Last week's emergency shutdown at Chrysler LLC, caused by a parts dispute with injection molder Plastech Engineered Products Inc., could have been avoided with a bit of advance planning and a better supply-chain strategy.
This is a story about the automotive market, and in some ways it's unique to that sector. But it still offers important lessons for others - both suppliers and original equipment manufacturers.
The trouble started long before Plastech filed for Chapter 11 protection Feb. 1, but that's the event that brought the problem to light. It wasn't a secret that Plastech was in trouble. By late January, all the Big Three automakers were looking for backup suppliers when it became apparent Plastech might run short of cash.
Although the warning signs were clearly flashing, Chrysler and others had grown to depend on this single, precarious supplier. That's mistake No. 1. Chrysler has about $200 million in business at Plastech as its fourth-largest customer. (Johnson Controls Inc. is No. 1, with about $700 million worth of business. Ford Motor Co. and General Motors Corp. are Nos. 2 and 3.)
When Chrysler sent trucks to Plastech to start getting its tools, that prompted Plastech to file for Chapter 11. Once Plastech filed for bankruptcy, Chrysler stopped ordering parts from the Dearborn, Mich., molder. The automaker asked the court to seize tooling at Plastech so it could send it to other molders.
That's mistake No. 2. Never depend on the courts to take care of a problem that you need solved right away. Even when you're right, the wheels of justice turn ... very ... slowly. Since Chrysler operates on a just-in-time basis, it ran out of parts in just a few hours and had to shut down four plants Feb. 4. There was no Plan B.
Chrysler's new purchasing chief, John Campi, joined the company from Home Depot Inc. in January, and one observer said Chrysler seemed to think buying plastic parts was like buying hammers. After all, you can buy a hammer from one place, and it works the same as a hammer made anywhere else in the world. That's not true for a car part with high aesthetic value or complicated assembly or required sequencing to make sure the parts actually work. They might be priced like commodities, but they're not.
How do you avoid this problem? The simple lesson is one too often ignored these days: Don't put all your eggs in one basket. Imagine you have a tool that costs $1 million to build, but if you have a problem (think flood, snowstorm, bankruptcy or fire), your entire assembly line shuts down. Doesn't it make sense to have two tools?
It just makes sense to source some tools and parts from multiple sites and to have a backup ready in case of emergency. So many OEMs have downsized their purchasing departments that they prefer to single-source plastic parts - and the days when many OEMs had specialists who really knew plastics processors seem a long-forgotten memory. We hear from purchasing agents who buy everything from office supplies to sophisticated assemblies, and too often they don't stay on the job long enough to become experts.
This is a tough trend to buck, and it's difficult to get companies to change their supply-chain strategies overnight. But Chrysler's experience should be a warning sign for everyone - if you single-source now, keep a close eye on your suppliers, and be ready to take action before a crisis arises.