Risk-averse suppliers become bottlenecks, pinch automakers

By David Sedgwick
AUTOMOTIVE NEWS

Published: April 15, 2013 10:40 am ET
Updated: April 15, 2013 10:43 am ET

Related to this story

Topics Automotive

DETROIT — As automakers in North America crank up production, suppliers that chopped capacity during the recession have become a critical bottleneck.

Automakers and suppliers are suffering glitches:

  • Hyundai Motor Co. is leery of adding assembly plants globally because its suppliers are unprepared for higher production.
  • Toyota's North American purchasing chief says his company has a watch list of 40 suppliers that are struggling to fill orders, twice as many as last summer. Honda's North American purchasing boss says he is closely watching about a dozen suppliers.
  • Ford Motor Co. is struggling to recover from a rocky production launch for its Mexico-built Lincoln MKZ sedan. Ford sources, who spoke on condition of anonymity, said two suppliers contributed to the problem.
  • Sixty-two percent of North American suppliers that responded to a survey have adopted extended production hours, such as triple shifts, to maintain around-the-clock output, according to the Original Equipment Suppliers Association.

The recession is to blame. Scores of suppliers landed in bankruptcy court, closed plants or cut capacity to stay afloat. Now, as production orders rebound, many suppliers are reluctant to splurge on plant expansions.

Suppliers are trying to keep up with North American light-vehicle production that is expected to reach 15.9 million units this year, says consulting firm IHS Automotive. It was 12.0 million in 2010.

Asked to boost production, many suppliers say they finally are making money again and are loath to take risks.

The most serious production bottlenecks could occur in 2014, when 43 launches are scheduled in North America, up from 20 this year, according to IHS Automotive.

"We do run the risk of more sporadic interruptions," says IHS analyst Mike Wall. "It tends to happen at the Tier 2 and Tier 3 level. I'm not nearly as concerned about the big Tier 1 companies, which have a lot of cash."

To prevent problems, automakers are looking for signs of stress among suppliers, and around-the-clock operations are one indicator of possible future trouble because few options remain to boost plant capacity.

Toyota Motor Corp., for example, expanded its watch list after announcing plans in August to boost production of vehicles, engines and transmissions.

And the automaker had scheduled four North American production launches this year for the redesigned RAV4, Corolla, Tundra and Highlander -- a heavy workload for Toyota and its suppliers.

If a supplier responded with plans to expand production to 6 1/2 days or 7 days a week, Toyota typically assessed the supplier's operations, says Bob Young, Toyota's North American purchasing chief.

Around-the-clock production "immediately throws up a flag," Young says. "It means we have to visit them to understand their true condition."

Honda Motor Co. maintains a watch list of 10 to 12 suppliers that might suffer production bottlenecks, says Tom Lake, Honda's North American purchasing chief.

That's a relatively small portion of Honda's 632 North American suppliers, and the list has shrunk since the recession.

But just one failure by a key supplier could shut down an assembly plant. This year, Honda dispatched a crisis team to a couple of suppliers, and Lake says the company averted disruptions.

Most of the companies on Honda's watch list are Tier 1 suppliers, Lake says. Still, Honda has checked its Tier 2 and Tier 3 suppliers to identify potential bottlenecks.

Lower-tier suppliers "tend to be smaller companies, and the effect of one or two bad decisions can be devastating," Lake says. "Second, they tend to be juggling demand from more customers."

Last year Honda produced a record 1.7 million vehicles in North America, and the company may top that this year. But Lake says he recognizes that suppliers may be unable to accommodate every customer's demand for more parts.

"We understand that we can't always say more, more, more," Lake says. "Because so many automakers are increasing production, suppliers have to pick and choose where to make an investment."

Many suppliers appear reluctant to build plants in the wake of the recession, when they had to close factories, lay off workers and eliminate marginal products.

Instead, they are squeezing more productivity out of existing assembly lines.

In its factory in Findlay, Ohio, Freudenberg NOK became more efficient at producing engine seals by simplifying assembly.

The company is replacing its injection molds, which produce four to six seals at a time, with smaller machines that make just one seal at a time.

The switch improved quality -- bad parts are down from 50 per million to three -- and productivity. Previously, one worker tended two machines. Now one employee can handle three or four.

"The idea is to make our production simpler," says Ted Duclos, vice president of Freudenberg's fluid power division. "We are making things smaller and simpler."

The Findlay plant now produces 750,000 parts per day -- 5 percent more than before the change -- but with eight work cells, instead of 10.

And the Findlay plant continues to seek productivity gains. Says Duclos: "If you stand still, you fall behind."


Comments

Risk-averse suppliers become bottlenecks, pinch automakers

By David Sedgwick
AUTOMOTIVE NEWS

Published: April 15, 2013 10:40 am ET
Updated: April 15, 2013 10:43 am ET

Post Your Comments


Back to story


More stories

Image

Toyoda Gosei's growth strategy places a big focus on North America

October 23, 2014 1:21 pm ET

Sometimes, knowing your weaknesses is just as important as knowing your strengths. And if 2014 is any indication, automotive supplier Toyoda Gosei Co....    More

Image

Ford's final ACH plant, injection molder of HVAC systems, to close

October 22, 2014 1:58 pm ET

Ford Motor Co. will shed the last line of business in 9-year-old Automotive Component Holdings LLC by December when ACH closes its Plymouth, Mich.,...    More

Image

BASF targets coffee and automotive connoisseurs with new resin grades

October 21, 2014 2:07 pm ET

BASF SE is using polybutylene terephthalate (PBT), which is normally used to manufacture high-end electronics, in a food consumer packaging product.    More

Ford shrinks its supplier 'watch list'

October 20, 2014 1:35 pm ET

Ford purchasing chief Hau Thai-Tang says suppliers are starting to invest in additional production capacity because they think the recovery is real.    More

Image

Plastikon expanding in Kentucky

October 17, 2014 11:24 am ET

Automotive supplier Plastikon Industries Inc. plans to more than double the size of its production facility in Leitchfield, Ky.    More

Market Reports

Plastics Recycling Trends in North America

This report is a review and analysis of the North American Plastics Recycling Industry, including key trends and statistics based on 2013 performance. We examine market environment factors, regulatory issues, industry challenges, key drivers and emerging trends in post-consumer and post-industrial recycling.

Learn more

Plastics in Mexico - State of the Industry Report

This report analyzes the $20 million dollar plastics industry in Mexico including sales of machinery & equipment, resins and finished products.

Our analysts provide insight on business trends, foreign investment, top end markets and plastics processing activity. The report also provides important data on exports, production, employment and value of plastics products manufactured.

Learn more

Plastics Caps & Closures Market Report

The annual recap of top trends and future outlook for the plastics caps & closures market features interviews with industry thought leaders and Bill Wood’s economic forecast of trends in growing end markets. You will also gain insight on trends in caps design, materials, machinery, molds & tooling and reviews of mergers & acquisitions.

Learn more

Upcoming Plastics News Events

January 14, 2015 - January 14, 2015Plastics in Automotive

February 4, 2015 - February 6, 2015Plastics News Executive Forum 2015

June 2, 2015 - June 3, 2015Plastics Financial Summit - Chicago 2015

September 16, 2015 - September 18, 2015Plastics Caps & Closures - September 2015

More Events