Mulchandani: Major suppliers must go global to survive

ATLANTA, Ga. (Feb. 8, 2000) — Globalization and consolidation are trends that will continue amongst truck-makers, according to Prakash Mulchandani, senior vice-president at Meritor Automotive and president of its Heavy Vehicle Systems unit. And the only choice for tier-one suppliers like his company is to grow with them, he said, while retaining at all costs a clear focus on the end-user. He went to so far as to say that “companies that don’t globalize will perish in the long term.”

Speaking at a Heavy Duty Manufacturers Association conference in Atlanta, Ga., yesterday, Mulchandani noted the recent news that Germany’s MAN intends to acquire England’s ERF, and that Nissan plans to join another OE to address the truck market. As well, he said, it’s rumored that Hino could link up with Isuzu, which would in turn link General Motors to Toyota. He likened it to a family reunion on the Jerry Springer television show.

“Certainly, more OEMs will join forces, further shrinking our world,” he said. “As OEM’s consolidate and globalize, they look for suppliers who can serve them around the world. Today, the global platforms that they develop require a high degree of common components, while retaining… flexibility to meet unique geographic market requirements.” For suppliers, that also demands a global manufacturing presence.

One key development in this context, Mulchandani said, is a growing trend among European OEMs to outsource some component manufacturing. “…They’ll determine, more and more, that it’s simply not practical to make certain drivetrain components like axles.”

At the same time, Mulchandani said, truck manufacturing is becoming “a module or systems business,” which will only become more prominent in the future. “Whether it’s combining axles and suspensions, or completely dressed-out brakes and axles, or using the same ECU or black box for braking systems with suspensions and drivetrain controls, OEMs want suppliers with the technological capabilities to provide complete systems, who are more than just component suppliers.”

That demand for advanced technology and an expanded product portfolio means that suppliers too will be consolidating in the near term, with the benefit that OEMs will have fewer suppliers to deal with – not to mention more cost-effective components and sub-systems resulting from suppliers’ greater economies of scale.

“It only makes business sense that alignments between OEMs and Tier 1 suppliers expand in the next few years,” Mulchandani said.

Interestingly, he added that there are other less obvious benefits to globalization, like the opportunity “… to fulfill our responsibilities as citizens of the world. One of the challenges we have is to help develop technical skills and improve quality of life in the emerging economies… by employing local people for engineering and production positions. We train employees in the latest manufacturing techniques and production processes. And by doing this, we achieve a win-win for our operation and our people.”

Mulchandani said that Meritor has discovered “extraordinary engineering talent outside of the U.S.” The company has established engineering design centers in India and Brazil that communicate with the Technical Center at headquarters in Troy. Mi., electronically.

There is also “the reward of cultural diversity,” he said. “Simply put, it adds value to an organization. It brings out different viewpoints on the same subject. The fact is we all grow and become richer in our thinking after stimulating discussions, like the ones we have regularly in our worldwide management meetings.”

The chance to study different perspectives about doing business is also important, Mulchandani said, and it led him to discuss the difference between Europe and North America in terms of who is the primary specifier of a new truck.

“My expectation is that Europe and rest of world will remain an OE spec vehicle market, while North America will remain an end-user spec’d vehicle market for the near to mid-term,” he said. “However, down the road, offerings like cost-per-mile guarantees by OEMs could well drive the U.S. model to mirror the European model, with OEMs determining the components for such guarantees.”

Mulchandani ended his address by stressing that, regardless of where in the world a company is operating, “We must always focus first and last on the end-user.”

Meritor, incidentally, is about as global as it gets. The company has operations across North America, of course, including eight facilities in Canada and five in Mexico, as well as a substantial presence in Brazil, China, Europe, and India. It also has factories in Australia, Japan, Korea, Sweden, Singapore, South Africa, and Turkey.

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