Buyers adopt hard line
Flexible union rules and new machinery help Mexican automakers make high quality vehicles
By Tom Stundza -- Purchasing, 8/11/2005 2:00:00 AM
Just because it's been a tough financial year for North American automakers doesn't mean their metals suppliers can expect reduced vigilance in demands for world-class materials and delivery performance. That's especially true at the Mexican automotive plants of the Big Three and other automakers, which are making large investments into a $35 billion motor vehicle industry that accounts for a fifth of this country's manufacturing output.
Purchasing executives speaking at the recent International Congress of the Mexican Automotive Industry stressed that supply chain decisions about supply partners probably will be made under even stricter policies than in the past. That's because growth in the industry has been constrained in recent years by weak export demand, particularly from the U.S. Several domestic factories have also been retooling production lines to make way for new models. Now, however, capacity is expanding again and suppliers in the U.S., Canada and Mexico were told to remain dedicated to the delivery of world-class quality materials at competitive prices-or face the loss of business to competitors in Asia, India and Eastern Europe when next year's supply contracts are negotiated.
"I'm not here to baby-sit existing suppliers," said Leo Torres, the director of purchasing at Ford Motor de México. "My job is to find the suppliers that I want to partner with for a long time; the suppliers I want to work with until 2015 at the least." What he wants are suppliers who understand that Ford's demand for excellent quality for materials, parts and components aren't negotiable, that quality performance is audited continuously, and that transaction prices can always be reduced.
Similar comments came from Oscar Albin, general manager of purchasing for DaimlerChrysler de México; Rafael Laguna, director of worldwide purchasing for General Motors de México; Arturo Ríos Lozano, director of purchasing and logistics at Nissan Mexicana, and Osamu Nagata, vice president of purchasing, Toyota Motor Manufacturing North America.
"Quality is critical, and so are reduced costs," said Medina, who manages purchases for production materials, parts and accessories at DaimlerChrysler plants in the cities of Saltillo and Toluca. Centralized procurement for certain key materials, such as steel, have resulted in new request for quote procedures that require price breakdown and material cost management programs at Chrysler Group operations throughout North America. "No matter who the supplier is, what that supplier makes, or where that supplier makes it, they all have to meet more stringent measurements on parts and materials quality, appropriate in-house technology, on-time delivery, and fair and competitive pricing," Medina added.
Ever since the first Model Ts rolled off Henry Ford's assembly line, Michigan and neighboring Ontario have been the center of activity for the North American auto industry. In recent decades, however, the southeastern U.S. and Mexico have become major motor vehicle manufacturing centers. Three-quarters of Mexican-made vehicles are exported to the U.S., largely by Detroit's Big Three but also by the two Japanese companies and the German giant Volkswagen.
However, from a peak in 2000 of 1.4 million motor vehicles assembled in Mexico, production slipped to 1.1 million by last year, blamed partly on what Bill Ford, Ford Motor Co.'s chairman and chief executive officer, calls "a fiercely competitive environment" throughout North American. Manufacturing expenses are high because of rising pension, health care, raw materials and plant energy cost. Also, with gas prices soaring, the automakers have seen lower sales because dealerships are choking on inventories and customers are veering from the profitable sports utility vehicle lineup.
"In this environment, Cost reductions will not stop," said Torres, the purchasing chief at Ford de México. "Chapter 11 bankruptcies and shutdowns by suppliers create problems—it would be naive to deny that—but these events aren't caused by Ford's cost-cutting programs; they are caused by poor supplier management."
Ford de México spends about $50 billion on parts and materials from U.S., Canadian and Mexican sources. Successful suppliers, Torres said, are those who adhere to a criteria of business that define qualify based on their customers' expectations, operate under a constant improvement process, produce with innovative technology, use lean models for production and delivery, and have continuous cost-reduction systems.
Starting this month, Ford's plant in Hermosillo will begin assembly of Ford Fusion, Mercury Milan, and Lincoln Zephyr midsize passenger cars, building up to an annual production rate of 300,000 units. Analysts suggest these may be Ford's most important vehicle launches of the year—since the Dearborn. Mich.-based automaker is trying to stop losing U.S. passenger-car sales to Asian and European rivals.
"To be a Tier I, Tier II or Tier III supplier to this operation, the car and light truck plant in Cuautitlan or the engine plants in Chihuahua, providers of materials and parts must follow certain rules and be certified as 'quality Ford suppliers'; there simply won't be any baby-sitting by Ford," said Torres, a company veteran who has held various purchasing, manufacturing and materials management posts in the U.S. and Mexico.
DaimlerChrysler's global supply chain for Mexico involves $2.7 billion worth of assembly materials delivered from 850 suppliers through sophisticated systems that ensure the flow of parts into the plants are not disrupted. The design of the supply chain is a function of the flexible manufacturing initiatives implemented at the facility, Medina said. The goal of a lean delivery system is to deliver materials efficiently from the supplier "just-in-time" to the assembly line operator.
Lean delivery supports manufacturing's objectives of quality, reliability, speed and flexibility in production. Delivery of major components in frequent, right-sized quantities gives manufacturing the flexibility to manage vehicle options and multiple models. "So, the supply organization is creating efficiencies and cutting costs that are ultimately passed on to Chrysler Group customers," Medina said.
General Motors de México purchased $61 billion in auto parts and materials from North American sources for its manufacturing plants in Toluca, Silao and Ramos Arizpe. These plants make such car models as Pontiac Aztek, Chevrolet Cavalier, Pontiac Sunfire, Buick Rendezvous plus the Chevrolet Suburban, Chevrolet Avalanche, GMC Yukon XL, Cadillac Escalade and medium-duty Chevrolet and GMC trucks.
"This requires a strong approach, a strong hand if you will, in guiding purchasing decision-making to ensure that best available materials will continue to be delivered to the manufacturing plants at lowest possible prices," comments Rafael Laguna, director of worldwide purchasing. "Some suppliers will fail either because they don't have the tools to do what is required of them or don't have the discipline to use the tools properly. They fall out of the supply chain. We are not an altruistic agency; we work for a profit."
Laguna says GM always is looking to find and help develop steel and other metals suppliers with a "continuous-improvement mentality that embraces leading-edge technology to eliminate waste, open-mindedness to new buyer-supplier relationships and a super-competitive approach to business."
Similar comments are presented by Nagata, vice president of purchasing for Toyota Motor Manufacturing North America. Although he is based in Erlanger, Ky., his responsibilities include purchasing for the Toyota Motor Manufacturing de Baja plant near Tiajuana. The three-year-old plant builds Tacoma pickup trucks and Tacoma truck beds—using only 35 suppliers for $1.4 billion worth of metals and other materials.
"The Toyota Philosophy is to purchase parts and materials from a tight-knit group of suppliers under business partnerships that become long-term relationships," he informed the conference. "It is the purchasing organization that must be proactive in the development of strong buyer-supplier relationships that will provide the right metals and other products, support the suppliers' kaizen (continuous improvement) efforts, fit delivery into the company's production system, supervise quality improvements and solve any buyer-supplier problems."
Meanwhile, Rios of Nissan Mexicana says the Renault Nissan Purchasing Organization finally will assume control of metals, other materials and motor vehicle parts in North America (including Mexico) at the end of 2005. That's a year later than planned when the joint purchasing body was created in 2001 to supervise buying in all areas where Renault or Nissan have industrial operations. Nissan de Mexicana makes 400,000 units annually in Mexico—Sentra models for North America and several other vehicles for European and Asian markets at plants in Cuernavaca and Aquascalientes.
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