The changes discussed above are also linked to the changes taking place in the global automotive supply chain. Gerrefi (1999) argues that capital has fostered neo-liberal globalisation by establishing two forms international economic networks, namely ―producer driven‖ and ―buyer driven‖ commodity chains. By commodity chain, Gerrefi (1999) refers to a set of activities and networks involved in the production of a particular product—for example, a car. The reality is that component suppliers increasingly play a significant role in the global automotive industry. Research by Freyssenet and Lung (2003:83), for example, estimates that purchasing of components ―accounts for between 50 and 70% of the cost of price of an average car‖.
The global commodity chain in the auto industry is producer-driven because all automotive firms play a significant role in determining and co-ordinating production networks (Gerrefi, 1999). In other words, manufacturers in the automotive sector still wield significant power with regard to production networks and the labour process at the point of production. Producer-driven commodity chains are contrasted to buyer-driven commodity chains which refers to ―those industries in which large retailers, marketers and branded manufacturers play pivotal roles in setting decentralised production networks in a variety of exporting countries, typically located in the third world‖ (Gerrefi, 1999:1).
Unlike producer-driven commodity chains, in consumer-driven commodity chains product designs and product specifications are set by the large marketers or retailers that order the goods. Typical examples of consumer-driven commodity chains include Wal- Mart, Nike and Reebok; these firms design and market the products but do not manufacture them themselves—they do not own any production factory (Gerreffi, 1999). In the automotive industry, this type of arrangement is absent because original equipment manufacturers (OEMs) are still responsible for designing and manufacturing cars. The suppliers must follow the prescriptions from OEMs in terms of design, quality and quantity of the components they supply.
Unlike retailers such as Wal-Mart and Nike, automotive firms such as BMW, Toyota and Volkswagen are ―manufacturers with factories‖ responsible for physical production of cars, marketing and distribution. These automotive companies wield significant power over backward and forward linkages in the industry‘s global commodity chain. In terms of backward linkages, automotive firms exert control over raw materials and component suppliers; they exert the same control over forward linkages in terms of distribution and retailing. The automotive industry has in the recent past experienced a tremendous increase in the number of suppliers for OEMs in the global automotive industry.
OEMs continue to choose their suppliers on the basis of their own designs for cars, and suppliers must supply components as per the design and quality specifications given by an OEM. The chief considerations in choosing suppliers include price, quality and timelines for delivery. According to Veloso and Ramur (2002), ―demands by the OEMs for continuous price reductions from suppliers, year-on-year, have become a norm in the automobile industry‖. For example, Toyota demanded a 25% decrease in cost from its suppliers over a period of three years; Ford also demanded between 5% and 7% cost reduction from its suppliers each year. The continuous price reduction pressures from the OEM to first-tier components manufacturers get passed to other suppliers in the commodity chain.
In Getting the Goods, Bonacich and Wilson (2008) examine global supply chains from a sociological perspective and conclude that a new dispensation of supply chain management has emerged. They develop the term logistics revolution to explain global flexible production techniques based on Just-In-Time principles. According to Bonacich and Wilson (2008), the world of work has witnessed a shift from mass production to flexible forms of work and production organisation. The notion of logistics revolution can also be applied in the analysis of the automotive global supply chain.
The industry‘s supply chain is organised into different supply tiers. This is necessitated primarily by the common desire by automotive firms to respond quickly to the pressures from specific consumer requirements and growing global competition (ESRC, 2003). The
OEMs are normally responsible for designing and assembling cars. The first tiers of suppliers are generally responsible for manufacturing and supplying components to the OEMs. Most of the first-tier suppliers also have global presence in the same way automotive firms do—that is, they are found wherever auto companies have plants (ESRC, 2003). According to Wilkinson et al. (1992:160), the JIT principle ―is extended backwards to suppliers and also forward to the final consumer‖.
In fact, most auto companies encourage their components suppliers to ―locate their plants as close as possible to the automobile assembly plants so that assembly lines can receive frequent deliveries of small lots of parts‖ (Alternburg et al., 1999:1). These suppliers are expected at all times to meet the OEM‘s requirements with regard to quality and quantity of their production. Simpler individual parts—for example, the housing of a fuel pump— would be supplied by the second-tier suppliers to the first-tier suppliers (ESRC, 2003). The second-tier and third-tier suppliers would supply raw materials either to the first-tier or second-tier suppliers.
Traditionally, a single company would be responsible for the production of all car parts and the final product itself, but some of these tasks have been outsourced to individual components companies. Because most automotive companies have outsourced most of their production activities, the auto components industry has gained momentum. According to Veloso and Ramur (2002), the global automotive supply chain has changed in that ―the new direct suppliers are becoming large global firms, which are either specialised in complex systems or integrators of several simpler subsystems‖. The leading automotive components firms include Lear Corporation, Bosal, Magna and so on. Most automotive assembly lines, such as the VW plant in Uitenhage, are surrounded by a number of components suppliers. Logistics parks have been set up next to most auto assembly lines.