Tuesday, April 1, 2014

Nissan Renault Alliance

It was reported last month that the two automakers have agreed to develop 70% of their vehicles jointly along a "common module family" CMF method.
Under CMF, the major categories of vehicles, by size, are developed according to common engineering of front underbody, engine, cockpit, rear underbody, and electrical/electronic architecture. For example: The wand that controls headlamps and highbeams will be the same in all future Nissan and Renault subcompacts, allowing both companies to benefit from large-scale purchases from fewer suppliers.

The supply chain can create value by eking out cost savings from scale economies in some components. To do so, would-be rivals choose to cooperate so that their suppliers can enjoy scale economies. Thus, the vertical arrangement benefits from the horizontal arrangement.


  1. The Nissan Renault alliance makes a lot of sense in todays economy. Consumers are driven by lower prices and higher quality today more now than ever. Although the two may be perceived as competitors, having a balancing stake in one another's company helps offset any potential rivalry. Both companies realized that by working together, each could improve their margins and offer better competitive pricing.

    This type of deal is not right for everyone. Some companies, such as Toyota, derive many of their cost savings through process efficiencies and the reliability of supplying their own parts. Not every company has the resources to adapt such a model of production. Many must rely on third party manufacturers to produce necessary parts. What it comes down to is the fact that the two companies realized similarities and found that it would be more profitable to work together rather than work alone. Let's face it, aside from luxury models, a turn signal is a turn signal. If two companies are utilizing relatively similar parts, why not combine forces to produce larger orders that would increase economies of scale? Since both firms have similar profit break-even points, in terms of sourcing parts, it makes perfect sense that they work together to lower production costs. Each company still competes with one another but by working together, they can lower production costs and be better positioned to meet the needs of price sensitive consumers.

  2. The automotive industry is known for the concept of sharing designs across multiple platforms, in fact it is very common. From final assembly down through the remainder of the supply chain the efficiencies gained in a manufacturing type environment will be positive for both the organization and the consumer. At the front end of the supply chain the consumer will see price points based on principles of mass production because of less diversified products making up the final assembly. A manufacturer, anywhere within the supply chain, is going to see those same mass production cost savings. In addition, they also have the ability to build processes and procedures around common products. With less variety, the cost to produce products will decrease as well as tooling and transportation costs as well. In the end, economies of scales can be realized by many in the supply chain with the type of manufacturing approach Nissan.