How’s your supply chain karma, baby?

In the weeks ahead, automakers are going to find out how their suppliers feel about them. Of all the terrible consequences of the March 11 Japan earthquake, the worst pinch point for auto manufacturers is automotive computer chips.

You need every one of 30 to 100 chips to assemble a car, most can’t be substituted for, auto chips were in short supply even before the quake -- and companies controlling 61 percent of the world’s supply were hit in Japan. Renesas hopes to reopen its plant in four months. Freescale won’t reopen in Sendai and must move production to other countries.

Already, automakers in Japan, Europe and North America are halting or slowing production to conserve parts. The chip shortage will get worse, and won’t be fixed for months.

After the quake, war rooms sprung up at automakers and Tier 1 suppliers. Armies of supply-chain pros vaulted into the fray, looking for ways to plug, replace, substitute, bypass or patch the holes in all the feeding tubes that keep assembly lines running.

These folks work minor miracles before breakfast. But even with all their tricks --from slashing assembly overtime and boosting parts overtime to diverting spare-parts output and safety stocks to the assembly lines -- it still won’t be enough.

Suppliers won’t have enough parts to satisfy all their customers. They will have to choose which automakers get parts, and which don’t.

And suppliers have pretty clear preferences in customers, I learned from years of confidential surveys of global suppliers.

Overwhelmingly, they make business sense. The biggest and most profitable customers are at the top of suppliers’ lists. But below those prime customers, it’s not just a ranking of declining size and profitability.

Suppliers keep track of other customer traits. Do they compensate you for research or development work? Do they protect your intellectual property? Do they renege on deals? Do they change specifications often or late? Do they share cost savings? Do your senior managers waste time holding their hands? Finally, do you trust them?

Once automakers held the hammer is negotiations with thousands of suppliers. Carmakers designed parts, owned the technology and looked for the low bidder to deliver individual parts.

Now most suppliers have the hammer. They own the technology, they design parts or entire systems and they deliver complex subassemblies. And they decide which automakers get new technologies first.

Manufacturers have been working harder to improve relations with suppliers.

But in this crisis, maybe it’s time for them to ask a soul-searching question: How’s your karma, baby?

25

Shares

ATTENTION COMMENTERS: Over the last few months, Automotive News has monitored a significant increase in the number of personal attacks and abusive comments on our site. We encourage our readers to voice their opinions and argue their points. We expect disagreement. We do not expect our readers to turn on each other. We will be aggressively deleting all comments that personally attack another poster, or an article author, even if the comment is otherwise a well-argued observation. If we see repeated behavior, we will ban the commenter. Please help us maintain a civil level of discourse.

Newsletters