North American automotive supplier supply chain performance study

Transcription

1 North American aumotive supplier supply chain performance study Key 2013 findings from leading aumotive suppliers evaluating the effectiveness efficiency of their supply chain In this issue 2 Welcome 3 Key themes 4 Supplier performance 5 Methodology 9 Scope 10 Segment findings 14 Detailed segment performance 19 Detailed survey findings 23 Implications recommendations 24 Looking ahead 28 Gearing up for the future 29 Contacts

2 Welcome As a means of identifying assessing supply chain strengths challenges in the aumotive market, PwC refreshed its annual study of the p 50 aumotive suppliers North American Original Equipment Manufacturers (OEMs) (ranked by sales of OEM parts). 1 To enhance this year s study, Original Equipment Suppliers Association (OESA) provided PwC with access their membership, gaining support of its member companies (including 53 publically traded companies). Through OESA distribution, we were able analyze multiple supplier surveys exp the breadth of findings presented in this paper. PwC s study evaluates the responses of this exped pool of players distill their performance on supply chain planning, sourcing delivery capabilities; compare supplier segments studied Exterior, Interior, Body, Powertrain, Electrical, Chassis identify potential for improvement. Specifically, our study provides a closer look at the ability of p suppliers generate revenue/cash (effectiveness), as well as their capability minimize costs (efficiency). While our findings indicated that most suppliers perform better on effectiveness than on efficiency, it is evident that all segments can markedly improve in both areas with Interior Exterior Suppliers leading the way in terms of the strongest performance revenue growth. Our many thanks all who participated in PwC s 2013 study. We value your time, effort input. Rajiv Jetli Principal rajiv.jetli@us.pwc.com +1 (313) Top 100 NA Suppliers, Aumotive News, June 17th, Top 45 included in financial analysis due five companies being private North American Supplier Supply Chain Performance Study

3 Key themes: Emerging aumotive supplier findings Supply chain efficiency effectiveness may lead higher financial gains: Based on the survey results, companies that are performing well in the five core disciplines1 exhibit higher financial performance. For example, sales growth of bestin-class company (BICC) is almost 50% higher than that of non-biccs, while BICCs have 20% higher profitability than non-biccs. Interior Exterior suppliers lead the way in revenue growth as Original Equipment Manufacturers (OEMs) continue their focus on improving interior quality differentiating exterior styling (e.g., unique lighting options). All segments appear be taking an additional focus on Cost of Goods Sold (COGS) once again, as supplier revenue growth has outpaced COGS growth from There is a renewed focus on cash: Working-capital efficiency appears be a common trait of profitable suppliers. Companies that achieved p quartile performance in gross profit margin delivered p quartile performance in days sales outsting (DSO) improvements pquartile performance in raw material turns. Top Tier 1 suppliers are realizing the value of an extra few days of payables, with approximately 60% of segments increasing their payables by over two days since This could be driven by a renewed focus on cash increased leverage through supplier consolidation. Segments with higher local content, such as body suppliers, appear be achieving working-capital benefits through improved days sales outsting (DSO) shorter cash--cash cycles. Invenry continues be a challenge: Several segments specifically interior exterior components have seen industry turns decline as aumotive production stabilizes from the growth cycle. Improvements in raw materials stability appear indicate that supply is catching up with dem, allowing suppliers stabilize their raw material invenries. Coupled with improved forecasting dem stability, most segments are starting see gains in controlling raw materials turns North American Supplier Supply Chain Performance Study

4 The majority of suppliers performed better on effectiveness (revenue) than they did on efficiency (cost) Interior suppliers showed the greatest strides in effectiveness this year, while body suppliers slightly declined in performance. Exterior suppliers improved in effectiveness but regressed in efficiency; Powertrain, Chassis Electrical Component supplier effectiveness declined. More Average Effectiveness Ranking Interior Efficiency (Costs) Electrical Powertrain Body Average Efficiency Ranking Chassis Exterior Note: size of bubble represents avg. sales NA OEMs ($B) Less Effectiveness (Revenues) More Source: (1) PwC Analysis, Top 100 NA Suppliers, Aumotive News, June 17, Notes: Rankings were developed based on weighting of the key metrics in this study. Each segment was ranked in comparison other segments. Divisions between quadrants suggests cross-segment average. Dotted circles represent last year s study results in efficiency/effectiveness North American Supplier Supply Chain Performance Study

5 Methodology In this year s study, PwC identified leaders (p 20%) laggards (botm 20%), determined an effectiveness efficiency rating for the six supplier segments studied: 1. Exterior 4. Powertrain 2. Interior 5. Electrical 3. Body 6. Chassis Using publically available data, PwC assessed supply chain performance by aligning 17 specific metrics planning, sourcing, delivery performance. Rankings were then developed based on the weighting of these key metrics, derive an efficiency effectiveness score. The combined score determined the overall segment level ranking. Each segment was ranked in comparison other segments. On the bubble chart, divisions between quadrants suggest the cross-segment average ranking. Two frameworks were used help guide the analysis. First, PwC leveraged the SCOR reference model developed by Supply Chain Council (SCC) group metrics in plan, source, delivery buckets. The SCOR model provides a unique framework that links business process, metrics, best practices technology features. The second framework used aligns the five core disciplines covered in PwC s recently released book on strategic supply chain management. Our industry survey composed of 33 questions that set out assess a suppliers supply chain capabilities. Specifically, the core disciplines PwC surveyed each supplier on were: Core Discipline 1: View your supply chain as a strategic asset Core Discipline 2: Develop end--end process architecture Core Discipline 3: Design your organization for performance Core Discipline 4: Build the right collaborative model Core Discipline 5: Use metrics drive supply chain performance Using these frameworks data analysis, PwC was able draw insights in suppliers supply chain effectiveness efficiency North American Supplier Supply Chain Performance Study

