Customer selection: a lost art in the automotive industry.

With the emphasis on revenue growth in the automotive industry in the last few years, many suppliers have adopted the mentality of "We have never met a job we didn't like." As a result, most suppliers have expanded their customer base (or expanded their dependence on one customer) with little thought given as to whether these customers are a good long-term fit. We believe that no matter where you fit in the automotive supply chain, customer selection is becoming a key success factor for suppliers.

There are 3 stages to establishing an effective customer strategy:

Stage 1: Establshing key customer criteria

A supplier must first identify what characteristics make up a good customer for their firm. This starts with establishing a deep understanding of the firm's core competencies and overall strategic positioning. The chart in Exhibit 1 is one tool to help suppliers identify where they are relative to product and process focus and where they need to be to qualify as best in class. Effective customer selection is virtually impossible without a clear understanding of future focus and what differentiates you from your competition.

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Once you have formed a detailed vision for your company, you then need to develop screening criteria for customer selection. This is a cross-functional exercise designed to qualitatively describe a "perfect customer" for your firm. Obviously, the criteria will vary depending upon your competencies and future vision.

Stage 2: Evaluating current and targeted customers

This phase involves identifying the best customer for your company, both from your current customer list as well as from potential customers. One way to get at this is to rate your current and targeted customers based on the criteria developed in Stage 1. Frequently, suppliers discover that many of their largest customers do not fit their key customer criteria. They also learn that they are neglecting customers that fit their criteria because they are too busy servicing the needs of large "bad" customers.

Another way to assess current and potential customers is to better understand their strategic positioning. Exhibit 2 suggests that most customers fit one of three basic models. If, for example, you were to position OEMs based on this chart, most suppliers would vote BMW in the Innovator box, DaimlerChrysler in the Own the Customer Relationship box, and GM in the Lo-Boys box. A similar exercise could be conducted for the Systems Integrators (e.g., where would you place Johnson Controls, Lear, and Magna?). The value of this level of understanding of your customers' strategic positioning is that how and why they buy from a supplier is very different depending on where they fall on the price/innovation spectrum.

Stage 3: Designing a robust customer management process

The last phase of a customer selection strategy is designing a comprehensive customer management process so that your entire company supports this strategy. This entails differentiated sales strategies, quote processes, product and process development, and customer interface at the plant levels.

Too often, customer management is thought of as a sales function vs. a total company responsibility. While the sales group may be the primary contact point with customers, the success of the relationship depends on all elements of the company working and communicating to make it happen. This includes determining if the customer is a good strategic choice. As a supplier, it is critical to be realistic about customer selection in order to avoid sacrificing good customers in the name of ones that do not make sense.

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By Kim Korth, President, IRN, Inc., [e-mail]