As the North American auto industry continues its climb back to higher production, management consultants from BBK Ltd. are spending more time working with second-tier suppliers struggling to keep up.
Smaller firms sliced costs and their employment base during the recession to try to stay afloat as annual auto production fell to less than 9 million vehicles in North America. Many quietly shut their doors and stopped production for good.
James Morgan, director of global body exteriors for Dearborn, Mich.-based Ford Motor Co., said during the Center for Automotive Research's Management Briefing Seminars that the automaker lost some of its best tooling suppliers during the recession.
Since then, Ford has selected more firms to rebuild its supply base. Morgan said it has approved another “seven or eight” tooling suppliers this year.
Now with the industry recovering quickly — and more than 14 million cars projected for North American production this year — those same suppliers are struggling to rebuild their technology and skilled-worker base.
“A lot of these Tier 2 companies are suffering because they have been without the ability to access the same level of technology and financing as Tier 1 companies and automakers,” said Guy Morgan, managing director and global operations advisory group leader with Southfield, Mich.-based BBK.
If those firms have had problems coping with the increase in business so far, industry watchers said they are concerned about how those smaller companies' production capacity will handle another climb, to 15 million vehicles per year or more.
“If you go into a plastics factory, and someone talks about how good they are at regrinding scrap like that's a good thing, it's a bad thing,” Morgan said at the briefing, held Aug. 6-9 in Traverse City.
While it is true that recycling plastics is a good way to keep resin costs down, he said, it ignores many more issues required to streamline production.
“How much energy does it take to make it again? How much labor is involved in doing it all again?” he asked. “They haven't even thought about that.”
Firms that want to improve their bottom line need to focus on improvements that avoid scrap and bad parts in the first place, he said, rather than recycling them later.
Ernie Green Industries Inc. of Dayton, Ohio, which includes injection molder Florida Production Engineering Inc., switched to a cloud-based system to track production statistics so it could improve efficiency, said President and Chief Operating Officer Larry Jutte.
Using the cloud — which places data in an off-site system where any approved group can see and use the same information — allows the company to catch and fix problems quickly.
The key to helping those lower-tier companies survive the increase might lie with automakers themselves, said Jim Lentz, president and CEO of Toyota Motor Co.'s Toyota Motor Sales USA Inc.
Toyota is predicting that production in North America will climb to 16 million by the middle of this decade, he said, but so far has not encountered any problems with its smaller suppliers.
“The key is, we have to forecast our needs accurately,” he said. “If we say we're going to see 14.3 [million] and they plan on that, then we have 15.3 [million], we're going to have problems. Our crystal ball has to be really clear.”