Just-in-time parts delivery once was good enough for automakers. Now they're looking for just-around-the-corner.
From Ford to Toyota, auto plants are experimenting with ways of getting their production suppliers geographically closer than they've ever been.
Closer parts suppliers means reduced transit costs, better quality control and potentially more flexibility as auto plants learn to juggle multiple vehicle models.
But as suppliers move nearer to carmakers, there are new issues to consider. In tight labor markets, suppliers will be competing with customers for employees. And they are doing so at a disadvantage because automakers pay higher wages.
A more troubling problem: What happens if the customer doesn't live up to its plans? Moving next door to the automaker becomes a capacity risk for suppliers at a time when many are struggling to keep existing capacity running.
And the biggest question of all: How close is close enough?
The Chrysler group is pushing the envelope on that question. In Toledo, Ohio, Chrysler is bringing three major suppliers not merely next door to its new Jeep Wrangler project but all the way into vehicle manufacturing.
Korean supplier Hyundai Mobis will operate the Jeep chassis line. Germany's Kuka Group will assemble Wrangler bodies. And coatings supplier Haden International Group will paint the finished bodies.
Few automakers have taken the trend to that extreme, but they are getting cozier.
At Nissan North America Inc.'s big plant in Smyrna, Tenn., module maker CalsonicKansei Corp. assembles instrument panels and front-end modules next to the Altima assembly line.
CalsonicKansei employees report for work on Smyrna's schedule, follow Nissan's shop floor rules and communicate directly with the Nissan employees who install the modules.
At a newer assembly plant in Canton, Miss., Nissan brought more than two dozen of its suppliers either under its roof, into a satellite parts building at the edge of its property, or within a few miles of the plant.
Ford Motor Co. set up a campus of 12 key suppliers making parts on its property at its Chicago assembly plant. The supplier park, which opened last fall, turns out finished axles, floorpans, cockpits, consoles and other parts constituting 60 percent of the inventory needed to build the Ford Five Hundred and Mercury Montego sedans and the Ford Freestyle sport wagon. Ford also is asking about 20 suppliers to locate at a $1.2 billion supplier park under construction at its Hermosillo, Mexico, plant.
In San Antonio, Toyota Motor Manufacturing North America Inc. is spending $800 million to build a Tundra pickup plant. That factory will include a center where 18 of its suppliers will invest $100 million to produce parts under Toyota's direction.
The benefits of this activity are obvious, automakers say. Closer suppliers can only lead to better supply chain management.
The challenges aren't so clear, proponents admit.
After ticking off a half-dozen good reasons to advise manufacturers to try it, global industry forecaster Mike Robinet of CSM Worldwide in Farmington Hills, Mich., also can imagine the other side of the issue.
"What if I'm a supplier, and I locate next to my customer, but then his vehicle program doesn't succeed?" Robinet asks. "I've locked myself into it. And I can't bounce back by producing parts for somebody else at that site. It's not going to be a strategy that every supplier wants to get in bed with."
Such concerns aren't preventing big suppliers such as Visteon Corp., Lear Corp. and ZF Lemforder Corp. from climbing in. But they are not doing so with total abandon.
Lear employs about 70 people at the Ford Chicago site making headliners for three Ford vehicles. Before participating in the supplier campus, Lear shipped headliners to the Ford plant from about five hours away.
But Lear also produces seats for Chicago. And that component operation remains off-site. It is in Hammond, Ind., 20 minutes south of the Ford line.
"We didn't need to put them into the campus a half-mile away," Andy Shashlo, Ford's director of supplier integration, explains of the Lear seat plant. "But they're still delivering a complex module in sequence.
Seat makers were among the first suppliers to pursue a just-in-time delivery strategy a generation ago. As is now common in the seating business, Lear has its own history with setting up plants near its customer's assembly plants. But that history has had its challenges. Dedicated component plants mean that a customer's slack production becomes the supplier's slack production.
Lear's two largest customers, Ford and General Motors, are decreasing vehicle output at a number of plants. In response, Lear in June said that it faces closing 20 plants around the world and eliminating 7,700 jobs.
"The supplier determines what to do," Ford's Shashlo adds, speaking of suppliers in general.