6 A combination of planning, sourcing, delivery metrics were used establish supplier effectiveness efficiency 17 metrics were used determine supply chain efficiency effectiveness. Effectiveness Metrics: Raw Material Stability; Days Payables Outsting (DPO); Days of Sales Outsting (DSO); Efficiency Metrics: Cash--cash; Cost of Goods Sold (COGS) Revenue. A combination of planning, sourcing, delivery metrics used establish supplier effectiveness efficiency Planning Sourcing Delivery Effectiveness Metrics (Revenue) Operating Cash Flows/ COGS Revenue Growth Days Payables Outsting (DPO) DPO Improvement Days of Sales Outsting (DSO) DSO Improvement DPO Improvement (Rank) DSO Improvement (Rank) Efficiency Metrics (Cost) Raw Material Stability Invenry Turns Cash--Cash Gross Profit Margin SG&A / COGS Avg FG Invenry/ Revenue Invenry Turns Improvement COGS / Revenue PPE / Revenues *Bold indicates stronger indicars of effectiveness efficiency performance Source: PwC s North American Supplier Supply Chain Study, North American Supplier Supply Chain Performance Study

7 The SCOR reference model was used guide our analysis in Plan, Source, Deliver capabilities SCOR based end--end model (physical, information, financial flows) 1 Plan Supplier s supplier Cusmer s cusmer Supplier Cusmer Deliver Source Make Deliver 2 Deliver Make 3 Deliver Source Make Deliver Source Return Return 1 Plan 2 Source 3 Deliver Supply chain strategy network design Cross-enterprise supply/dem planning Invenry management schedule stability Strategy procurement Supplier-managed invenry Purchased materials cost management Dem management Order management cusmer delivery Supply chain asset management Source: PwC's North American Supplier Supply Chain Study, 2013 Plan (levels of aggregation information sources): Activities that involve supply chain strategy network design; cross-enterprise supply/dem planning; invenry management schedule stability. Source (locations products): Activities related strategic procurement; supplier-managed invenry; purchased-materials cost management. Deliver (channels, invenry deployment products): Capabilities that cover dem management; order management cusmer delivery; supply-chain asset management North American Supplier Supply Chain Performance Study

8 Our study focused on the five core disciplines covered in the recently released book on strategic supply chain management, co-authored by PwC The five disciplines for p performance 1. View SC as a strategic asset 2. Develop an end--end process architecture 5. Use metrics drive supply chain performance 4. Build the right collaborative model 3. Design your organization for performance Notes: Joseph Roussel, a partner in PwC's Strategy Operations practice, co-authored the Strategic Supply Chain Management book North American Supplier Supply Chain Performance Study

9 Scope A tal of 103 suppliers were studied this year, including 53 OESA public companies the p 50 suppliers North American OEMs ranked by OEM sales. The graphic below depicts the supplier population characteristics demographics. The study covers a broad range of aumotive suppliers Geographic distribution (HQ location) Company size Secr breakout Asia 36% South America 1% Less than $5B 47% Greater than $15B 33% Powertrain 24% Body 5% Exterior 14% Interior 14% Europe 17% North America 46% Between $5 $10B 14% Between $10 $15B 6% Electrical/ Electronics 20% Chassis 23% Source: PwC s North American Supplier Supply Chain Study, 2013 Supplier population characteristics: Body suppliers class A stamping, non-/structural stampings, frame/subframe components, body hardware Chassis suppliers axles, exhaust, suspension, steering wheels, brakes, bearings, 4WD components, fuel tanks Electrical component suppliers airbag/controller, antilock braking system (ABS), harnesses, heating, ventilation, air conditioning (HVAC), entertainment, control modules, regulars Interior suppliers seats, seat belts, interior products, instrument panels (IPs), trim, carpet, headlines, HVAC Exterior suppliers glass, paint, body molding, fascias, lamps, mirrors, wiper systems, door hles, seals Powertrain suppliers electric vehicle (EV) batteries/drive controls, engines, transmissions, 5C components, pisns, heads, cooling air management, injecrs, turbochargers, tubes hoses North American Supplier Supply Chain Performance Study

10 Segment findings Interior suppliers now lead all segments Interior suppliers now lead all segments, having achieved median revenue growth of 4%. The segment continues its strong performance in working capital management, as evidenced by strong performance in current year year-over-year improvement in invenry turns, days payables outsting (DPO), cash--cash performance. That said, below-average DSO performance indicates an opportunity still exists further improve cash--cash efficiency. At the same time, strong revenue growth above-average gross margin improvement indicate that fundamentals are on the upswing. Effectiveness: Interior suppliers achieved p performance in revenue growth across all segments. Demonstrating superior control of internal working capital, interior suppliers ranked ps in DPO. DSO performance was 0.6 days higher than average for all segments, indicating a slight opportunity further improve cash--cash performance. Additionally, lagging performance in operating cash flow/cogs evidences underperformance in some combination of gross margin, investment (depreciation), /or overall tax rate. Efficiency: Interior suppliers achieved p performance in invenry turns in cash--cash cycle. YoY performance in invenry turns climbed from fourth place in 2012 second place in Gross profit climbed from fifth fourth place, suggesting that slight improvements in pricing or COGS have been achieved. Interior suppliers are in fourth place in YoY SG&A/YoY COGS, suggesting further improvement in SG&A costs may be warranted. SC effectiveness measures SC efficiency measures Overall Operating Cash Flows/COGS Revenue Growth Days Payables Outsting (DPO) Days Payables Outsting Days of Sales Outsting (DSO) Days of Sales Outsting Overall Raw Material Stability Invenry Turns Invenry Turns YoY Cash-- Cash Gross Profit Margin COGS Growth/ Revenue Growth YoY SGA/ YoY COGS 1 st 6 1 (tie) 1 (tie) st Body suppliers placed second. Body segment suppliers appeared be performing very well in both supply chain effectiveness efficiency, having scored first in three effectiveness measures three efficiency measures. Given that body suppliers ranked first in operating cash flows, DSO, YoY DSO improvements, raw material stability, invenry turns cash--cash, it appears that working capital was a heavy focus from Poor gross profit margins, revenue growth, COGS growth relative revenue growth suggests that additional efficiency effectiveness opportunities remain North American Supplier Supply Chain Performance Study

