Supplier Contingency Program
Learn how BCG helped a major automotive supplier prepare, beyond capacity adjustments, for the economic downturn.
Our client is a large global automotive supplier that was negatively impacted by the capital markets crisis and by a dramatic falloff in sales of its passenger and commercial vehicles.
Given its customer and project portfolio, the company was bracing itself for a 25 to 30 percent drop in demand and a significant hit to its bottom line.
AutoSupplierCo recognized that immediate adjustments in production capacity had to be made. In addition, it asked BCG to help answer three key questions:
How severe would the sales falloff be?
How long could AutoSupplierCo persevere in this crisis?
How soon could countermeasures be put in place, and how soon would they have an effect?
The urgency of the situation called for targets more ambitious than any the company had aimed for in the past. Our case team helped AutoSupplierCo formulate and realize a set of objectives built on existing and ongoing initiatives, and to further mobilize the organization.
We chose six key tested and proven levers that we felt would have the most powerful short-term impact:
Focus research and development by increased efficiency, consistent attention, and cuts.
Align structural costs through a differentiated approach with sustainable results.
Reduce product costs by passing on original equipment manufacturer purchasing program levers.
Optimize the project portfolio by renegotiation and realignment where possible.
Penetrate the aftermarket with differentiated pricing and channel-specific offers.
Increase capital productivity with rigid cash management and optimization of net current assets.
Speed, experience, pragmatism, and top-down guidance are all crucial elements when designing a contingency plan during a crisis. Within a few weeks, our case team had prepared a structured and practical rapid-response diagnostic to help identify the greatest cost-saving potential. We were also able to identify actions the company would have to take, from quick-impact initiatives to complete turnarounds.
Keeping in mind proven auto-supplier industry levers, our team identified three key effective steps and their timing:
One to two weeks—rapid simulation and scenario planning to size the potential problem
Two to three weeks—understand the opportunities most important to helping protect financial fundamentals; stabilize ongoing businesses; and lay a long-term groundwork
One week—prioritize and launch initiatives
Upon completion of our assignment, we had identified a cost-saving potential of approximately 20 percent across all management levels, with an overall impact of 5 to 7 percentage points in earnings before interest and taxes.