6 Tips for Managing the OEM Relationship

Jun 24, 2019 9:32:00 AM

The automotive supplier-OEM relationship needs nurturing, trust, and mutual understanding, or it can fall off the rails.  The communication breakdowns that lead to strained relations tend to come from three primary areas:

  • Total focus on price
  • Failure of the supply chain to meet demand spikes
  • Disputes around liability (missed projections, product failures)

There are plenty of other issues that could arise, but these three are frequent culprits.  An OEM supplier that hyper-focuses on bottom-line price or expects you to anticipate the future (even if you aren’t being kept up-to-date) can be a challenge.

However, when both sides are clear on their expectations and understand the goals and needs of their partners, the relationship can flourish.  Not every OEM is easy to work with, but there are strategies you can use to give yourself the best chance at managing the OEM relationship towards success.

  1. Be a Proactive Communicator — As a supplier, it’s natural to expect that your OEM will set the table.  After all, they are the ones taking bids for a product, spec, and price point they’ve pre-determined.  However, neither the supplier nor the OEM can read minds, which means you need to share information proactively and keep the lines of communication open.  Many issues in both initial negotiations and deteriorating partnerships come down to misunderstandings about expectations. Thoroughly document your company’s internal knowledge so that it isn’t lost during organizational changes (turnover, new points of contact, revised processes).
  2. Educate When Necessary — Not all OEMs are fully aware of how your product is manufactured or engineered.  If there’s a misalignment between their expectations (say, for R&D costs) with operational realities, this can cause the relationship to break down.  Be informative and help the OEM understand your internal production processes and the methodology behind them.  This will ensure that all deliverables hold a shared expectation.
  3. Let the OEM Do Their Job — The OEM has hired you to solve a supply problem.  The initial launch of the partnership will involve anxieties over whether they’ve made the right choice.  This might be expressed in what feels like micromanagement, but that’s rarely the OEM’s intention. It will help your partner to feel comfortable if you prioritize transparency and welcome all initial inquiries or requests.  Be empathetic to their needs to cultivate trust in the long term. As the relationship settles in, both sides will be able to contribute helpful suggestions that capitalize on mutual competitive advantages.
  4. Reduce Their Risks Whenever Possible — The auto industry is fiercely competitive, so most significant decisions involve risk management.  Warranties, guarantees of service, and extensive evidence that your materials meet industry regulations and OEM spec all contribute to improved sustainability in the partnership.  Any operational processes you can take over on the supply chain side also help you to share in risks and foster a stronger OEM relationship.
  5. Think Outside the Box — If negotiations are stalling on a fixed per-unit price point, you can break out of the holding pattern by discussing other aspects that will help lower your expenses.  For instance, offer the desired discount in return for a larger upfront deposit or increase in order volume. Or, provide collateral bonuses like warranty improvements or faster shipping at no additional expense.
  6. Collaborate on Cost-Downs — Try to build an OEM relationship in which both sides are receptive to design, material, or process suggestions that could reduce costs without compromising on quality.  OEMs and suppliers share responsibility for the success of a mutually beneficial business arrangement.  Stay open to recommendations, and don’t hesitate to indicate cost-saving opportunities when specifications may be above the needs for a product’s function.

OEM relationship management doesn’t need to be a point of frustration.  After all, it’s a symbiotic relationship. A steady flow of information (in both directions) and focus on shared goals will set both businesses up for success.

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