11 Effectiveness: With median revenues growth performance of 0.3% YoY, Body suppliers rank fifth in revenue growth. Leaders achieve 4% growth in revenues, while laggards shrank revenue by -4.4% revenue growth. With its leading cash-cash DSO performance, it appears that Body suppliers tend be very good at getting cash back in the company. From , Body suppliers have grown DSO performance by 3%, suggesting better payment terms a leading focus on working capital. Efficiency: Body suppliers have segment-leading raw material stability potentially enabled by high local content a renewed focus on raw material turns controls. They rank first in invenry turns YoY performance, having improved by 0.4%. In fact, the Body segment was the only one improve YoY turn performance. However, of the entire population, Body suppliers saw the lowest gross profit margin in This coupled with poor COGS performance relative revenue growth suggests additional efficiency improvement opportunities. SC effectiveness measures SC efficiency measures Overall Operating Cash Flows/COGS Revenue Growth Days Payables Outsting (DPO) Days Payables Outsting Days of Sales Outsting (DSO) Days of Sales Outsting Overall Raw Material Stability Invenry Turns Invenry Turns YoY Cash-- Cash Gross Profit Margin COGS Growth/ Revenue Growth YoY SGA/ YoY COGS 2 nd nd Chassis suppliers came in third. Chassis suppliers ranked fourth in effectiveness third in efficiency, with middle-of-the-road performance in all measures. Poor gross margins COGS growth relative revenues suggest opportunities in cost reductions efficiency gains /or pricing pressures from OEMs. Lagging performance in DSO, average DPO improvements, poor invenry performance indicates that the Chassis suppliers segment requires greater focus on cash--cash working capital performance. Effectiveness: Chassis suppliers show middle-of-the-road performance in most effectiveness measures. Poor DPO performance suggests that opportunities exist in supplier payment terms. Median revenue growth of 3.5%, coupled with poor gross profit margins, suggests payment terms could be a near-term opportunity. Efficiency: When compared other segments, Chassis suppliers seem have achieved one of the highest performances in invenry turns in However, the segment seems be trending downward, ranking only fifth in YoY performance or 2013, the Chassis supplier segment ranked among the lowest in gross profit margin (15.9%) relative other segments. SC effectiveness measures SC efficiency measures Overall Operating Cash Flows/COGS Revenue Growth Days Payables Outsting (DPO) Days Payables Outsting Days of Sales Outsting (DSO) Days of Sales Outsting Overall Raw Material Stability Invenry Turns Invenry Turns YoY Cash-- Cash Gross Profit Margin COGS Growth/ Revenue Growth YoY SGA/ YoY COGS 4 th rd North American Supplier Supply Chain Performance Study

12 Exterior suppliers ranked fourth. Top performance in revenue growth indicates that OEMs are placing a strong dem for innovation differentiation on Exterior suppliers. High COGS growth relative revenues threatens push gross margins below average. Low raw-material stability may evidence the need for improved planning techniques supplier management, while low invenry turns offset good DPO DSO performance resulting in only a fifth place ranking in cash--cash cycle performance. Effectiveness: Exterior suppliers tied for p performance in revenue growth across all segments. Good control of DSO YoY DSO improvements earned them second place in these two measures. Good DPO performance achieved first place ranking, but poor improvement threatens future performance. Lagging performance in operating cash flows/cogs low invenry turns evidences the segment s declining ability generate cash from operations. Efficiency: Top performance in YoY SG&A/YoY COGS may be driven by high COGS growth rather than good control of SG&A expenses. Low raw material stability could be driven by changing product designs, supply constraints, or volatile cusmer dem indicating the need for robust responsive planning collaboration ols. Low invenry turns drive a long cash--cash cycle. If this is combined with short product life cycles, this may indicate the need for safeguards against obsolescence. SC effectiveness measures SC efficiency measures Overall Operating Cash Flows/COGS Revenue Growth Days Payables Outsting (DPO) Days Payables Outsting Days of Sales Outsting (DSO) Days of Sales Outsting Overall Raw Material Stability Invenry Turns Invenry Turns YoY Cash-- Cash Gross Profit Margin COGS Growth/ Revenue Growth YoY SGA/ YoY COGS 3 rd 5 1 (tie) 1 (tie) th Powertrain suppliers finished in fifth place. Powertrain suppliers ranked fourth overall in efficiency measures last in effectiveness. Poor cash--cash cycle performance is being driven by low invenry turns poor performance on receivables. The segment s focus on cost control has driven it second overall gross margin performance, while p performance in COGS growth revenue growth indicates a continuing focus on controlling COGS. Low revenue growth high working capital levels indicate a need focus on cash--cash working capital performance. Effectiveness: Across all segments, Powertrain suppliers have botm performance in revenue growth. The segment shows slightly longer median DPO by 0.8 days, but the 80th percentile performers extend payment 8.8 days longer than other segments. There is a need improve invenry velocity, as evidenced by poor invenry turns poor YoY improvement. Botm performance in DSO YoY DSO improvement shows lack of focus or lack of leverage. Efficiency: Powertrain suppliers are achieving good gross margins by controlling COGS. Low invenry turnover high DSO result in a cash--cash cycle that is 40% higher than the best-performing segments. Lagging performance in YoY SG&A/YoY COGS indicates that SGA costs are not being held in check as well as in other segments North American Supplier Supply Chain Performance Study

