Jonathan Maples joined Visteon Corp. in 2001, a year after its spinoff as the parts division of Ford Motor Co. As vice president of quality and materials management, Maples led a team aiming to streamline its supplier base from a starting point of 2,500 companies to about 800.
Those suppliers also produce many of the individual components that make up Visteon's finished systems. The auto supplier estimates 55 percent of its revenue stream comes through its supply base.
The drive to consolidate the supplier base is not merely a desire to thin out the Rolodex files, but linked directly to improving communications between the Dearborn, Mich.-based company and its own suppliers. It is only through these close ties, Maples said during an April 28 interview at a Visteon office complex in Allen Park, Mich., that all the firms can develop true cost savings through long-term relationships.
In laying out Visteon's long-term supply management goals, the company has split production into three phases: production - what it terms delivery and service; award-to-launch, or product development; and production creation, internally termed innovation and commercialization.
Those three periods cover work going on at this time, planning for work that will launch within the next two to three years and long-term planning for vehicles set for production in 2007 or later.
Maples, who in late May was reassigned to run the account with Visteon's largest customer, Ford Motor Co., recently sat down with Plastics News automotive-beat reporter Rhoda Miel to talk about supplier relations.
Q: The headlines about purchasing within the auto industry typically focus on annual demands to reduce prices by a certain percentage point. How much of a driver in supplier selection is that, and can it change?
Maples: A lot of people look at it when you're in production, and they want to know about what it will take to get costs down 3 percent this year, or 5 percent. People are worried about quarterly earnings, about what it's going to take to make the difference, so a lot of focus gets put in here. When you look at it, your ability to influence costs drops precipitously as you get into production. You're doing a Herculean job if you're getting 5 percent cut out from the current production environment.
We find the real place to innovate true improvements in your product, in your quality, in your price, is during the innovation and commercialization phase. When you have a clean sheet of paper, you have little accumulated costs. Here is the real ability to impact quarterly earnings.
What we're working on now is the strategy for the 2008, 2009 time frame - how we can engage the best-in-breed suppliers. We've made the decisions on what we're going to pursue in product lines and what we're going to build ourselves. Now we've got to look at how we maximize our ability to do this.
Q: How does a reduction in the supply base play into this?
Maples: You can't do this with 2,500 suppliers. That's just too unwieldy. To drive this toward market-based products, you have to optimize your value stream, we have to work with our suppliers in terms of communicating what we're doing, the volume production plans, building a complete schedule to get waste out.
We need strategic alliances that will allow us to get, say, 30 percent improvement out of the base design - not by attacking anyone's margins but by saying, ``Look, what's your capital plan? What are you investing in? What engineers are you hiring and how can we complement each other?''
This is the area where you can look at things such as bringing in a toolmaker who can look at the grain texture or the grade of steel they'll need. If you engage these people early on, you can look at the holistic system instead of attacking the pieces. The toolmaker may be able to say that if you tell me what kind of a press you'll need and the series of tonnages you'll be using, I can optimize the way I configure the tool.
To really unleash the value, it's got to be strategic.
Q: There are plenty of small to midsize molders out there that are making massive investments in new technology to continue to compete. How important is it that they maintain close ties with companies like Visteon about their planned investments?
Maples: The key to success is collaborative commerce vs. adversarial commerce. A lot of what you hear about what's wrong with the industry is adversarial commerce. It's that thinking that if you make money and I don't, then I want some of yours - as opposed to looking at how we all make money in this.
Q: But aren't some companies under pressure to compete going to consider any practice of paring down the supplier base adversarial?
Maples: The consequences are harsh. We have a plan to go from 2,500 suppliers to a number that is more manageable, and that gets difficult. Yes, it's going to be painful for some people. You have to communicate with them in terms of what's expected. You bring them in, maybe help to orchestrate alliances.
It's harsh, but it's also going to be about how [Tier 1 suppliers] conduct themselves. Are you fair? Are you being forthright in how you deal with people, or have you set them up for failure? Do you treat them in a way that is disrespectful for the effort they have put into it?
They may view it as disrespectful that you took business away from them, but this is where we have to be very careful to also define what is needed. We set the requirements and we allow anyone to meet those requirements.
Q: Where does a global footprint play into sourcing decisions?
Maples: We are not global watching, just chasing the low-wage country of the month. We're not going to go to everyone and say, `Hey, I just saw China on the cover of three periodicals, therefore we're telling everyone to go to China.'
What it is about is looking at where it is aligned with our product development and manufacturing strategies. We evaluate the total supply costs, the product development costs, the cost of quality. We have to look at the service issues. If you need a new headlamp, what's the supply chain going to be on that? It has to be globally coordinated and locally implemented to the market needs.
Of course we look at China. Does that mean we say that every sourcing decision that comes through, we ask the company why they aren't in China? No. Hopefully, we're intelligent enough to look at when China is right and when it's not.
Q: How does a company like Visteon make sure that in paring down its supply base, it doesn't also cut out a small company that is about to come out with the next technology breakthrough?
Maples: That's why you have to review them annually. You make the best decision you can at any point in time. You work within your strategy, but that doesn't mean your strategy is immutable. We make a plan, we do a strategy with the information we have and we check it at each point.
We may see that there's an emerging supplier or an emerging market. We can adjust the strategy to say, ``OK, we have the purchasing set for '08, but for '09, we're going to shift it a little to get the optimal impact.''
When they come in, they can see when their business will start to grow. They may not see their revenue growth for some time, but they'll know it's coming and that they'll be a part of it.
Q: But how does a small or midsize molder find a way to survive now for a product that may not come to market for years?
Maples: One thing about our business - and it's a good thing and a bad thing - we have such a long view on our order book. Right now, we know what programs we're on for 2004, 2005 and 2006 are basically sourced. Everybody knows that. Sometimes you have to go to somebody and say, `Look, we have no opportunities for you between here and there, but after that we can start to phase you in and grow your business.'
Another key for us in terms of working with our suppliers is that we can give them customer access. We can be a conduit to market for people who have ideas, but don't have the sales capabilities we have. We can be a good incubator with supply partners who are smaller but may have a cool niche or product.
It's about long-term gains, not the short-term stuff.
Q: Say there are suppliers who have already made the first cut, with good quality, delivery, a matching manufacturing footprint. What's going to be expected of them going forward to continue to compete? Taking on warranty issues? Testing? Locations? New technology?
Maples: It's going to be all of the above, really, and that's why the early involvement is going to be so important. We try to break things down into competitive segments. Obviously we can't compare a malleable caster and an injection molder, but we never want to be fully dependent on one company. It makes for competition, economic risks and benchmarking ability. At a minimum, you have two suppliers for any one thing, maybe three. Maybe there are different players in different global areas.
We've had to identify those people who are doing the right thing, who are complementary with what you're doing and then you have to sit down and have this discussion about what they can do for the 2008 time frame, what type of manufacturing footprint they should have.
That's why, in this phase, it's discussions that are face-to-face with senior level management. You have to share business strategy and you have to be honest and candid.
That's not something you can do with 2,500 suppliers. We can only deal with so many suppliers and do it in an effective manner.