Supply Pain ManagementGoing global is hard, but it can work

It was a minor bump in the road, really, that most people ignored when Swedish automotive suppliers began grumbling the instant that Ford Motor Co. announced recently that it was spending $6.4 billion to buy the car division of their national industrial icon, AB Volvo.

But their concern was perfectly valid: How can they, as primarily regional producers, expect to keep doing business with Volvo when Ford has the power to cut costs by tapping its vast, global supplier network for components and modules for Volvo cars?

The answer, likely, is: They can't, and there is a chance they will become casualties of this thing called globalization.

"If there is a supplier in Sweden working just for Volvo, and there is a substantial difference in quality and performance and price, then that supplier has got a problem," says Robert Oswald, chairman, president and CEO of Robert Bosch Corp., which already has plenty of Volvo (and Ford) business.

"There are some things about this globalization that are not comfortable," Mr. Oswald says. "But they are very realistic, and they just plain happen."

The options are limited for Volvo suppliers in this predicament: Sell, buy, partner, fold or do your best as a regional supplier and hope the contracts keep coming.

Then again, a completely different scenario could unfold. Despite his brutal honesty, Mr. Oswald says that in some cases he sees a future for regional Tier 2 and 3 suppliers if they fill a special niche.

In the case of Volvo, Ford could decide that some suppliers are so unique to Volvo's brand identity that they cannot be sacrificed. Consider Jaguar, which was struggling (unlike Volvo) when Ford bought it 10 years ago. In rebuilding Jaguar, Ford made several supplier changes. Today, Jaguar participates in sourcing decisions with Ford.

"Ford has given to Jaguar a substantial freedom in running its business," Mr. Oswald says. "They take advantage of Ford's purchasing power when it's sensible, but it's not 100%. I think Volvo will be operated the same way."

It's much too early for Ford to make assurances to Swedish suppliers, but the situation will be watched closely because it illustrates the globalization of the supply chain.

And one point cannot be disputed: OEMs want to simplify by building cars on global platforms that are much the same around the world. And they want at least their Tier 1 suppliers nearby to build parts and modules that meet the same design, process, price and quality requirements around the world. The merger of two automaking giants into DaimlerChrysler AG intensifies the pressure.

Global engineering of products does not always work. One North American supplier opened offices in South America, China and Europe, only to find that young engineers who accepted the assignments weren't up to the task. Designs needed to be reworked by more senior engineers at headquarters. Before long, the satellite offices were gone, and the emphasis was back on North America.

It's not hard to find similar stories throughout the supply chain.

Is it any wonder that supplier executives embrace the concept of global engineering with apprehension? As Siemens President George Perry noted in a recent speech: It's one thing to be multinational, quite another to provide seamless global supply.

But suppliers can crack the global engineering nut. "We have to," says Robin Mackie, a director of the Express Group, an engineering services firm based in Gateshead, U.K.

Tier 1 suppliers are beginning to globally source from Tier 2 and 3 suppliers, and many of these lower-tier suppliers are panicking because they lack the engineering capabilities to meet the demand.

That's where Mr. Mackie hopes to fill the void. He's attending this year's Society of Automotive Engineers International Congress and Exposition in Detroit in hopes of linking up with companies in need, particularly American ones lacking an engineering presence in Europe.

"We're looking for American companies under pressure from the JCIs (interiors megasupplier Johnson Controls Inc.) of the world to support them in Europe," Mr. Mackie says. "Companies who say, 'We're not big enough to be global on our own.'"

Those who are big enough have discovered that modern communication tools such as videoconferencing, teleconferencing, electronic mail and the Internet can tame even the most daunting challenges.

Restraint systems giant TRW Automotive has connected its engineers, located in every corner of the world, to a product data management system that simplifies the process of changing a design. The "Change Request System" was first operating in North America 10 years ago, and it was taken global two years ago, says Douglas Campbell, TRW's vice president of engineering for inflatable restraint systems.

"Everyone involved in the product has real-time electronic signoff using standardized software," Mr. Campbell says. "We can have review of a design and have all parties sign off or have problems resolved within hours or within a day globally."

In addition, Mr. Campbell says it's common for him to be in video- and teleconferences several times a week with foreign colleagues, a convenience that limits trips to individual facilities to a few each year.

David Sakata spends nearly two hours a day in video- and teleconferences. As vice president and general manager of the powertrain products division of Freudenberg-NOK General Partnership, he knows plenty about global engineering.

His company is an amalgamation of Japanese (NOK) and German (Freuden-berg) suppliers combining their strengths in North America and beyond. By linking up, the company can provide global support through well-established local operations and provide critical cross-cultural training to help employees better serve customers.

Mr. Sakata is a product of such training. Growing up in Chicago, he knew little Japanese when he began a two-year stint in Japan with Freudenberg-NOK in 1986. But his staff was fluent, and he learned.

He admits it was a difficult transition, but by the time his service was over he was glad his assignment was extended by another six months.

"Once you make that adjustment, it can be comfortable and quite enjoyable," Mr. Sakata says. "I was not that anxious to get back home."