13 SC effectiveness measures SC efficiency measures Overall Operating Cash Flows/COGS Revenue Growth Days Payables Outsting (DPO) Days Payables Outsting Days of Sales Outsting (DSO) Days of Sales Outsting Overall Raw Material Stability Invenry Turns Invenry Turns YoY Cash-- Cash Gross Profit Margin COGS Growth/ Revenue Growth YoY SGA/ YoY COGS 6 th th Electric Component suppliers finished sixth. This segment is trailing the pack. That said, Electrical Component suppliers ranked first in gross profit margins, suggesting low raw-material components costs, significant low-cost labor content lower-than-average tal led costs. Lower-than-average raw material stability could be the result of longer-than-average supply chains. Lowest performance in cash--cash invenry turns suggest opportunities exist in both working capital invenry management. Effectiveness: Managing free cash appears be important, as revenue growth is below average. DSO performance ranking is among the lowest of all segments, with the b between leading performance of 51 days lagging performance of 72 days being among the largest. Efficiency: Invenry turns ranked low when compared across segments, the lowest YoY improvements suggest opportunities in invenry. COGS growth relative revenue growth appears favorable, suggesting that Electrical Component suppliers have focused on COGS control cost reductions. SC effectiveness measures SC efficiency measures Overall Operating Cash Flows/COGS Revenue Growth Days Payables Outsting (DPO) Days Payables Outsting Days of Sales Outsting (DSO) Days of Sales Outsting Overall Raw Material Stability Invenry Turns Invenry Turns YoY Cash-- Cash Gross Profit Margin COGS Growth/ Revenue Growth YoY SGA/ YoY COGS 5 th th North American Supplier Supply Chain Performance Study

14 Detailed segment performance PwC s key findings from the segment analysis include: Revenue Growth performance: Interior Exterior suppliers lead the way in median revenue growth, with the largest spread seen in Powertrain. Leaders (p 80%) show 10 11% YoY performance. Days Payables Outsting performance: Interior suppliers had the highest median YoY performance in Days Payable Outsting, suggest that improvements in DPO could have been a focus within the segment. Exterior suppliers had the largest spread between leaders laggards. Days Sales Outsting performance: Body suppliers had the highest improvement in Days Sales Outsting, suggesting that DSO improved by 2.7% from the previous year. Invenry Turns performance: Interior suppliers turn over invenry faster than other segments, nearly 60% faster than Powertrain suppliers. Interior leaders turn their invenry nearly 16 times. Cash--Cash performance: Body suppliers had the shortest cash--cash cycle, while Electronic Component suppliers have the highest spread between leader laggard performance. COGS growth relative revenue growth : Powertrain suppliers appear have controlled COGS relative revenue growth compared other segments. Powertrain COGS grew at 90.7% of revenues, suggesting that COGS improvement initiatives or controls are becoming more important. Raw Materials Stability performance: Body suppliers had the best performance in raw material stability, indicating that the fluctuation between high low raw material turns throughout the year is minimal when compared the other segments. Best raw material stability performance could indicate that improved planning capabilities or better raw-material invenry supply /or controls are in place. Invenry Turns improvement : Body suppliers were the only segment that improved invenry turns this year. All other segments saw a decline in invenry turns from last years study North American Supplier Supply Chain Performance Study

15 2013 Median Revenue Growth performance (includes Leader/Laggard (2) b) 15% Revenue Growth [%] 10% 5% 0% 3.5% 0.3% 0.1% 1.4% 4.0% 4.0% Leader Median -5% Laggard -10% -15% Body Chassis Powertrain Elec Comp Interior Exterior Source: Public data from CapIQ, PwC Analysis. Notes: (1) Revenue growth: Defined as the growth from revenue as a percentage of 2012 (2) Leaders defined as p 80th percentile, laggards as botm 20th percentile Median Days Payables Outsting Improvement (includes Leader/Laggard (2) b) 15% Days Payable Outsting YoY [ %] 10% 5% 0% -5% -2.0% 2.9% 2.8% 2.8% -0.3% 0.1% Leader Median Laggard -10% -15% -20% Exterior Elec Comp Interior Chassis Powertrain Body Source: Public data from CapIQ, PwC Analysis. Notes: (1) Days Payables Outsting Improvement : Defined as the change in DPO from , as a percentage of 2012 (2) Leaders defined as p 80th percentile, laggards as botm 20th percentile North American Supplier Supply Chain Performance Study

16 2013 Median Days Sales Outsting Improvement (includes Leader/Laggard (2) b) 20% Days Sales Outsting YoY [ %] 15% 10% 5% 0% -5% -10% -15% 0.0% 0.3% -2.4% -2.6% -2.4% -2.7% Laggard Median Leader -20% Elec Comp Interior Exterior Chassis Powertrain Body Source: Public data from CapIQ, PwC Analysis. Notes: (1) Days Sales Outsting Improvement : Defined as the change in DSO from , as a percentage of 2012 (2) Leaders defined as p 80th percentile, laggards as botm 20th percentile Median Invenry Turns Improvement (includes Leader/Laggard (2) b) 40% Invenry Turns YoY [ %] 30% 20% Leader 10% Median 0% -10% 0.4% -4.2% -3.1% -5.1% -5.8% -4.2% Laggard -20% Body Powertrain Chassis Interior Elec Comp Exterior Source: Public data from CapIQ, PwC Analysis. Notes: (1) Invenry Turns Improvement : Defined as the change in invenry turns from , as a percentage of 2012 (2) Leaders defined as p 80th percentile, laggards as botm 20th percentile North American Supplier Supply Chain Performance Study

