TRAVERSE CITY, Mich. (Aug. 7, 2012)—Some manufacturing executives fear that many North American Tier 2 suppliers will be unable to keep up with the anticipated growth to 15 million U.S. sales a year, up from about 14 million now.
The reason? They lack the efficient operating systems that auto makers and their Tier 1 suppliers have been embracing in recent years to get the most out of their factories and workers.
Many small suppliers failed during the Great Recession, leaving the survivors pressed for capacity and capital. Yet, many have not upgraded their manufacturing operations.
"A lot of the Tier 2s have been running six days a week trying to keep up with 13 million the best they can," said Larry Jutte, president of supplier Ernie Green Industries Inc. "What's going to happen when the industry needs 15 million? This is going to be the next pinchpoint for the auto industry."
Ernie Green manufactures brake assemblies and other parts. Jutte was previously head of Honda's North American supply chain.
Analysts have predicted industry sales hitting 15 million units next year. LMC Automotive, formerly J.D. Power Automotive Forecasting, estimates 15.3 million U.S. sales in 2013.
Guy Morgan, managing director for the global supply chain consulting firm BBK, estimates that as many as 30 percent of the Tier 2 sector may be unprepared for the industry's pending expansion.
"Many of them just won't survive the next wave," Morgan said.
Morgan, who works with suppliers to improve their performance, says many Tier 2 companies— essentially suppliers who serve Tier 1 suppliers—have simply gotten away with not having formal procedures and standardized production systems. He believes that the rich business volumes of the past decade concealed their factory inefficiencies and poor management practices.
"Many of them have very unsophisticated management," Morgan reports. "They don't see a problem with high scrap rates. They're not prepared to accommodate flexible line changes."
Hidetoshi Imazu, Nissan Motor Co.'s executive vice president of manufacturing and supply chain management said that Nissan is attempting to extend its own production system to some of its Tier 2 suppliers in Japan and North America.