Few groups in US manufacturing are taking it on the chin these days like automotive suppliers. Those fortunate or savvy enough to have diversified are productive and growing, but many of them are suffering at levels heretofore unknown to them.

An article this week in USA Today ("Many auto parts suppliers failed to widen base," Money, 03/26/08) paints a gloomy picture of what was once a bedrock division of America's manufacturing base.

But in its gloom there can be found wisdom for manufacturing suppliers of all stripes, regardless of the industries or businesses you serve.
The piece begins with the well-known story of Plastech, and long-time, successful supplier to Chrysler in bankruptcy protection as of last month. Many more automotive suppliers, the story says, will follow suit in the coming months. And numerous factors are to blame: plummeting sales, pressures from OEMs and upper tier suppliers to cut costs, rising materials and energy costs, anemic credit lines, and competition with countries with low labor costs.

"'I don't think you'd be going out on a limb to say that the current economic environment for North American suppliers is probably the worst it's ever been,' says Stephen D'Arcy, global automotive leader for PricewaterhouseCoopers."

Gee, thanks for the lift, Steve.

The article goes on to describe how automotive suppliers got here:

"... when problems arose in the industry, the suppliers hadn't equipped themselves well to deal with them. In the good times, many did not invest in upgrading manufacturing processes to be leaner and more cost-efficient ... many suppliers couldn't see the longer-term benefit in investing the large amounts of money needed to reconfigure their manufacturing operations to be more competitive. The attraction to continue doing business with the same buyers - most North American parts suppliers are heavily dependent on U.S. automakers, and some do the majority of their business with just one - seemed to make sense when times were good and loyalty was rewarded with more contracts."

"There are many suppliers who were living in denial, and now that's all catching up with them."

But the wisdom in this piece begins with Laurie Schmald Moncrieff, owner of Michigan shop Schmald Tool & Die. Her words should resonate with all US manufacturers and they can't be overstated:

"'We always had the luxury of being order-takers and focusing inward. The phone always rang, and orders always came in. But now, because the market is turning over a lot, you have to continually be replacing customers. It's a new intensity of getting out there and keeping up with the market.'

And that can be especially difficult for smaller suppliers, who often earned business through personal connections and word-of-mouth, and didn't even keep a sales staff on hand. The smaller companies' products often go into the parts assemblies of larger suppliers, who in turn sell those to the automaker. Moncrieff says she's working to diversify into growing markets, such as helping other suppliers make parts for alternative-fuel vehicles. And she's attempted to earn new customers who work with automakers such as Toyota and Honda, but getting business from those companies can be difficult. Asian automakers take a long time to decide whether they want to do business with a new supplier, and will often visit the supplier's plants and the plants of the supplier's suppliers. It can be a grueling process for many small companies, but the payoff is big. Once an Asian automaker picks a supplier, the relationship could last decades.
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And there's the rub - the landscape has changed, and suppliers in medical, aerospace, defense, and all industries should listen closely to their automotive brethren for the keys to survival:

• Diversify - expand your customer base, the industries you serve, and the products and services you provide. It's extraordinarily hard, but rewarding. And necessary.
• Get Lean(er) - cut costs, renegotiate contracts, improve efficiencies and services, and add value around (not just within) your products/services.
• Move On - along with a diverse customer base comes the freedom to abandon an expensive or unacceptable customer or escape from a contracting industry.

There'll be more Plastechs - especially if we don't listen, study and learn from them.