By David Sedgwick, Crain News Service
DETROIT (July 30, 2013) — As light-vehicle production in North America approaches a record this summer, auto makers are exerting more influence over suppliers to eliminate production bottlenecks.
• General Motors Co. is requiring suppliers to adopt its lean manufacturing system, dubbed Quality System Basics, if they don't have similar systems of their own.
• Toyota Motor Corp. is winnowing its "watch list" of overburdened suppliers, which once included 40 companies, by sending engineering teams to their factories.
• Chrysler Group L.L.C. has begun testing no-bid contracts to strengthen long-term relationships with suppliers.
"We've had a couple of dozen folks who have raised their hands and said that they were willing to take part in this," Scott Kunselman, Chrysler's purchasing chief, told Automotive News last week.
Auto makers are walking a tightrope: They seek good relations with suppliers to ensure the best possible technology and prices. But they want to exert more control to ensure a reliable flow of parts at a time when suppliers are preparing for a wave of product launches.
This year auto makers have scheduled 23 product launches in North America, according to IHS Automotive. That means suppliers must install new tooling, produce new parts and open new assembly lines.
The troubled launch of the Lincoln MKZ this year, partially because of parts problems, underlined the hazards of flawed procedures.
The need for smooth launches is one reason GM chose Grace Lieblein, the former chief of GM do Brasil, to run GM's global purchasing operation. In 2011 and 2012 Ms. Lieblein oversaw nine production launches in Brazil.
"We make sure to learn lessons from each launch and apply them to the next launch," Ms. Lieblein said in an interview last week. "Sometimes [the risk] is not at the Tier 1 level but at the Tier 2 or Tier 3 level."
GM has taken a number of steps to ensure smooth launches. The company has hired 100 employees—including some retired GM engineers—to beef up the engineering teams that visit suppliers' factories.
It also issued a new "terms and conditions" contract on July 15 that requires a supplier to provide, on request, "its most current income statements, balance sheets, cash-flow statements and supporting data and schedules."
GM had no immediate comment on the contract, but lawyers familiar with the document say that GM wants to spot any financial problems that might disrupt a supplier's production.
Like GM, Toyota is closely monitoring suppliers involved in its launches, which this year include the redesigned RAV4, Corolla and Tundra.
Toyota, an industry leader in lean manufacturing, traditionally dispatches engineering teams to supplier factories to monitor their progress, said Bob Young, North American purchasing chief.
Those teams pay special attention to the company's watch list of suppliers that must run their factories around the clock to meet production quotas. As many as 40 suppliers were on that list, but it's down to 25 now, Mr. Young said.
The company also is trying to monitor lower-tier suppliers that might pose a bottleneck threat, but that can be difficult to manage, Mr. Young said.
So Toyota may introduce an online census next year for North American suppliers.
"An online system has been deployed in Japan, and we are studying whether to employ it in North America," Mr. Young said. "To date, we've only [identified suppliers] down to the Tier 3 level. It gets challenging when you go below that."
The Japan earthquake and tsunami of 2011 taught Toyota how vulnerable it was to potential bottlenecks caused by lower-tier suppliers. Other auto makers drew similar lessons.
Beefed-up audit teams
Like its peers, Chrysler is trying to spot potential problems among suppliers before they occur.
Previously, Chrysler's purchasing operation devoted much of its engineering resources to clean up suppliers' quality problems, Mr. Kunselman said.
Now Chrysler has beefed up its audit teams that inspect supplier factories before problems occur. The company plans to visit its suppliers' factories at least once a year.
"We've visited more than 2,500 locations since September," Mr. Kunselman said. "We insist on meeting their quality people, and we measure it on our scorecards."
And now Chrysler has started teaching its lean production system, called World Class Manufacturing, to key suppliers that produce sequenced components such as instrument panels, door panels, seats and front fascias.
These suppliers are considered key because they must provide components to an assembly plant within 90 minutes of the factory's order.
The first supplier to adopt Chrysler's manufacturing system was Dakkota Integrated Systems, which makes instrument panels for Chrysler's Windsor minivan plant.
In an April interview, Dan Hillock, Dakkota's director of operations, said he runs his factory as if it were a department within Chrysler's minivan plant.
"Every time Windsor goes on break, we go on break," said Dan Hillock, Dakkota's director of operations. "Every time they have lunch, we have lunch. And every time they go home early, we go home early."
Now Chrysler is offering to train other sequenced suppliers. With industry production hitting records, it takes little to disrupt an assembly plant, Mr. Kunselman cautioned.
"There is no doubt that we are running tight on capacity," Mr. Kunselman said. "It takes the tiniest sneeze or hiccup to disrupt that. It's a little more fragile than it could be."
Mr. Kunselman is eager to forge closer ties with his suppliers because he knows that they have other auto maker customers to worry about, too.
In the third quarter, light-vehicle production in North America is expected to total 4 million units, slightly higher than the third-quarter production record of 3.9 million units set in 1999, according to LMC Automotive.
Jeff Schuster, executive director of LMC's forecasting division, estimates that assembly plants are running at 91 percent of capacity for the year.
"We're getting tight," Mr. Schuster said. "We're getting to the point where we might hit the wall."
Reporter Larry P. Vellequette contributed to this report, which appeared on the website of Automotive News, a Detroit-based sister publication of Tire Business.