"If the business case says it makes no sense for him to ship instrument panels halfway across the country, and he doesn't have a facility close by, he can either build a facility close by, or maybe he's the wrong supplier."
That the trend is emerging - all at once and industrywide - is partly because of automaker cost pressures. It also is partly because of the industry's longing to develop supply chains that make parts in lock step with vehicle production schedules.
Proximity has been creeping forward for more than a decade. BMW AG planned to have suppliers making parts on its 1,000-acre assembly plant property in Greer, S.C., when it decided to build a U.S. auto plant in 1992. But it dropped the plan because of concerns over the complications it might bring to BMW gaining EPA permits. Satisfying EPA rules is hard enough for an auto plant, BMW concluded, so why add the suppliers' EPA issues onto the property?
Mercedes-Benz AG - before its parent Daimler-Benz AG merged with Chrysler Corp. - championed the idea in the mid-1990s when it opened its Smart assembly plant in eastern France with on-site suppliers.
Ford and GM embraced the concept outside North America. Ford opened supplier parks in Belgium, Germany, Spain and England. GM set up campus operations in Brazil and Germany.
But the idea of trying the concept in its home market remained a political hot potato. In 1999, when GM boldly proposed plans to build a fleet of smaller and more efficient U.S. plants with integrated suppliers handling component assembly, it triggered protest from the UAW. So GM quickly shelved the plans.
What's happening instead is a closer examination of the total "landed cost" of automaker's parts, says David Hodgson, DaimlerChrysler Corp. vice president of supply chain management. Manufacturers are asking the question: How much of that cost is related to transportation?
"There's obviously a benefit to reducing the total cost of the supply chain," Hodgson says. "And transportation costs are a part of that. But so is the question of whether we're improving manufacturing efficiency.
"If we're going to move a supplier closer to one of our facilities, are we improving our own manufacturing efficiency? And are we improving theirs? You have to look at the whole cost picture."
Chrysler is not planning any North American supplier parks, he says. But it is exploring ideas about supplier location. At its Belvidere, Ill., assembly plant northwest of Chicago, Chrysler is building a $200 million parts sequencing center. That operation will be run by TDS Group of London, Ontario. TDS will sort and sequence components that move from other suppliers to the Chrysler assembly line.
Hodgson says similar on-site parts centers are under study for other Chrysler plants.
Chrysler is overhauling Belvidere to switch from producing the Neon sedan to three new models starting next year. That kind of increased plant flexibility and complexity in the industry helps explain the new interest in supplier proximity.
For Toyota Motor Corp.'s North American operations, another issue is security. Toyota has been expanding into unfamiliar terrain over the past few years - Mexico and Texas, in particular. Toyota wanted to manufacture in those locations but had no local supply bases.
To build the Tundra plant in San Antonio, Toyota wanted a safe, nearby interaction with key suppliers to make sure quality issues stayed under close scrutiny, says Seizo Okamoto, president of Toyota Motor Manufacturing Indiana Inc. in Princeton, Ind. Okamoto not only runs Toyota's major North American truck production center in Indiana, he is responsible for the launch of the San Antonio Tundra plant next year, too.
According to Okamoto, having 18 of its suppliers on Toyota's plant site "provides quick feedback from a quality standpoint."
Norm Bafunno, Okamoto's vice president of production and quality planning, adds that the Texas supplier campus will allow Toyota managers to walk across the plant and make quick fixes when necessary. The alternative is waiting hours to get a close-up view of a faraway parts production crisis.
"There's a good understanding of each other's conditions," Bafunno says. "It's a big benefit in problem resolution. It encourages joint problem-solving."
But it is not so easy to orchestrate, says Laurie Felax, vice president of Harbour Consulting in Troy, Mich. Toyota, for example, will face the challenge of bringing not just 2,000 employees to its truck production lines, but another 1,000 employees to the various supplier lines next door. Toyota admits it is having a tougher than expected time finding the skilled manufacturing people it needs. That means its neighboring suppliers face the same challenge.
But Felax says such new and geographically remote plants are where supplier proximity is most critical.
"You'll see more of this trend of closer suppliers," she says, "but it will mostly occur either at new assembly plants, or at existing plants where the automaker is putting in a new vehicle program, like Ford did in Chicago."