17 2013 Median Cash Cash performance (includes Leader/Laggard (2) b) 100 Cash Cash [days] Laggard Median Leader 0 Body Interior Powertrain Elec Comp Chassis Exterior Source: Public data from CapIQ, PwC Analysis. Notes: (1) Cash Cash: The time it takes for cash flow back in a company after it has been spent for raw materials calculated as (invenry days of supply + days sales outsting days payable outsting). (2) Leaders defined as p 80th percentile, laggards as botm 20th percentile Median COGS Growth relative Revenue Growth (includes Leader/Laggard (2) b) 160% COGS YoY/Revenue YoY [ %] 140% 120% 100% 80% 95.6% 90.7% 95.6% 93.6% 93.6% 95.6% Laggard Median 60% Leader 40% 20% 0% Body Powertrain Exterior Interior Elec Comp Chassis Source: Public data from CapIQ, PwC Analysis. Notes: (1) COGS improvement relative revenue growth : The ratio of COGS growth from revenue growth from (2) Leaders defined as p 80th percentile, laggards as botm 20th percentile North American Supplier Supply Chain Performance Study

18 2013 Median Raw Materials Stability performance (includes Leader/Laggard (2) b) 60% Raw Material Stability [%] 50% 40% Laggard 30% Median 20% 10% 15.7% 15.2% 11.4% 15.2% 10.8% 14.7% Leader 0% Exterior Elec Comp Interior Powertrain Body Chassis Source: Public data from CapIQ, PwC Analysis. Notes: (1) Raw Material Stability: Defined as the Max Quarterly Raw Material Turns minus the Quarterly Min in a given year divided by the average Quarterly turns for the year. (2) Leaders defined as p 80th percentile, laggards as botm 20th percentile Median Invenry Turns Improvement (includes Leader/Laggard (2) b) 40% Invenry Turns YoY [ %] 30% 20% Leader 10% Median 0% -10% 0.4% -4.2% -3.1% -5.1% -5.8% -4.2% Laggard -20% Body Powertrain Chassis Interior Elec Comp Exterior Source: Public data from CapIQ, PwC Analysis. Notes: (1) Invenry Turns Improvement : Defined as the change in invenry turns from , as a percentage of 2012 (2) Leaders defined as p 80th percentile, laggards as botm 20th percentile North American Supplier Supply Chain Performance Study

19 Detailed survey findings As a result of the participation of OESA members, we were able exp the distribution of our survey, which went out a broad range of key aumotive executives across the six segments. The initial responses helped shed light on how participants view the five key core disciplines for achieving p supply chain performance. It is our belief that strong performance in these five core disciplines further drive supply chain efficiency effectiveness. Core Discipline 1: Viewing the organization s supply chain as a strategic asset Although, virtually all respondents agreed/strongly agreed their supply chain strategy is aligned with the business strategy, 33% agreed/strongly agreed that investments in supply chain are not given the same importance as those for other business functions. Our Supply Chain is viewed as a strategic asset is an integral component my company s growth strategy Our Supply Chain is perceived as a means for achieving strategic objectives differentiates us from our competition Supply Chain improvements investments are viewed on equal footing as product development & sales marketing initiatives Our Supply Chain strategy is: Aligned with our business strategy 8% 42% 50% 8% 8% 58% 25% 8% 17% 42% 25% 8% 75% 25% Our Supply Chain strategy is: Aligned with cusmer s needs 17% 75% 8% Our Supply Chain strategy is: Adaptive based on our competitive advantage market conditions Our company is well situated meet our cost, quality, delivery objectives 25% 67% 8% 8% 67% 25% 0% 20% 40% 60% 80% 100% Strongly Disagree Disagree Neither Agree nor Disagree Agree Strongly Agree Source: PwC s North American Supplier Supply Chain Study, North American Supplier Supply Chain Performance Study

20 Core Discipline 2: Developing an end--end process architecture 73% of survey responses strongly agreed there is an inadequate investment in dem capacity ols, potentially leading a lack of a clear transparent planning process. Our Supply Chain architecture ensures the right resources ols are in place meet profitability, growth, working capital targets Our planning process is structured drives collaboration between sales, product management, operations, leadership, cusmers, suppliers Our sourcing process strives achieve lowest tal cost of ownership by considering facrs other than led cost 25% 8% 67% 42% 17% 25% 17% 8% 58% 33% There is a single dem plan transparent operations, cusmers, suppliers; it drives supply, invenry, financial planning Our manufacturing process is integrated with suppliers so that we can adapt late changes without endangering commitments other cusmers We leverage our purchasing across the enterprise, using globalcommodity teams, common specs, stardized vendor evaluation criteria Our dem planning horizon is sufficient for our company adequately plan the supply chain 42% 33% 8% 8% 33% 8% 50% 8% 8% 25% 25% 33% 33% 25% 33% 17% 8% Our company adequately invests in dem capacity planning ols systems 73% 18% 9% Our company plans our capacity activities based on our cusmer forecasts 8% 8% 75% 8% Strongly Disagree Disagree Neither Agree nor Disagree Agree Strongly Agree 0% 20% 40% 60% 80% 100% Source: 2013 Supplier Supply Chain Performance Study PwC OESA Survey Responses Core Discipline 3: Designing the supply chain for performance When it comes having the right supply chain talent in place, 42% of respondents disagreed/strongly disagreed that their companies have the right resources, while 33% said that their organization did not have a management structure that manages the end--end process. Our company outsources non-strategic activities but retains global control over core strategic functions Our company has deployed a management structure that manages the end--end processes of Plan, Source, Make, Deliver, Return, Enable Our Supply Chain structure would be described as centralized We have sufficient Supply Chain talent execute our strategic initiatives within timing requirements 8% 8% 58% 25% 33% 25% 33% 8% 8% 25% 33% 25% 8% 17% 25% 25% 33% 0% 20% 40% 60% 80% 100% Strongly Disagree Disagree Neither Agree nor Disagree Agree Strongly Agree Source: PwC s North American Supplier Supply Chain Study, North American Supplier Supply Chain Performance Study

