Karmann USA manages supplier quality through the automotive downturn
By John Day -- Purchasing, 7/16/2009 2:00:00 AM
• Karmann USA
Location: Plymouth, Mich. • Size: 300 employees • Business: Automotive roof systems, including retractable hardtops and convertible softtops.
The name Karmann might ring a bell for those old enough to remember the legendary Karmann Ghia sports car. The firm, headquartered in Osnabrück, Germany, has been a coach builder since its founding in 1901. Although the firm filed for insolvency in Germany in April, it continues to produce automotive convertible tops and focuses on supplier quality, says Jerry Anway, vice president of sales and strategic sourcing at Karmann USA in Plymouth, Mich.
Karmann USA manufactures retractable hardtops and convertible softtops for the Chrysler Sebring, retractable hardtops for the Pontiac G6, and convertible softtops for the Ford Mustang. With sales of $250 million, it should not be affected directly by the insolvency; however, it has been affected by the downturn in the automotive market. It has responded by expanding from an exclusive focus on the OEM market into aftermarket sales. Anway expects a recovery to begin in the second half of 2009, with stronger demand returning in 2010.
Purchasing at Karmann USA is focused on reducing cost and improving quality. Seven buyers report to a purchasing manager who reports to Anway. The firm's $100 million spend includes stampings and die cast parts; textiles; functional components, such as hydraulics; plastics and rubber; glass panels; and paints. A buyer is assigned to each commodity categories, while supplier quality engineers who in each category work with the purchasing team. Design engineers specify the commodities to be purchased.
The Karmann USA purchasing team works with colleagues in Osnabrück, and Yokohama, Japan. Karmann has selected global suppliers for rubber sealing materials, textiles, and hydraulics units, but Karmann USA prefers suppliers that are located relatively close to its manufacturing facilities. Approximately two-thirds of its materials and components, including stampings, die castings, fasteners and plastic injection molded components, come from suppliers in the Midwest.
Anway says Karmann's market leadership in convertible tops helps the firm locate suppliers, some of which have had relationships with the firm for many years. Karmann also uses consultants such as Global Procurement Systems to help locate suppliers. It also collaborates with customers and attends conferences.
Karmann does some sourcing in Eastern Europe and Asia, and is seeking additional low-cost sources of small stamped or forged components such as fasteners, or injection-molded parts. It anticipates cost savings of up to 30% from a sealing system supplier in Eastern Europe.
Anway uses a multi-step approach to sourcing and qualifying suppliers that includes a financial risk assessment and part-per-million quality evaluation. Prospective suppliers are visited by buyers and supplier quality engineers as well as by representatives from Karmann USA's product engineering and manufacturing teams.
Karmann USA uses SAP ERP software, communicates with suppliers via electronic data interchange (EDI) technology, and maintains a supplier quality portal called Ensemble, developed by Logic Solutions. Karmann uses the Supplier Performance Rating System (SPRS) or supplier scorecard tool to measure its supply base on metrics including cost, quality, delivery, warranty, and purchasing performance. The firm works closely with marginal suppliers to bring them to acceptable standards because of the high cost involved in switching suppliers.
The diligence pays off. Karmann USA has exceeded its quality targets, reducing ppm by more than 50% to less than 40. The firm has also reduced its costs by 3% year-over-year for the past two years despite an extremely challenging economy and a run-up in raw materials prices. It hedged its spend on magnesium to minimize the effects of fluctuation in magnesium prices. Last year it also worked with suppliers to improve working capital through extended payment terms.
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