Suppliers exercising caution Eatonrsquos Kroon says

Suppliers exercising caution, Eaton’s Kroon says.

Auto Makers, Suppliers Renew Their Vows

Suppliers want to guard against getting burned by overcapacity.

TRAVERSE CITY, MI – Auto makers claim their supplier relations are better. They’ve said that before. This time they say they mean it.

And this time they might be right, as suppliers say current talk of closer ties, deeper understanding and more respect seems genuine.

Nevertheless, suppliers vow to invest prudently to avoid overcapacity in vehicle projects. They want to guard against ramping up production schedules at the behest of auto makers, only to scale back plans if vehicle sales fail to meet expectations.

“I’m here to say things are different,” Grace Lieblein, General Motors’ vice president-global purchasing and supply chain, says at the Management Briefing Seminars here. “If we are going to succeed, we’re going to succeed together.”

Strong auto maker-supplier ties help both groups get through the cyclical downturns, Lieblein says. “Sometimes, things can get messy. When you have a strong relationship, messes are easier to clean up. You can’t wait for a crisis to build a relationship.”

Nor can an auto maker try to meet its financial goals by squeezing supplier profits, she says. That’s been tried before, creating financial instability, bruised feelings and mistrust.

Lieblein vows to work with suppliers to reduce logistics costs and material waste. Of the latter, she says, “It is so big, I won’t tell you what it is. It’s the ‘B’ word…as in a ‘bunch.’”

Suppliers say they will use care in deciding the extent of their participation in auto maker programs.

“We will cautiously make investments,” says Staci Kroon, president of Eaton’s North American automotive division. “We want to invest in the right areas of capacity. We don’t want to blindly invest.”

Although virtually all auto makers speak optimistically about impending new products, the grand total of their production schedules far exceeds expected sales, she says. It sets up a situation in which “we would once again have overcapacity.”

Kroon says her company endured a bitter learning experience when auto sales plunged in 2008 and 2009.

“The overcapacity of 2008 was a hard lesson, and something we don’t want to repeat,” she says.

Dreaded overproduction can occur even in good times if the interdependent, delicate supply chain is not fully aligned.

Kroon offers an example of that when a new vehicle quickly became a hot seller. “Market share was growing and the OEM, as it should have, told suppliers, ‘We need more parts and need them now,’” she says.

Most suppliers met the challenge. But a few didn’t. They weren’t major suppliers, but all parts are needed to make a vehicle. The auto maker was forced to delay the planned production increase.

“Suppliers who did come through ended up with overcapacity, even though the market demand was real,” Kroon says.

Auto makers must recognize and respect supplier issues, says Scott Kunselman, Chrysler’s senior vice president-purchasing and supplier quality. “It doesn’t pay to beat up anybody.”

Ford has launched a series of programs to improve supplier relations, says Birgit Behrendt, the auto maker’s vice president-global programs and purchasing operations.

She acknowledges some vehicle launches have been “too aggressive” in their sales expectations, but warns against suppliers forming an overly “conservative capacity mindset.” Sometimes, “suppliers can oversell capacity” concerns, she says.

As a good business practice, suppliers need to do their due-diligence before agreeing to terms of an OEM project, Behr America President and CEO Wilm Uhlenbecker tells WardsAuto.

“You want a really good case, and then you invest,” he says, crediting OEMs with showing “way more understanding” now than in past years.

Adds Michael Young, Behr America’s vice-president, customer service: “Investing cautiously doesn’t mean we won’t invest. But if you add up all the OEM sales projections, we’d sell 29 million vehicles a year in the U.S.

“How do you wade through that?” he asks. “Each OEM thinks they have the big hit.”

WardsAutoforecasts light-vehicle sales will reach 15.4 million units this year.

Profitable suppliers are vital to auto maker success, Behrendt says. “Obviously, we want our suppliers to be healthy. There is a myth that we look at that as a bad thing. We have no interest in a supply base that does not earn a decent return.”

Lieblein agrees. “The last thing we need are troubled suppliers, because their problems become everybody’s problems.”

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