DOING BUSINESS WITH BIG BUSINESS ISN'T AS SIMPLE AS IT USED TO BE. BUT THE PAYOFFS ARE STILL ENORMOUS.
The automotive industry has embraced a new type of quality-assurance program, called statistical process control (SPC), with a level of enthusiasm usually found in evangelical prayer meetings. For Detroit's 30,000 small and medium-size suppliers, however, SPC has meant dramatic, and not always welcome, changes.
Developed by W. Edwards Deming and initially used in Japan, SPC has been practiced by many U.S. auto and steel companies since the late 1970s. Now some companies, including the Big Three auto manufacturers, are requiring hundreds of their suppliers to fall in line, too. "We think it's absolutely essential," says Linda Lee, a spokeswoman for Ford Motor Co. "We aim to produce quality products, and we don't think we can do it without statistical process control, both at our own plants and those of our suppliers."
But for many of those suppliers, adopting a completely new quality-control system hasn't been easy. Already, about 20% of the country's automotive suppliers are planning to close down or diversify into other areas. Nor will it be painless for suppliers in other industries -- aerospace, chemicals, electronics, steel -- that are heading down the same road as Detroit.
Those companies that are willing to go along with the big automakers' new emphasis on quality, however, can expect substantial benefits. Analysis predict that suppliers that survive the shakeout will not only earn hefty profits of 15% to 40% of sales, but will end up being better managed and more secure financially. "Suppliers are being offered an opportunity for change that, although painful at first, is very, very constructive," notes William A. Smith, a principal in the accounting firm of Ernst & Whinney's national office in Cleveland.
Kean Manufacturing Corp., in Dearborn Heights, Mich., would agree, although the process of adapting to Detroit's new orders has required considerable effort. The private, 40-employee company had been producing pierce nuts -- fasteners that pierce metal and lock into place -- for all the major automakers since the 1950s, with no demands from Detroit except that the parts arrive at the assembly plants on time.
That all changed quickly several years ago when the price of unleaded as hit $1.25 a gallon, and the U.S. market was flooded with Japanese cars that were as well made as they were fuel efficient. Detroit, with the help of quality-control expert Deming, began to push suppliers to improve manufacturing processes and modernize operations, as well as to participate in rigid quality-rating systems and to help bear the cost of research. A central element of the program is SPC, which is essentially a system of on-line inspection. Workers continually measure everything from raw materials to finished products, plotting the information on charts. If the measurements begin to fall outside certain preset limits, assembly line workers know to make corrections and adjustments immediately in the manufacturing process. Otherwise, they run the risk of producing defective parts.
For Kean, Detroit's quality-control crusade has meant setting up a schedule to replace old, worn equipment, and buying expensive new machinery that includes quality-monitoring devices. The company recently bought a computer so that it can communicate purchase-order information directly to automakers.But perhaps most important, the company began to practice SPC, and immediately discovered that it was purchasing steel with inconsistent measurements from its supplier. Kean is now writing specific standards for its steel purchases. As Peggy Campbell, Kean's president and owner, says, "You can't make a good product if you put garbage in to start with."
Once they understand SPC, small-parts producers are enthusiastic converts. They claim it helps them keep tabs on the quality of the materials they purchase from their suppliers, as well as on the products they make themselves. Kasle Steel Corp., headquartered in Dearborn, Mich., for example, used SPC to monitor the thickness of the metal from which it presses car parts for General Motors Corp. After it found that the metal was often too thick or too thin, it told its supplier. "They too were engaged in the initial stages of SPC," recalls president Leonard Kasle. "They made some changes. And our [parts] rejection rate dropped from close to 5% to less than 1%."
Other, more specialized suppliers have also found that they can benefit from SPC. Air Gage Co., of Livonia, Mich., uses SPC to qualify the one-of-a-kind electronic industrial gauges it makes for the automobile industry. It installs the gauges on a mock assembly line, then feeds through well-made and defective parts supplied by Air Gage's customers. It records measurements taken by the gauges on charts to ensure that the devices are accurately delibrated to weed out quality parts from those with flaws, says David Joslyn, the $20-million company's sales manager.
A few suppliers seem willing to go to any lengths to meet the automakers' demands. Richard Beckman, a partner in the Detroit office of Arthur Andersen & Co., tells the story of a $30-million-a-year car-parts supplier that is spending $8 million on new machinery, just to satisfy the major automakers. He also describes a small $30-million to $40-million-a-year Detroit manufacturer that is spending more than $500,000 to develop a part for a vehicle heater. Five years ago, it wouldn't have considered such an investment, because the Big Three did all the design work themselves.
And Kasle Steel is building a new, $6-million plant in General Motors's Buick City in Flint, Mich., where the company will blank out what are known in the industry as automotive skins -- fenders, hoods, and the like. GM's 428-acre development is a carbon copy of Japan's Toyota City, where suppliers are located next to assembly plants. Such a setup enables car companies to eliminate expensive inventories by instituting Just-in-Time procedures.
The rewards of better quality control are clear, both for the suppliers and for the huge automotive manufacturers upon whose business they rely. What is more controversial -- certainly among the suppliers -- is Detroit's insistence that the techniques be learned and implemented quickly. Instruction in SPC is offered by the Big Three automakers, but short-staffed suppliers are hard-pressed to find time to attend. "They send me letters that say, 'Go to 15 seminars.' What they don't understand is that I don't have 15 people to send to seminars," says Kean's Campbell. "Without those 15 people, my company doesn't operate."
For all companies, the Big Three auto manufacturers have a supplier rating system, which looks, in part, for compliance with the new quality-control directive. At least once a year, car manufacturers dispatch SPC-trained inspectors to grade suppliers on everything from defect prevention to defect detection. Ford and GM exempt the top-rated suppliers from inspection. "I don't get visits from Ford anymore," Campbell reports. "I'm a Q1 [Quality-1] supplier. They assume I'm on-stream. They spend their time on people who are trying to get there."
Nor do automakers stop with formal inspections. "They're constantly looking at the quality of the parts coming into their various plants," notes Arthur Andersen's Beckman.
Of course, these new procedures have created severe -- even fatal -- problems for many parts suppliers. Detroit seems determined to do business with as few suppliers as possible, on the theory that the fewer suppliers the manufacturers must deal with, the more control they can exercise over the quality of the goods produced. Already, automakers have erased huge numbers of parts makers from supplier lists. Ford alone has eliminated nearly 900 of its 3,600 small and medium-size suppliers, and it is looking for further reductions.
That reduction in numbers is making it almost impossible for new suppliers to sell products to the domestic vehicle manufacturers. Forget it, says Nicholas V. Scheele, Ford's director of supply policy and planning, "unless you've got a better mousetrap."
Small companies also complain that the big carmakers are being miserly with price hikes while they are insisting that suppliers implement expensive new modernization and research programs. "It's hard to hold your prices and generate the capital necessary to continue any kind of research and development program," notes Kim C. Anderson, president of Anderson-Cooke Inc., a $12-million-a-year cold-forming machine tool company in Fraser, Mich.
Finally, those suppliers still in business complain that the big automakers are insensitive to the problems of size. "They forget we're not like them," says Campbell. "I don't have 25 people sitting around to develop programs."
Still, life in the fast lane is better than no life at all. Statistical process control "helps workers become consistent," says David Bayless, vice-president of Westat Inc., a consulting firm in Rockville, Md., that teaches SPC. "You've got to attack the process where the worker is and give him statistical information to help him do his job better."