Dana Develops Risk Mitigation Strategy

To head off problems, Dan is monitoring the financial viability of the lower-tier suppliers with which it does business.

Byron Pope, Associate Editor

August 7, 2012

3 Min Read
Baugh says supplier reactive rather than proactive during global recession
Baugh says supplier reactive, rather than proactive, during global recession.

TRAVERSE CITY, MI – U.S. auto-parts maker Dana is determined not to be caught off-guard again, like much of the auto industry during the height of the global recession and following the earthquake and tsunami that struck Japan last year, a top executive says.

Gary Baugh, Dana’s senior director-purchasing, Power Technologies Group, says the supplier now has strategies in place to detect possible industry disruptions and mitigate their impact.

During the recession in 2008-2009, Dana was reactive rather than proactive, Baugh says, noting the company worked closely with its OEM customers and lower-tier supply base to lessen the impact.

One of the new policies in place to detect problems down the road is to monitor the financial viability of the lower-tier suppliers that service Dana or are looking to do business.

Determining the financial health of suppliers that are privately held can be tricky because their records are not public, so Dana has asked its purchasing chiefs to provide input on what “they feel is going on” at the companies, Baugh says.

“If (private) suppliers are talking about delaying shipments or wanting payments, those are things you want to act on,” he tells attendees at the Center for Automotive Research’s Management Briefing Seminars here.

Dana also is monitoring the financial stability of countries where it has operations, Baugh says, noting the ongoing European financial crisis is similar to what occurred in North America a few years ago.

“We have to know how to leverage our global capacity to meet regional needs,” he says. “Some (capacity) in Europe is not being utilized, so how can we use that in North America to meet a need?”

Additionally, Dana works to head off risks that fall outside the financial realm, such as potential part shortages that could affect OEM customers. The company monitors whether “it is over-exposed to a particular supplier,” he says. “It’s prudent to let (our) customers know the situation and that we’re trying to contain that situation.”

Parts shortages often can result from a lower-tier supplier’s business strategy, Baugh says. There have been incidents in which a supplier gave late notice that it planned to discontinue a certain part, leaving Dana scrambling to find an alternative.

“We have to know what they’re doing with product planning over four or five years,” he says. “Some tell you and some don’t, but we want to put that in front of them.”

Knowing an auto maker’s product plans helps prevent supply disruption as well. In a best-case scenario, Dana likes to keep its supply base informed of OEM business plans 24 months ahead, Baugh says.

“We have to prepare our partners with as much information (as we can), so if they do need to add capacity, they know how to put it in place.”

Most companies that reach “strategic supplier” status with Dana provide a select product or service that is fundamental to the success of the core business, such as a particular technology.

Beyond that, they must be global or prepared to become global and have the means to grow, a demonstrated track record of reliable performance and a mutually dependent relationship with Dana.

“We want to provide opportunities to those suppliers,” Baugh says. “We want long-term sourcing arrangements. We can’t afford to be changing our sourcing direction three to five years down the road.”

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About the Author(s)

Byron Pope

Associate Editor, WardsAuto

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