Resilience through scale: shaking up automotive supply chains

Supply chain strategies are at the frontline of a rapidly evolving automotive landscape. As manufacturers look to build resilience, many are rethinking their approach and shifting towards larger, more financially stable partners to consolidate supply bases. But, what’s the thinking behind this strategic pivot, and what does it mean for both larger and small players in the UK’s automotive supply chain?

Simplifying complexity and reducing risk

Automotive supply chains are notoriously complex, often involving thousands of suppliers across multiple tiers. Managing such a vast network introduces risk, especially in times of disruption, be it geopolitical tensions, pandemics or other global, as well as local factors. A significant influence can be a supplier’s exposure to other manufacturers or tier 1s, who themselves may be facing challenges and restructuring their operations. 

By reducing the number of suppliers, there’s an opportunity for manufacturers to streamline workflows, improve visibility and enhance control and influence over their supply chains. It is generally the case that larger suppliers have more diversified operations and financial strength to ride through disruptions and periods of sector instability. However, when it comes to selecting partners, we see that scale is increasingly being interpreted as reliability in what is an already fragile sector. 

Cost and operational efficiency

That consolidation of suppliers is enabling manufacturers to leverage economies of scale and provide additional support to certain stakeholders that may otherwise struggle with current lower production volumes. There’s an argument that larger suppliers can offer more competitive pricing due to their purchasing power and ability to better absorb costs and fixed overheads required to run their operations. 
 
For manufacturers, managing fewer suppliers reduces complexity and administrative overhead. It means that procurement teams can focus on building deeper, stronger relationships with key partners rather than spreading resources thinly across a fragmented supplier base. It is often seen that in times of trouble, small suppliers can take up as much time and resource to manage than larger ones and can be just as costly to fix if it all goes wrong. 

Enhancing innovation and ability to invest

Innovation is another factor that we see driving consolidation within supply chains. As vehicles become more technologically advanced manufacturers need suppliers that can keep pace with innovation. Larger suppliers usually have dedicated R&D departments, engineering teams to support the manufacturers and access to capital to support investment in new processes or technologies. While smaller suppliers can be proactive and equally as innovative, it is often difficult to invest in new OEM programmes due to a lack of ready access to the requisite capital.

But, will larger suppliers want to support the manufacturers?

Just because a manufacturer wants to consolidate its suppliers and work with larger, more resilient partners, it does not mean it will always happen. As the sector’s reliance on internal combustion engines (ICE) reduces, some suppliers may not be able to make their operations profitable from continually diminishing production volumes.

So, there’s also the case that manufacturers may need to switch from a larger supplier to a smaller, more agile one who has a lower cost base and can maintain profitability while operating on lower production volumes. As such, the changing landscape doesn’t all point to larger suppliers – there are opportunities for specialist players too, not least in sunsetting product categories and niche areas.

That said, the prevailing trend is for manufacturers to prioritise partnerships with larger, more capable companies that offer reliability, innovation and global support. This strategic shift, driven by risk mitigation, cost efficiency, simplification and the need for greater supply chain stability, is ultimately aimed at reducing production costs.

As the industry continues to evolve, supplier consolidation is expected to remain a key strategy for manufacturers striving to build more resilient, cost-effective and future-ready supply chains, ensuring continuity of supply regardless of the challenges they face.