The automotive parts supply chain in North America is changing like never before as domestic auto makers attempt to source more parts overseas and the foreign transplants seek more parts within the region. Meanwhile, suppliers – many of them in distress – remain crucial to the success of new vehicles being launched. This is the first installment of a Ward’s 6-part series stemming from interviews with the purchasing departments of Nissan, Ford, Honda, GM, Toyota and Chrysler.

Nissan North America Inc. this year is targeting an increase in the percentage of parts it buys from low-cost countries, a company official tells Ward’s.

John Miller, vice president-purchasing for NNA, says while the auto maker made 17% of its overall purchases from what it calls “leading competitive countries” in fiscal 2006, this year it is shooting for 24% of total purchases.

“Mexico would be the No.1 portion of that increase,” Miller tells Ward’s in a recent interview.

Nissan purchases from U.S.-based suppliers the vast majority of parts for vehicles it builds in the U.S. However, for certain parts that come from the Japanese home market, Nissan is considering re-sourcing from Mexico to save cost.

“For example, the transmissions have historically come from Japan,” Miller says, adding Nissan’s supplier of continuously variable transmissions, JATCO Corp., will begin providing CVTs from Mexico for the 6-cyl. Altima midsize sedan and coupe. It already supplies CVTs for 4-cyl. Altimas from Mexico.

While exchange rates factor into the decision to source more parts from Mexico, Miller says total cost is the main reason for the switch.

“When you think about bringing a transmission from Japan to Mexico vs. making it in Mexico, the ‘logistic-ality’ is pretty great,” Miller says. “We do all the calculations, and we use a standard exchange rate for the localization decisions.”

In July, Nissan will relocate its Mexican purchasing team from Mexico City to Toluca to be near the auto maker’s engineering group at its design center there, he adds.

Miller says Nissan feels it should be more economical to build engines and transmissions in North America, but at the same time the auto maker wants to balance its global investment, careful not to idle any plants overseas.

Nissan is not yet sourcing many components for U.S.-built vehicles from China, Miller says, with the exception of some parts procurement by Tier 1 suppliers for its global Versa/Tiida B-car.

“To reduce investment, there are some parts we were able to bring from China,” Miller says, adding some of Nissan’s Tier 2 and Tier 3 suppliers are sourcing from the country, as well.

Miller says being in an alliance with French auto maker Renault SA is advantageous when it comes to procuring parts because of the combined companies’ vast global footprint.

“We have a lot of data points we can check between Eastern Europe, Southeast Asia, the Mercosur (South American trade region), and now Russia and India, so we’re building a very good base of knowledge about where things are more competitive or less competitive,” Miller says.

He says Nissan and Renault’s biggest difficulty is “figuring out the best way” to source components globally and regionally.

Also challenging for the auto maker is making sure its suppliers remain successful in an environment where a number of parts makers are in or flirting with bankruptcy.

To this end, the auto maker has an Alliance Supplier Improvement Program, in which suppliers pair up with Nissan and/or outside kaizen (continuous-improvement) firms to streamline manufacturing processes.

In the past, Nissan purchasing had no coordinated approach to cope with the many facets of suppliers in trouble. As a result, two years ago, Nissan started its Supplier Revival Group (NSRG), which consists of Tier 1 and Tier 2 parts makers considered distressed. Miller says up to 15% of Nissan’s suppliers are on the list.

“When I meet with the CEOs of these companies, my point is always, ‘I want to see your plan; how you’re going to get from where you are now to where you want to be. And what is it you want to be; what are your milestones?’” Miller says.

“If there’s no plan, or the milestones are missed wildly, that sends off a big signal to us that we should have some backup plans to deal with these suppliers. But if the suppliers are very genuine and open and honest and transparent with us, we’ll work very closely with them. And we have.”

He says no vehicle production line has gone down because of recent supplier woes, and that NSRG has been a success because very little business (less than 10% over the past two years) has been re-sourced away from distressed suppliers on the list.

There have been instances when Nissan had no choice but to find new suppliers. “In some cases, the supplier said, ‘We’re just going to quit. We’re no longer going to be a supplier in existence anymore. Please tell us where you want us to send the tools,’” Miller says.

Meanwhile, one year after Nissan North America Inc. moved from Los Angeles to Nashville, Miller says the expected synergies are materializing.

While mostly the sales and marketing staff was based in L.A., there also were about 28 people in purchasing.

“Even though we were in California as purchasing, that campus was very spread out,” he notes. “You wouldn’t normally run into your budget holders and the people who are your work partners.

“In Bell South (Nissan’s temporary Nashville headquarters), you’re in one building, and you’re running into them all the time. I’m getting lots of comments from my team that their interaction has increased so much because it’s just easier to go meet with people. Or you run into them on the elevator or on the way in or out, and you start to talk,” Miller says.

It’s also beneficial to have the sales and marketing staff near the purchasing group to resolve material-pricing issues and establish new-model launch expectations, he says.

While Miller admits he has “lost a few people we didn’t really want to lose” with the move from L.A., he has been able to fill open slots with qualified candidates from other OEMs. These include the U.S. Big Three, Honda of America Mfg. (Miller’s previous employer) and Toyota Engineering and Mfg. North America Inc.

He also has recruited some people from outside the auto industry.

cschweinsberg@wardsauto.com