DETROIT - Tier 1 automotive suppliers have started doing unto others - namely, their Tier 2 suppliers - the way automakers have done unto them.
For several years, carmakers have demanded more of their top suppliers while putting them into a cost-cutting vise. Now, some large Tier 1 companies have started chopping the ranks of their own parts and materials providers and asking those remaining to provide more services at a lower price.
'It's pushing the limits of some Tier 2 companies,' said Kevin Alder, COO of Cambridge Industries Inc., a Madison Heights, Mich., company that has rapidly ascended to Tier 1 status since 1992. 'You have to have the element of size to keep up with the expectations,' Alder told Plastics News, a sister publication to Automotive News.
Meanwhile, evidence of a Tier 2 supplier squeeze is mounting:
Donnelly Corp. in Holland, Mich., held a daylong conference April 29 with its top Tier 2 suppliers.
Among the topics discussed was the thinning of the company's supply ranks by two-thirds within five years. Donnelly also is asking for a 3 to 5 percent annual price reduction from each supplier during each year of a production contract.
ITT Automotive Inc. of Auburn Hills, Mich., has given its vendors strict guidelines, including mandates to slash prices and provide virtually zero parts defects. The company, which held its annual supplier conference June 23, also plans to reduce its supply roster from about 843 companies today to about 300 by 2000.
Cambridge has begun to evaluate the operations of each supplier, including taking a close look at management, product development and cost structure, to come up with a short list of top vendors.
Industry sources say both United Technologies Automotive in Dearborn, Mich., and Lear Corp. in Southfield, Mich., are gathering quotes on a bevy of parts from many Tier 2 suppliers to winnow their supply bases.
Lear officials declined to comment on a possible supplier consolidation, and United Technologies Automotive officials were unavailable for comment.
While the environment might be stressful, the demands are necessary to do business with automakers, said Dennis Racine, vice president of purchasing for ITT Automotive's electrical systems business unit.
'We're not asking our suppliers to do anything that automakers aren't asking us to do already,' Racine said. 'I'd say that for the most part, our suppliers understand that's the price of entry into this market. It's expected practice.'
At ITT, those practices now include greater supplier involvement. Among its requirements are for suppliers to provide full-scale design and engineering expertise. The firm also expects its suppliers to work with other vendors to integrate several parts into a workable whole and prepare prototypes and validation samples early in the design process.
ITT's suppliers also must meet some tougher demands. That includes providing virtually zero parts-per-million defects - a goal that Racine said 70 percent of his suppliers now achieve - and cutting costs by 3 to 4 percent during each platform year through continuous improvements.
In addition, each supplier is expected to go online with ITT by dispatching production and shipping schedules electronically and sending blueprints and computer-aided designs via computer.
The company's goal is for at least half its key suppliers to meet those criteria by the end of 1998 and the rest to follow the next year, Racine said. Currently, less than 20 percent of ITT's suppliers - or about 160 firms - achieve those standards, he said.
'It's good for supplier relationships with us,' said Racine of ITT, which recorded about $2.5 billion in North American automotive sales during 1996. 'For instance, in a product's design phase, a supplier won't be throwing a product over the fence anymore for us to look at it. We'll be collaborators.'
Donnelly, which recorded $380 million in North American automotive sales in 1996, just started a similar program. As a follow-up to the April meeting, teams from Donnelly's corporate purchasing group are visiting individual suppliers in the next several months.
SUPPLIERS MUST 'STEP UP'
'We're looking for suppliers to bring technology, design expertise and a long-term commitment to reduce costs,' said Donnelly spokesman Randy Boileau. 'If they don't step up, we can't work with our customers. They must understand that this is the way we do business now.'
At the meeting, Boileau said suppliers had mixed reactions to the news of price reductions and added services. They also might have been alarmed by the news that Donnelly wants to cut its supply base from about 300 companies today to about 100 vendors by 2002.
Those actions have caused some Tier 2 suppliers to re-evaluate their operations. Plastomer Corp., a Livonia, Mich., maker of polyurethane acoustical foam products, started an 18-month, $4 million plant expansion in February and entered into a strategic alliance with Stanton Industries of London. Both actions were needed so the company could work better with its Tier 1 customers, said Executive Vice President David Baughman. However, Baughman questioned how many smaller suppliers could afford to make that kind of financial commitment.
Cost pressures also factored into a decision by Foamex International Inc. of Linwood, Pa., to restructure its operations in late 1995 to gain efficiency by eliminating capacity, said Norm Willis, Foamex vice president for automotive sales. The restructuring included closing 12 plants, some not automotive-related.