What is an OEM/Tier 1 Relationship Worth?

Many foundries are proud of long-standing relationships with automotive OEMs and Tier 1 suppliers. It is not unusual to see companies celebrating supplying the same customer, or even the same component family, for 20 or 30 years.

That is certainly an achievement. It proves that the foundry has delivered reliably, solved problems, and supported the customer over a long period of time. At the same time, however, such relationships can create a dangerous sense of security.

A Mature Product becomes Easy to Relocate

The skilled foundry often creates its greatest value at the beginning of a program. Engineers support the customer during development, optimize the casting process, solve porosity or distortion problems, modify the tool, and gradually bring the component from prototype production into a stable serial process.

That is usually the difficult phase. It is also where much of the foundry’s knowledge enters the product. Twenty years later, the situation is completely different. The drawing is fixed, the process is understood, quality requirements are established, and most technical problems have already been solved. The product finally runs exactly as it should. The 10th iteration of that product no longer carries any major problems to solve.

This phase should theoretically be when the foundry earns money from all the work invested during industrialization. Unfortunately, it is also the point at which the component becomes much easier for purchasers to compare with alternative suppliers.

The new supplier does not need to repeat the entire development history. It receives a mature drawing, established specifications, and clearly defined quality requirements. The original foundry therefore competes increasingly on the cost of producing a known geometry rather than on the engineering knowledge that created the stable process in the first place.

This is exactly where the commodity trap begins. Once several suppliers can manufacture the same defined product, purchasing can compare hourly rates, labour costs, energy costs and margins. A competitor with a lower cost base can attack the business even if it never contributed to the original development.

Thirty Years of History have Limited Commercial Value

Foundries sometimes assume that the relationship itself protects them. In reality, the people responsible for sourcing decisions change much faster than the supplier relationship.

The engineers who developed the component together may already have retired. Purchasing responsibilities change every few years, and a new buyer is usually measured against current targets rather than the relationship’s history.

If moving a component creates a significant cost saving, the argument that two companies have worked together for 30 years becomes difficult to quantify. The purchaser can document the savings immediately. The potential disadvantages of a longer supply chain, qualification risks, or future quality problems are much harder to put into the same spreadsheet.

This becomes particularly relevant when the entire automotive industry is under cost pressure. In such an environment, companies will investigate almost every possible source of savings. Long-term supply-chain risks are understood, but that does not mean they will outweigh an immediate sourcing advantage.

Ten Automotive Customers are basically One Dependency

The obvious response is diversification, but customer diversification and market diversification are not the same thing. A foundry supplying ten different OEMs and Tier 1 suppliers appears well diversified because no individual customer accounts for an excessive share of revenue. Nevertheless, all ten companies are exposed to many of the same structural changes. They operate in the same automotive market, face similar cost pressure, and respond to the same technological trends.

But the dependencies are the part a foundry can control. It cannot prevent an OEM from relocating a program, changing suppliers, or redesigning a component. It can, however, reduce the impact that such a decision has on the business.

The objective should therefore not be to make every existing customer relationship permanent. The objective should be to continuously create enough new business that losing one mature program does not become an existential problem.

New Business has to Start Before the RFQ

Once an RFQ reaches several foundries, most of the important decisions have already been made. The geometry is defined, the material is specified, and the manufacturing route is largely fixed. At that point, every supplier is solving essentially the same problem, which makes price one of the easiest ways to differentiate.

A more defensible position is created earlier. Instead of beginning with available machine capacity, the foundry should ask which valuable properties it can produce particularly well. From there, the question becomes where those properties solve an expensive customer problem.

This changes market development fundamentally. The customer is not searching for a 1,600-ton die-casting machine. A robotics company may be trying to reduce moving mass. A data-center supplier may need better thermal management. A compressor manufacturer may struggle with leak tightness under high pressure. The casting process becomes relevant because it solves those problems, not because the foundry has capacity available.

Technical proof is essential in this process. A demonstrator, simulation, test component, or measured property can turn an interesting idea into a credible industrialization concept. The goal is not merely to show that the foundry can make a casting. It is to demonstrate why the customer should change from the solution they already use.

Create the Next Customer Relationship Today

A 30-year OEM relationship remains something worth celebrating. It proves that the foundry has delivered value for decades. It should simply not be confused with future security. 

The more mature a casting becomes, the easier it can become for purchasing to compare suppliers. The knowledge that once differentiated the original foundry gradually becomes embedded in the drawing, specifications and production standards.

The best protection against that risk is therefore not history. It is the ability to repeatedly turn technical competence into new applications, new customers and ultimately new markets. And if they aren’t there yet, you need to create these opportunities yourself.

Casting-Campus is your partner in developing new applications from idea and marketing into series production. Schedule a Call to find out what we can do for your foundry.