As the prospect of 20% of automotive's 1700 suppliers going into bankruptcy looms, many are asking: Why didn't the automotive supply base diversify its products into other sectors? The question makes perfect sense. Critics of the automotive supply base's captivity to the industry are quick to say that it's their own fault that they are in the current mess. And there are some examples of automotive suppliers diversifying into other industries. But it's far easier said than done.
Many automotive suppliers are considered flow shops. They set up to take advantage of a certain type of manufacturing condition: high volume, long-term contracts, and relatively stable production forecasts. Product flows through their operations. Near the other end of the spectrum are manufacturing job shops where short runs, many parts, make-to-order, high flexibility and no long-term forecast visibility are far more common. A job shop process tends to use general purpose resources and is highly flexible. A flow shop uses specialized resources and the workflow follows a predetermined path. This means that a flow shop is far less flexible than a job shop and is capital equipment-intense. Many automotive suppliers are much better at serving industries where their flow capabilities are utilized.
Not only must a flow manufacturer find promising areas to diversify into, but it may need to totally revamp the way it runs its shop and have the money to make that change. Delphi tried to get into industrial light bulb manufacturing. The change to its manufacturing model was so great that it never produced a single bulb. Automotive suppliers who are already job shops may more readily make the switch if they can find new growth markets to serve and have the money to both hang on and retool. The New York Times article, "Detroit's Woes Wound an Army of Suppliers" describes Avon Broach, a small machining operation making broach tools in Rochester Hills, Michigan. It is looking to diversify into wind energy and medical devices but has not yet made the transition, as its business with three Detroit automakers has plummeted.
Finding customers who can take advantage of the automotive suppliers' flow manufacturing strengths and who are in industries with more growth potential is the big challenge of diversification. Changing manufacturing models just when business is tanking may not be realistic or possible. Given that changing from a flow shop to a job shop is riskier and more costly, are there industries that need flow manufacturing suppliers and are in a growth mode? And could automotive suppliers successfully make the changes necessary to supply them?
- Sherry Gordon