Last Friday Justin Fogarty and Jim Frankola, former CFO of Ariba, did a good job describing the TARP waiting game most auto suppliers are forced to play right now. This is a new and frustrating position for these companies. The industry was built and still thrives on action and innovation. Cars and trucks today have more utility, more fuel efficiency, more features, more durability, and are safer than ever before. Innovations like intermittent wipers, anti-lock brakes, traction control, self-dimming mirrors, blind spot indicators, back-up sensors, etc. do not come from an industry that sits around and waits for things to happen. So I imagine these are frustrating times for most suppliers.

While I applaud MEMA and OSEA’s proactive request for help from the government - there is no doubt that guaranteeing OEM payables (making the Suppliers’ receivables actually worth something) and quick pay programs that alleviates the pressure on cash flow are needed for survival; I still think there are things suppliers can do. Specifically:

1. Strategic Sourcing. As I discussed previously here and here, this is the ideal time to be sourcing everything. Yes, volumes are dropping and future volumes are uncertain, but make some guesses and go.
2. Diversify Your Client Base. I agree with Justin’s post, this can be a key strategy for some auto suppliers, especially the Tier 2 and Tier 3’s. This is a great time to articulate a diversification strategy, shift idle resources into building the necessary capability (I do not want to use the “I” word and am sure some action can be taken without spending a lot of $’s), and aggressively pursuing this business. Many companies want suppliers with automotive experience in their supplier portfolio. I have talked to several diversified manufacturing companies who are actively looking for automotive suppliers. They want suppliers who can bring innovation, low-cost country sourcing options, and delivery and quality process rigor. Any company that has experienced PPAP can easily handle the UL quality process.
3. Actively Manage Supplier Risk. Most of the companies I talk to are already doing this or at least thinking about this in some way. It is time to get an early warning system in place with documented risk management procedures, an issue escalation process, and a mitigation action plan. This cannot be ad-hoc. Robust risk management is even more critical to your own survival. We have assembled an on-line supply risk resource center that can get you started.

Taken together, Number 1 reduces your cost structure making you more competitive, Number 2 increases the probability of long-term survival, and Number 3 provides some insurance of catching potentially disastrous problems early and all three can be done while we wait for the industry to sort itself out.

Dan Kowal is Vice President of Strategy & Sourcing Services at Ariba. Dan has over 20 years of combined industry and consulting experience in strategic sourcing projects, with a particular focus in purchasing, supply chain, logistics, and operational transformation and turnaround in the automotive industry.