There are moments when it seems like the entire U.S. auto industry is collapsing in slow motion. The process is so full of uncertainty and real pain that a cold, rational analysis of the implications for small manufacturers may seem beside the point. But as the shockwave of Chrysler’s and General Motor’s bankruptcies reverberates through the second, third, and fourth tiers of suppliers, there are important lessons to be learned for the future, particularly concerning what sort of economic bets make the most sense for 21st century manufacturing companies.
The first lesson is that many suppliers who invest heavily in turnkey operations that cater specifically to the auto industry or one single customer are simply out of luck. They cannot easily find a place in the new business ecosystem this way, and many will find it impossible to adapt. They are paying the price for a “big bet” strategy: investments in expensive, single-purpose capital equipment that can deliver very large economies of scale but cannot easily be repurposed.
The second lesson is that suppliers in the lower tiers of the supply chain are potentially less vulnerable to a sea change such as the one occurring in the auto industry. While these companies can be more vulnerable to foreign competition because their products are typically not complicated, they are also more flexible, with production capabilities that can be adapted to multiple markets.
Component Engineers Inc., a precision metal component manufacturer with machining, stamping, and wire electrical discharge machining capabilities, is a good example of this adaptability. As far back as the mid-1980s, the company began to encounter stiff competition in the automotive sector brought about by declining auto sales. Rather than simply try harder, the company shifted its focus to include the medical sector. How CEI achieved this illustrates the third lesson about manufacturing success today and in the future: What happens on the factory floor is only part of the story, and arguably not the most important part.
One of the first things CEI did was to obtain ISO 9001:2000 and 13485:2003 certification, which are globally recognized standards that specify requirements for providing medical devices and services. The company also altered aspects of how it created and handled paperwork to meet medical sector expectations. Once the company had achieved some initial success, it followed up with attendance at industry events and advertising in appropriate trade journals.
Today CEI has customers in the aerospace, government, and electronics sectors as well as medical and automotive. The company’s head count grew from 34 in 2000 to 90 in 2008. A good example that in order to succeed, companies must continually seek to expand and diversify, rather than rest on their laurels.