, whereas the relationship American OEMs have with their suppliers is more contractual. Suppliers commit to delivering parts at a certain cost, volume, and timing, based on the terms of a signed contract.”

The synergies amongst companies forged by CeDIAM enable the transfer of knowledge and technology to suppliers further down the supply chain. To encourage networking between Tier 1 and Tier 2 companies, CeDIAM created its own trade show, named Expo Partes. “At such trade shows, Tier 2s can meet up with procurement managers from Tier 1 companies. At each event we have organized, five to ten companies have secured contracts.” Valenzuela stresses that SMEs suffer from a lack of guidance when seeking to move up the supply chain or to become trusted companies to multinationals. Although nobody is formally in charge of developing such companies or giving them the tools they need to compete, CeDIAM is helping to forge these tools through the creation of the National Suppliers Development Program, which is mainly oriented to Tier 2, Tier 3, and Tier 4 suppliers. “Alongside companies, ITESM faculty and external consultants, CeDIAM designed material for a basic consulting coaching model,” Valenzuela explains. He affirms that this program does not seek to tell companies how to do their strategic planning but coaches them and helps to resolve any  misunderstandings. The program has already seen groups of around 20 small companies formed according to different specializations, for them to be taught together about how to improve and to set up regular follow- up meetings to guide the implementation of CeDIAM’s recommendations. So far, these recommendations cover nine areas, including strategic planning, quality control, and maintenance of production levels among others.

According to Valenzuela, a company needs between 18 months and three years to be fully developed. “That timing for an OEM or Tier 1 is understandable, but they cannot wait that long for their suppliers,” he adds. As a result, CeDIAM’s model was designed to be fast, taking companies as far as it can in a short timespan. To accelerate the project, the aforementioned groups were formed to allow specific players to be trained in a similar manner. “The cross-examination such a process entailed actually benefited small companies since trying to do business with some of these companies was challenging,” Valenzuela admits, “CeDIAM ensured that the companies were following certain rules, which also helped us to see how the capabilities of each company limited their ability to work with OEMs and Tier 1 suppliers,” he adds. “The business dynamics of the automotive industry are changing, evolving from a supply chain to a supply network. CeDIAM is aiming to create a network where information is available for all involved,” he explains. As such, CeDIAM has a website where Tier 1s can see which companies at the Tier 2 level and below are supplying particular products, who their clients are, and what processes they carry out. “Transparency is important as a business relationship has to be clear. This is achieved by having valuable information available to all the parties involved.”

Additionally, SMEs can take advantage of the automotive industry’s rising need for specialization. Valenzuela attributes this quest for specialization to a period in the 1980s where many OEMs jettisoned processes that were not part of their core business. This allowed specialized companies to come to the fore, providing important design and technology developments. “This happened to Nissan and JATCO. JATCO was part of Nissan but spun off into a separate company dedicated to transmissions. It now has the technology to develop transmissions and reach more clients,” says Valenzuela. “This will also happen lower down the supply chain. We will reach a moment when small companies will sell their own unique technology. This is part of our goal. CeDIAM is set to develop 100 Tier 2 suppliers in 2014, and once that goal is reached we are thinking about increasing to 300 Tier 2 suppliers for next year’s development program.”