21 For respondents, most supply chain functions are classified as strategic Plan Source Make Deliver Return Enable 33% 67% 8% 100% 92% 58% 42% 83% 17% 42% 58% Strategic Non-Strategic Source: PwC s North American Supplier Supply Chain Study, 2013 Core Discipline 4: Building the right collaborative model Over 40% of respondents agreed/strongly agreed that their companies should pursue opportunities better utilize resources improve unit costs through horizontal collaboration, i.e., sharing supply chain assets for mutual benefits. Our value chain partners clearly know our core competencies allow us maximize our focus profitability We use analytics help define our collaborative relationship with our partners We have a cooperative relationship with our partners, meaning we share information on purchase commitments, forecasts, invenry availability, purchase order delivery status We have a synchronized relationship between our partners, meaning our relationships extend beyond Supply Chain focus on achieving a shared vision of the future We include key suppliers in our product development process improve our product designs through reduced cost complexity, improved manufacturability, reduced packaging distribution costs We actively pursue opportunities for horizontal collaboration with competirs improve utilization or resources reduce unit costs 17% 33% 50% 42% 17% 25% 17% 17% 58% 25% 33% 33% 17% 17% 8% 33% 17% 25% 17% 17% 25% 17% 17% 25% Strongly Disagree Disagree Neither Agree nor Disagree Agree Strongly Agree 0% 20% 40% 60% 80% 100% Source: PwC s North American Supplier Supply Chain Study, North American Supplier Supply Chain Performance Study

22 Core Discipline 5: Using metrics drive supply chain performance As for metrics, 25% 42% of respondents agreed that their companies could do a better job in terms of both internal cusmer-facing supply chain metrics. We have a balanced scorecard that considers the four perspectives of performance: financial, cusmer, internal process, workforce learning & growth We use a balanced set of metrics measure our overall Supply Chain performance, making sure that efforts improve one area do not have a negative impact in other areas We balance cusmer-facing metrics such as perfect order fulfillment upside Supply Chain flexibility, with internal metrics such as tal cost--serve cash--cash cycle time We use layered metrics provide insight in root cause issues affecting the performance of higher level metrics We have validated which Supply Chain performance attributes are important our cusmers we use performance measures that are consistent aligned with cusmer expectations We benchmark our performance against external companies underst where we have opportunities for improvement develop a roadmap close the gap We do a good job measuring our suppliers on-time delivery 33% 33% 25% 8% 25% 17% 50% 8% 42% 17% 42% 42% 25% 25% 8% 25% 67% 8% 25% 17% 50% 25% 33% 42% 8% Strongly Disagree Disagree Neither Agree nor Disagree Agree Strongly Agree 0% 20% 40% 60% 80% 100% Source: PwC s North American Supplier Supply Chain Study, 2013 After conducting extensive research, PwC has concluded that supply chains can be a strategic asset used drive financial performance this conclusion spans across all industries. Yet we see that supply chains are under-valued by many companies. Across industries, only 45% of companies view their supply chain as a strategic asset, only 9% say that their supply chain is helping them outperform their peers. 1 For aumotive suppliers, making improvements in these five core disciplines is likely positively impact the organization s performance within the segments across the industry as a whole. Indeed, it is the key gaining a competitive edge thereby fueling current future financial well-being. 1 Source: PwC s 2013 Global Supply Chain Survey, Base North American Supplier Supply Chain Performance Study

23 Implications recommendations Clearly, the global supply chain network is intricate. That said, when a supplier s in-house external supply chain specialists collaborate identify issues then plan implement solutions designed improve overall performance, a supplier can reap significant efficiency effectiveness benefits. To that end, there are five implications consider: High supply chain costs. Poor improvements in raw-material turns YoY COGS could lead in turn poor forecast accuracy, increased expediting costs, higher invenry holding costs, reduced operations productivity high supply chain costs. Invenry above entitlement. Suppliers with poor invenry turns tie up scarce working capital for longer than necessary, thereby limiting their ability employ short-term capital for future investments carry invenry above the required entitlement. Lack of cusmer responsiveness. Poor planning efficiency performance suggests limited opportunities for securing a competitive advantage through shared cost savings, cusmer incentives, on-time delivery. Limited supply chain flexibility. Slower invenry performance, coupled with minimal reductions in COGS relative revenue growth, suggests limited flexibility of a supply chain react increases in cusmer dem or significant changes in market conditions North American Supplier Supply Chain Performance Study

24 The road ahead Today s companies still face barriers on the road longterm growth; however, we believe the aumotive secr is on an upward trajecry, revving up now drive future growth. PwC s Aufacts expects the industry add 25 million units of production between , for a compounded annual growth rate of 3.9%. Aumotive, along with the world at large, is changing at a fast pace. Never before has evolution occurred in such short periods of time. We see five emerging megatrends combining their collective pervasiveness impact Looking influence the future of M&A activity--discussed in the following pages, each of which, along with its corresponding considerations, has the potential drive M&A ahead activity for global secr participants ranging from raw material procurement final assembly. To stay ahead of the pace of change remain relevant We have observed several emerging global megatrends in day s ultra-competitive marketplace, companies that are collectively impacting aumotive companies must the world collaborate over creating across the a aumotive perfect srm network that anticipate undoubtedly any influence roadblocks the on future the horizon of the industry. plan in advance Following how is a best big-picture pple them. view of In these all likelihood, megatrends, the strategies along with emerging their potential from these implications collaborative on the planning sessions aumotive supply involve chain. M&A transactions. With these megatrends PwC has identified in mind, it five is even Megatrends more paramount we believe that suppliers impact the future continue of the focus aumotive on improving industry supply over the chain next efficiency decade. effectiveness. Demographics shifts Proportion of the world population aged 60 years or more Recent surges in population are expected slow, except 25% Africa where growth remains 20% 21% Demographic prolific. Median age by region 15% shifts continues rise allowing for more drivers. Income equality 10% 8% 10% has grown in in over over 75% 75% of of 5% Organization Organization for for Economic Economic Co-operation Co-operation Development Development (OECD) countries, including (OECD) countries, including many emerging markets. many emerging markets Aumotive implications Supply chain implications Source: UN report World Population Aging On all fronts, young workers change the Source: UN report, World Population Ageing ( ) ( ) To adapt changes expectations of younger organizational structure labor practices of many publications/worldageing / cusmers, agile responsive supply chains employers, requiring more flexibility incentives likely be required. attract retain millennials the industry the epicenters Aging populations in which the industry developed operates. economies may shift cusmer needs preferences in vehicle attributes, placing a premium on Driving accessibility value features less on traditional performance features Aumotive M&A Insights North American Supplier Supply Chain Performance Study

