"Levels of optimism increased while pessimism decreased across all company revenue segments" for the month of December, according to the Supplier Sentiment Index released by the Original Equipment Supplier's Assn. The report, released Jan. 16, showed that supplier optimism increased to 66 from a low of 37 in September. Of the 109 respondents, an average of 58% said they were "somewhat more optimistic," up from 25% in November.
Driving that optimism, according to supplier respondent comments, is an increase in vehicle volumes and new projects filling the pipeline. Smaller suppliers ($50-150 million in annual revenue) held a bright outlook with 78% reporting they are "somewhat more optimistic." Sixty percent of respondents from suppliers in the $151 million to $1 billion size range were "somewhat more optimistic."
Production planning volumes are holding steady with a median value of 13.5 million units anticipated for 2012. Regardless of components supplied, companies closely rated the likelihood of occurrence between North American production capacity expansion (rated 3.34) and North American production constraints (rated 3.35). North American capacity rationalization rated 2.79. (A rating of 1 is very unlikely, 3 is neutral and 5 is a very likely scenario.) One of the highest areas in which rationalization seems likely to occur is manufacturing equipment and tooling services.
The majority of suppliers indicated that the size of their direct and indirect suppliers are, for the most part, appropriately sized (75% and 68% respectively). However, 10% of companies believe that their direct supply base is too large, and a reduction level of 10% is planned for both direct and indirect suppliers.
'We do not buy on price!'
The survey showed that "right-sizing" their supplier base while mitigating risk of component interruptions is key for the Tier 1 suppliers. "We look for a minimum of three suppliers in every segment," commented one respondent. Another stated: "Ideally, we want two credible and stable sources of whatever it is we are purchasing. No more and no less."
Scorecard metrics of suppliers somewhat played a role, however, one respondent noted that they wanted "Qualified suppliers in innovation, quality, and costs . . . no matter what the numbers." Another stated: "We judge the size and redundancy of our supply base by their individual quality, delivery and service. We do not buy on price!"
With increasing production levels, suppliers are faced with issues in meeting their release requirements. The continuing concern in 2012 will be the same as 2010 and 2011: production overtime premiums, with 76% of suppliers indicating this is an issue. Skilled labor shortages are an issue for 59% of respondents; and internal manufacturing capacity constraints are an issue for 54% of the respondents. Significant improvements have been made in two areas: component shortages dropped from 60% to 40%, and raw material shortages fell from 61% to 28%, according to the survey's report.
Greenfield plants and global footprints
Improvements in suppliers' in-house strategies to manage growth include expanding and optimizing plant capacity; hiring and training workforces; improving forecasting, release management and production launches; increasing buffer stocks and evaluating supply chain strategies and risks. One respondent said, "Medium term, we are currently building three new Greenfield plants, globally; adding one of the three in the NAFTA region. Our purpose is to modify our global footprint rationalization and increase capacity."
Within the supply base, these Tier 1 suppliers are looking to increasing communication with more schedule visibility, adding suppliers and dual sourcing, increasing supplier development activities, improving forecasting and release processes and managing production for flexible capacity. With regards to evaluating supply chain strategies, a respondent commented that they are engaging in "reorganization of our supplier sourcing effort." Another said it is "looking for alternate sources."
With respect to increasing supplier development activity noted above, one respondent said that it is taking steps to "Identify at-risk suppliers and sending people on-site to their facilities to evaluate the risk." Another respondent commented that they are "working with select suppliers on quality and manufacturing issues to improve throughput."