TRAVERSE CITY, MICH. (Aug. 9, 12:15 p.m. ET) — Alpha Group of Cos., a suburban Detroit producer of auto fasteners, received an ultimatum recently from one of its Tier 1 customers: Expand into Mexico by year end or lose future business.
“We've tried to find a supplier we could consolidate with, but we don't have buckets of cash to make that happen quickly,” President Chuck Dardas said. “The pressure on us to consolidate has been enormous because this particular supplier makes up 12 to 13 percent of our business.”
One of the take-aways from last week's Management Briefing Seminars in Traverse City, Mich.: The automaker-led push for more — and faster — supplier consolidation is putting companies such as Alpha under a time and logistics crunch.
During panel discussions sponsored by the Center for Automotive Research, executives from Ford Motor Co. and Nissan North America called for more supply chain consolidation.
Ford has been shedding suppliers since the downturn, down to 1,500 global suppliers at the end of 2010. Ford wants to get down to 750 suppliers, but has not announced a timeline.
‘Consolidation has to happen'
Bill Diehl, CEO of BBK Ltd., a suburban Detroit consulting firm, said the economic downturn crippled Tier 2 and Tier 3 suppliers, which are now profitable with the currently low volumes, but lack the capital to keep up as demand rises.
“These suppliers don't have the strength or the systems to compete with growing demand” Diehl said. “Consolidation has to happen. Nobody is going to be adding fixed costs in the near term, and consolidation allows for great opportunity to leverage more facilities as the demand increases.”
Rebecca Vest, vice president of purchasing for Nissan's five North American plants, said last week at the seminars that suppliers need to locate near Nissan's plants if they want more business. The automaker is looking to avoid sourcing problems such as those it experienced after the March earthquake and tsunami in Japan.
“I've been through enough disasters to know that it's lovely to able to drive over and pick up your parts,” she said.
The automaker's desire to have suppliers near its assembly plants has led Tier 1s to pressure lower-tier suppliers.
While Alpha, for example, continues to look for potential consolidation targets, it will establish a parts warehouse in Mexico to satiate the customer's need, Dardas said.
Sheldon Stone, partner at Amherst Partners, a suburban Detroit restructuring firm, said the automakers are talking out of both sides of their mouths by not providing consolidation support.
“They have been much too slow in assisting the supply base through a reorganization process,” Stone said. “The OEMs, they have the world divided up into different geographical regions, they know what suppliers are supplying what parts in those regions, they know where they have redundancy and they know the financial strength of those suppliers. But what have they done in the last 24 months?”
A complete version of this story is available on autonews.com.