Looking beyond the gloom and doom in the headlines of the automotive press, perennial winners like Johnson Controls and Borg Warner have proven that money can still be made in the automotive supply industry. Both of those companies have a rigor and corporate discipline. Smaller, privately-held clients are also successful in this extremely demanding environment. However, as global competition rises to unseen levels, there is no more middle ground or margin for error.
Smart Business asked Joseph M. Bione to share some of his insights into the competitive automotive supply industry. He is the managing member of Doeren Mayhew/Whitehall LLC, an affiliate of Doeren Mayhew.
Is this just another cycle, or is something else occurring?
Unlike past automotive cycles, which were driven primarily by domestic economics and a corresponding dip in consumer demand and volume, global structural shifts are fundamentally changing the nature of competition and pressuring both OEMs (original equipment manufacturers) and suppliers on multiple fronts. We are seeing OEM mix changes, share changes, long-term consolidation, raw materials pricing at record high levels, and competitors emerging in low-cost labor countries (India, China). Even with North American volumes at very high historical levels, these structural shifts are changing the game for domestic suppliers.
With all the major bankruptcies going on, how does that affect the supply chain?
We hear about all the rationalization of the supply base from OEMs and Tier 1’s, reducing their supplier count by as much as 75 percent. We also have seen the high-profile bankruptcies: Delphi, Tower, Collins & Aikman, and more recently Dana.
It’s important to focus on two areas: (1) you really need to understand where you fit in the supply chain, and how you add value, and (2) you need to understand your own supply chain, and how each of those suppliers brings value to you. Focus on the key metrics, and put emphasis on the early warning signs (payables and receivables), so that you understand and can play out the worst-case scenarios and then manage the risks accordingly.
What do the winners do differently than those who are struggling?
There are five key attributes that are consistently present in high-performing organizations:
- Challenge everything about your organization
- Get the entire organization focused on clearly defined and easily measured objectives
- Install, manage and communicate through a “daily metrics” reporting system
- Manage the business in a “war room” environment
- Chart, understand, manage and challenge the entire supply chain
In reality, the cultural discipline that should be stressed for troubled companies is the same for the healthier clients — but comes without the financial duress and deep sense of crisis. The difference is in the mentality and discipline to the process.
So where should companies begin in their improvement efforts?
The road to improvement needs to begin with a fundamental assessment of the nature of work; a mapping of the entire value stream that depicts all people, material and information flows, and one that identifies nonvalue-added activity — “waste” — that can either be dramatically reduced or eliminated.
With this map as a starting point, first attack the key three to five areas where dramatic improvements can be realized. Don’t try to fix everything all at once in a “mega-project.” From that foundation, an organizational culture of continuous improvement can be built. Companies both large and small can be successful in automotive supply and related manufacturing, but it has to start with the willingness to change and a commitment to aggressively manage the business.
JOSEPH M. BIONE, TMA, CPM, CPIM, is the managing member of Doeren Mayhew/Whitehall LLC, providing operational improvement and restructuring services to companies in transition or trouble. Doeren Mayhew/Whitehall LLC is an affiliate of Doeren Mayhew in Troy, Mich., providing a wide range of professional services to middle-market companies. Reach Bione at mailto://[email protected] or (248) 244-3159.
