~) Pergamon European Management]ournal Vol. 15, No. 5, pp. 498--508, 1997 © 1997 Elsevier Science Ltd All rights reserved. Printed in Great Britain PII: SO263-2373(97)00030-3 0263-2373/97 $17.00+0.00 Outsourcing in the Automotive Industry: From JIT to Modular Consortia ROBERT COLLINS, KIMBERLY BECHLER, IMD, Lausanne, Switzerland; SILVIO PIRES, Methodist University of Piracicaba and State University of Campinas, Brazil The Modular Consortia approach to production being implemented by such leading-edge automotive manufacturers as Skoda and Volkswagen, is one of the latest experiments in manufacturer-supplier relationships. Competitive pressures and the on-going search for increased efficiencies and greater profits are driving automotive manufacturers and suppliers to reevaluate their respective supply chain activities and relationships. Automotive manufacturers are rationalizing the supply base, defining new supply requirements and increasing their use of outsourcing as a strategic alternative. In response, the automotive supply industry is experiencing consolidation and restructuring (with the creation of 'tiers of suppliers') and a move towards modular supply. This article explores the manufacturer--supplier relationship at two of Skoda's facilities in the Czech Republic, and Volkswagen's new truck and bus plant in Resende, Brazil. Two conceptual models are developed, the Supplier Profile Matrix and the Stairs of Transformation, to illustrate the challenges and opportunities faced by both manufacturer and supplier as they move beyond JIT to integrated supply and to modular consortia. © 1997 Elsevier Science Ltd Introduction Modular Consortia: Moving Beyond JIT Two decades after the introduction of JIT, automotive manufacturers and suppliers are realizing that mastering ]IT is no longer enough to achieve competitive advantage. Increased pressure to attain annual cost reduction targets and streamline operations are driving automotive manufacturers and suppliers to move beyond JIT, to reevaluate their respective supply chain activities and relationships (this involves a reassessment of who does the value added work as well as where and how it is done) as they strive to improve overall performance. Against a background of changing structure and dynamics within the automotive industry, automotive manufacturers and suppliers are faced both with new challenges and opportunities as they strive to compete. These include serving new markets, enhancing relationships, seeking shorter lines of communication, and realizing faster new product introduction. Automotive manufacturers are seeking to simplify the supply chain and improve efficiency. To achieve this end, automotive manufacturers are: °~° rationalizing the supply base; o~o defining a new set of supply requirements (including global sourcing, full service supply and design for manufacturing/design for assembly); and o~o outsourcing activities which have historically been considered part of the automotive manufacturer's 'territory'. In response to these initiatives, automotive suppliers are increasing their activity in mergers and acquisitions. Furthermore, suppliers are scrambling to maintain profit streams, resulting in industry consolidation and the restructuring of the supply base into "First, Second and Third Tier' suppliers (with the first tier supplier assembling the module and the second and third tier 498 EuropeanManagement Journal Vol 15 No 5 October 1997