25 Shifts in economic power Shifts in economic power Western economic dominance power is a relatively recent Western economic Western economic phenomenon, we are now Shifts in economic dominance is a relatively Shifts in economic dominance is a relatively seeing a rebalancing Shift in global recent phenomenon, of global power power Shift in global recent phenomenon, economies. This realignment economic we are now economic we are now Western economic is triggering the transition of power Western economic seeing a rebalancing power seeing acountries rebalancing dominance is a growth from centers dominance is a relatively relatively of global economies. Shift in global of global economies. recent phenomenon, production Shift in global recent phenomenon, This realignment is economic This realignment is we are now consumption-oriented economic we arethe now triggering transition power power triggering the transition seeing a rebalancing economies. rebalancing of growth countries fromseeing centersa of production of growth countries fromof centers of production global economies. of global consumption-oriented economies.economies. Supply chain implications consumption-oriented economies. This realignment This realignment is is As vehicle dem shifts ascending economies, triggering the triggering the transition transition Aumotive implications infrastructure improvements be required Aumotive implications of growth countries from centers of production of growth countries from centers of production Vehicle dem is shifting ascending economies optimize flow of resources products in order Vehicle dem is shifting ascending economies consumption-oriented economies. consumption-oriented a trend the industry iseconomies. already addressing with achieve a moreislocalized ( nationalistic) a trend the industry already addressing with an increased focus on emerging markets as mature supply chain. an increased focus on emerging markets as mature Aumotive implications Aumotive implications terriries concurrently near a saturation point. terriries concurrently near saturationeconomies point. Vehicle dem is Vehicle dem is shifting shifting ascending economies Given the global shift ofaascending design--build a trend the industry is already addressing with a trend the industry is already addressing with ascending economies, the center of the industry an increased focus on emerging markets as mature could move Asia. (Approximately 18% of global an increased focus on emerging markets as mature terriries concurrently near a saturation point. vehicle sales now take place in North America, terriries concurrently near a saturation point. versus Asia, where over 50% occur.) As market growth concentrates in developing markets, new competition continue surface. Cost pressures likely drive innovative solutions that do not follow the patterns established by the traditional au suppliers. Accelerating Accelerating urbanization urbanization Currently, 50% of the world s Currently, 50%urbanization of the world s Accelerating population lives in cities; by Accelerating Accelerating population lives in cities; by 2030, the UN projects 4.9 Accelerating urbanization Currently, 50% of thethat world s urbanization 2030, the UN projects that 4.9 Accelerating urbanization billion people be urban population lives inthe by urbanization billion people becities; urban Currently, 50% of world s Currently, 50% of the world s dwellers. 2015, the United 2030, theby UN projects that 4.9 dwellers. By 2015, the United population lives in by population lives in cities; cities; by Nationspeople (UN) estimates that billion be urban Nations (UN) estimatesthat that , the UN projects Accelerating 2030, the UN projects 4.9 Accelerating there be mega-cities dwellers. By , thethat United urbanization there be 22 mega-cities billion people be urban urbanization billion people be urban Nations (UN)over estimates that (populations 10 million), (populations over 10 million), dwellers. By 2015, the United dwellers. the United thereeconomies. By be2015, 22 Infrastructure mega-cities with 17 located in developing with 17 located in developing economies. Infrastructure Nations (UN) estimates that Nations estimates that (populations over 10 million), be strained, where new cities(un) rise rapidly be strained, where new cities rise rapidly there be 22 mega-cities there be 22 mega-cities with 17 located in developing require investments accommodate growth. require investments accommodate growth. (populations over 10 million), (populations over 10 million), economies. Infrastructure with 17 located in developing economies. Infrastructure with 17strained, located inwhere developing economies. Infrastructure be new cities rise rapidly Aumotive implications Aumotive implications be strained, where new cities rise rapidly require investments accommodate growth. be strained, where new cities rise rapidly Technology innovation be of utmost importance Technology innovation be of growth. utmost importance require investments accommodate require investments accommodate growth. as private public transportation models adjust as private public transportation models adjust Supply chain implications new mobility needs. Connectivity, including vehicle new mobility needs. Connectivity, including vehicle Aumotive implications Increasing concentration populations Aumotive implications vehicle traffic managemenfsystems, require vehicle traffic