As the auto industry rises from the rubble of the recession, it's not just automakers that are looking for greater certainty that their supply chains are capable of ramping up to meet growing demand.
In the "ever-changing environment" left behind by the global financial crisis, Tier 1 supplier Dana Holding Corp. (IW 500/136) is making a concerted effort to manage risk within its supply chain and build constructive relationships with its suppliers, Dana purchasing executive Gary Baugh said at the Center for Automotive Research's Management Briefing Seminars.
"Our success as a company is dependent upon having a strong and viable supply base," said Baugh, who is senior director of purchasing for Dana's Power Technologies Group. "Very much so."
With last year's natural disasters in Japan and Thailand, and the March explosion at Evonik Industries AG's specialty-plastics factory in Germany, magnifying the fragility and complexity of the supply chain, Dana has set out to become more "predictive and proactive when it comes to managing risk," Baugh explained.
It's all about trying to get enough actionable "information and indicators to prevent a situation from becoming a crisis," Baugh said.
"The more we can plan, the better cost control we can have, and the better we can mitigate impact to our plants, and most importantly, mitigate impact to our customers," Baugh added.
As part of its process of evaluating and managing supplier risk, Dana conducts a financial-risk analysis of new suppliers -- although Baugh emphasized that "we really don't try to add too many new suppliers."
For suppliers deemed to be a medium or high risk, Dana buyers are required to develop risk-mitigation plans.
Dana looks at its established supplier relationships as well. All public companies are on a credit-risk watch list, Baugh noted, and over 90% of Dana's supply base is under a Dun & Bradstreet risk watch.
"We have a small analytics group that reviews this information and disperses it to our purchasing teams throughout the world so they can act on it where it's prudent," Baugh said.
In the case of privately held suppliers, the onus falls on Dana's purchasing teams.
"Your people who are talking to the suppliers day-in and day-out get a feel for what's going on out there," Baugh explained. "If something starts going on -- somebody's calling about wanting payments, or they're delaying shipments -- those are things that raise your antennae. So those are the things that we instill in our purchasing group to be mindful of."
Visibility into Product Plans
Dana also is trying to gain better visibility into suppliers' product-planning horizons.
"Sometimes you'll get a letter [from a supplier] saying, 'Hey, we're going to be discontinuing this product in six months,'" Baugh lamented, adding that Dana then has to quickly find alternate sources.
To avoid such surprises, Dana is asking suppliers to provide a sense of their product plans as far as five years out.
"Some are going to tell you what they're doing, some won't. But we want to get that out there in front of them, so we can start proactively looking at options and putting that into the planning process where it's budgeted, rather than having to react to that."
Among the other fronts on which Dana is working to manage supplier risk, the company is:
- Developing a master database that will detail "risk attributes" for each supplier.
- Developing analytics and reporting capabilities to determine supplier risk beyond financial factors.
- Working with its OEM customers and suppliers to establish dual validation of critical raw materials and components.
While Dana has made progress in establishing risk-management protocols, Baugh emphasized that the company still has room to improve.
"We have a lot of work ahead of us, but we certainly have a roadmap on how we're going to get there," he said.
Another component of Dana's supply chain strategy is focusing on supplier-relationship management.
"Why are we focused on that?" Baugh asked. "Obviously we want to grow our business and we want to grow our profit. And we recognize that our suppliers have to do the same thing. If we grow, they grow."
The goal, Baugh explained, is to shift from an "initiatives" dynamic to "value-driven supplier relationships." In other words, activities that once were considered one-off events -- such as suppliers blitzes and VAVE events -- "need to be ingrained into the fabric of the relationship."
"They need to be a continuum, not an event," Baugh added. "They need to naturally occur at the touchpoints in the organization."
Such a shift starts with embedding a collaborative mentality in Dana's purchasing teams.
"The days of just sending out three quotes, getting them back, going with the lowest one and making the decision are long over," Baugh said.
The company has created designations for its suppliers, ranging from "strategic supplier" to "approved" to "manage out."
Strategic suppliers are those that meet all of Dana's requirements to be an approved supplier and provide a product or service that is fundamental to the success of Dana's core business, among other criteria.
The strategic-supplier relationship offers benefits for Dana and its suppliers.
It enables Dana to consolidate spend and build trust within the supply chain, while tapping into suppliers' technology and technical expertise.
For suppliers, it opens up opportunities to earn more business with Dana.
Baugh highlighted a number of others ways that Dana is trying to strengthen its relationships with suppliers, including regional supplier conferences, supplier surveys and supplier tech-day events.
Just this year, Dana began arranging executive visits to suppliers' facilities.
"We'll get a core group -- myself, our director of engineering, a business-unit president, maybe a plant manager -- and we'll actually go visit a supplier," Baugh explained. "Think of the message that sends. It shows them we're concerned about their business, that we want to understand what's going on in their business."
Baugh admitted that aspects of its relationship-management process have been "an evolution," and there undoubtedly are "strained relationships" with some suppliers, especially after the trying times of the recession.
"It's not all rosy out there, we understand that," he said. "But we need to strive for [collaborative relationships], because we want the best out of our supply base."