Tier 2 Supplier Goes Global, Swallows 50% Price Cut

TRAVERSE CITY, MI – The pressure for suppliers to follow their customers to new markets overseas has been most acute for the big Tier 1 parts producers, but smaller Tier 2s are far from immune.

Autocam Corp., a small manufacturer of precision metal components used in brake, steering and airbag systems, was founded 15 years ago with one facility in Kentwood, near Grand Rapids.

The supplier has since opened five plants in Europe, one in China and three in South America, as well as three others in the U.S., John Buchan, Autocam’s chief operating officer, says at the Management Briefing Seminars here.

John Buchan, Autocam chief operating officer.

Since 1988, the company has grown rapidly: Sales are up from $8 million to $325 million, headcount is up from 55 to 2,500 and its customer base has blossomed from one to 20. Over the course of 15 years, Autocam has posted a compounded annual growth rate of 16%, all without acquisitions.

Buchan says Autocam is striving to leverage its global facilities, as well as those of its own smaller suppliers. He doubts the strategy will cost U.S. workers their jobs. “We will find work for our folks in North America by leveraging global operations,” Buchan says.

The company has developed a niche in highly precise machining of worm gears, input shafts, torque sensors and hydraulic valves for steering and brake systems, achieving tolerances of 6 microns and below, Buchan says. The thickness of a human hair is 88 microns.

For one product, Buchan says Autocam achieved a 10-micron tolerance with output of 150,000 units daily, while granting a whopping 50% price cut over five years, from $1 to 50 cents per piece.

But he says most price reductions granted by the supplier are in the neighborhood of 6%, and he admits the price for that particular component may have been too high to begin with. Buchan says the 50% price cut resulted from process, rather than engineering, changes.

Autocam went public in 1992 and, after eight years of struggling to attract coverage from stock analysts, returned to private ownership in 2000.

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