management systems, require Technology innovation be of utmost importance increase theinnovation focus oninvestments pollution Technology be of utmost importance significant infrastructure facilitate new significant infrastructure investmentsmodels facilitate new as private public transportation adjust clean-vehicle technologies. as private public transportation models adjust transportation networks. transportation networks. new mobility needs. Connectivity, including vehicle new mobility needs. Connectivity, including vehicle vehicle vehicle traffic traffic management management systems, systems, require require significant significant infrastructure infrastructure investments investments facilitate facilitate new new Driving value transportation networks. transportation networks. Driving value value Driving Driving value Gross Domestic Product (GDP) of G7 E7 countries at Gross Domestic Product (GDP) of G7 E7 countries at $US Purchasing Power Parity (PPP) $US Purchasing Power Parity (PPP) Gross Gross Domestic Domestic Product Product (GDP) (GDP) of of G7 G7 E7 E7 countries countries at at $US Purchasing Power Parity (PPP) trillionpower GDP Parity (PPP) $US $29.0 Purchasing $20.9 trillion GDP $29.0 trillion GDP $20.9 trillion GDP G 7 GDP $29.0 $29.0 trillion trillion G 7 GDP E7 GDP $20.9 $20.9 trillion trillion E7 GDP 2009 Group of 7 (G7): Group of 7 (G7): Canada, France, Germany, Canada, France, Italy, Japan, UKGermany, US G Italy, Japan, G 7 UK US Group of Emerging 7 (E7): Group of Emerging 7 (E7): Brazil, China, India, Indonesia, Brazil, China, India, Mexico, Russia Indonesia, Turkey. Mexico, Russia E E7 Turkey. Italy, Italy, Japan, Japan, UK UK US US Group Group of of Emerging Emerging 7 7 (E7): (E7): Brazil, Brazil, China, China, India, India, Indonesia, Indonesia, Mexico, Russia Russia Turkey. Turkey. Mexico, 7 7 Group 2050 Group of of 7 7 (G7): (G7): 2050 Canada, Canada, France, France, Germany, Germany, $138.2 $138.2 trillion trillion GDP GDP $138.2 $138.2 trillion trillion GDP GDP E7 E $69.3 $69.3 GDP trillion GDP trillion GDP GDP $69.3 $69.3 G7 GDP G trillion GDP 7 trillion Canada, France, Germany, GDP Canada, France, GDPUKGermany, Italy, Japan, US Brazil, China, India, Indonesia, Brazil, China, India, Indonesia, Mexico, Russia Turkey. Mexico, Russia Turkey. Italy, Japan, UK US G E E7 7 GAnalysis. 7 Source: PwC 7 Source: PwC Analysis Source: PwC Analysis. Source: PwC France, Analysis Germany, Canada, Brazil, Brazil, China, China, India, India, Indonesia, Indonesia, Mexico, Russia Mexico, Russia Turkey. Turkey. Canada, France, Germany, Italy, Italy, Japan, Japan, UK UK US US Source: Source: PwC PwC Analysis. Analysis. Source: Source: PwC PwC Analysis Analysis 2015: Global megacities 2015: Global megacities 8-Megacities Megacities : 2015: Global Global megacities megacities 8-Megacities Megacities 2015 Los Angeles Toron Toron Toron Toron Moscow Rhine-Ruhr North London Los Angeles Moscow Rhine-Ruhr North London Rhine-Ruhr Total Rhine-Ruhr Total Teheran Paris Mexico City Urban Urban population population Guatemala City Los Angeles Guatemala City Los Angeles Chicago Chicago New York London London New York Toron Toron Toron Toron Mexico City Mexico City 5 <8 million 5 <8 million Guatemala City 8 <10 million Guatemala City 8 <10 million Urban Urban 10 million population 10 million population Bogota Chicago Chicago New York Lima New York Abidjan Lima Belo Horizonte Belo Horizonte São Paulo Lua Lua Rio de Janeiro Abidjan Abidjan Rio de Janeiro São Paulo Santiago Buenos Aires Belo Horizonte Buenos Aires Belo Horizonte 5 <8 million 5 <8 million São Paulo Rio de Janeiro São Paulo million Rio de Janeiro Source: UN8 <10 Department of Economic Social Affairs. 8 <10 million Santiago Lahore Delhi Delhi Beijing Tianjin Dhaka Dhaka Tokyo Tokyo Beijing Seoul Wuhan Tianjin VittagongSeoul Wuhan Vittagong Shanghai Shanghai Hong-Kong Riyadh Hanoi Shenyang Hong-Kong Manila Rhine-Ruhr Calcutta Shenyang Pune Istanbul Tokyo Rhine-Ruhr Riyadh Hanoi Jidda Total IstanbulMumbai Tokyo Madras Manila Calcutta Lagos Total Pune Kabul Beijing Bangkok Teheran Bangalore Madras Mumbai Kabul Beijing Lagos Ho Chi Minh City Lahore Baghdad Teheran Bangkok Tianjin Lahore Delhi BaghdadBangalore Seoul Chi Minh City Delhi Dhaka Tianjin Ho Seoul Dhaka Wuhan Kinshasa Wuhan Vittagong Karachi JakartaVittagong Shanghai KinshasaKarachi Ahm Shanghai Bung Jakarta Ahm Hong-Kong Bung Riyadh Hanoi Hong-Kong Jidda Manila Calcutta Riyadh Hanoi Jidda Pune Manila Calcutta Pune Madras Mumbai Lagos Madras Bangkok Mumbai Lagos Bangalore Bangkok Ho Chi Minh City Bangalore Ho Chi Minh City Ahm Kinshasa Kinshasa Bogota Santiago Bogota Lima Lima Karachi Moscow Ahm Moscow Karachi Jidda Paris Paris Shenyang Kabul Baghdad Kabul Lahore Baghdad Rhine-Ruhr North Rhine-Ruhr North Abidjan Bogota Istanbul Teheran Paris Mexico City Shenyang Istanbul Lua Lua Jakarta Jakarta Bung Bung Santiago Source: UN Department of Economic Social Affairs. Source: UN of Economic Social Affairs 10Department million 10Department million Source: UN of Economic Social Affairs Buenos Aires Buenos Aires Source: UN Department of Economic Social Affairs. Source: UN Department of Economic Social Affairs. Source: Source: UN UN Department Department of of Economic Economic Social Social Affairs Affairs Aumotive M&A Insights 2013 Aumotive M&A Insights 2013 North American Supplier Supply Chain Performance Study Aumotive Aumotive M&A M&A Insights Insights