Parts makers taking wrong turn

Small and medium enterprises that supply larger car parts makers have shown little interest in helping to improve their businesses.
Small and medium enterprises that supply larger car parts makers have shown little interest in helping to improve their businesses.

FORD Australia's decision to cut its workforce in response to a 13 per cent slide in production is going to be followed by a similar round of retrenchments in the parts industry.

The car assemblers themselves employ around 12,000 people and there are another 43,000 in the parts industry. Using normal industry multipliers, this translates to a total of 200,000-plus jobs all up spread through the community.

So you'd expect the parts makers to be doing everything they can to make the most of what business is still coming their way. But, at least as far as the smaller parts makers are concerned, you'd be wrong.

What follows appears to be a typical situation. You're running a family-owned manufacturing business. The company hasn't made a decent return in three or four years. The industry you supply, the automotive sector, has been doing it tough thanks to the high dollar and cheap imports. Volumes have sunk to 60-year lows. You have been laying off workers, trying to staunch the red ink.

Then someone knocks on your door. They offer to analyse your business, assessing it on 11 critical criteria. What's more, if you choose to act on the results of the assessment, the government will fund 75 per cent of the project.

You'd jump at the chance, wouldn't you? Well, actually, no you wouldn't. At least not if you are a tier-two supplier in the Australian car industry. Tier twos are the small to medium enterprises that supply smaller parts or assemblies to larger, specialised car parts makers.

Tier-two suppliers - and their suppliers in tier three - have turned their back on this self-improvement opportunity, even though a majority of larger tier-one suppliers have been quick to take advantage of the program, known as Automotive Supplier Excellence Australia.

Run out of the car industry's own co-operative research centre, the AutoCRC, the ASEA program is part of the comprehensive modernisation plan laid down for the car industry under the New Car Plan for a Greener Future introduced in 2008.

But, despite the quantifiable - and large - gains achieved by projects conducted with tier-one suppliers, the manufacturers on the next rung down are showing precious little interest, according to ASEA project director Linsey Siede.

''Typically it's the Australian-owned companies who are saying 'Go away, don't bother us, we're too busy','' Siede said.

''Too busy doing what, I don't know. Maybe chasing their own backsides,'' he added, betraying some frustration over the reluctance of people to accept a helping hand.

He suspects that, because they are family-owned companies, the current chief executive started at the bottom and worked his or her way through every department and, as a result, believe they know everything about the business.

But they are not necessarily aware of advances made outside the company.

''Part of it is, I think, that they don't know what they don't know,'' Siede said.

And it's not as if the program is an untried policy being foisted upon an industry by a government department that has lost touch with reality. Siede and the other advisers in the program have decades of private sector experience.

For instance, Siede is an automotive industry veteran, a mechanical engineer who was a senior engine designer at GM Holden and later a director and group general manager at ANCA, the world-leading machine tool manufacturer based in Bayswater.

ASEA offers a program that is designed to teach people how to analyse and improve their businesses. ASEA helps them implement an initial project in one or several of the 11 crucial competencies in such a way that they are left with the skills to be able to do future projects without reference to external management consultants.

The program was started in 2008 with tier-one suppliers and ASEA has now released the results of the initial batch of projects that have been completed and in place for more than a year.

''We identified, on average, savings for each company of $2 million over three years. In one case we identified $5 million of savings over three years.''

There is another way to measure the results, by looking at process improvement. Various ASEA projects have achieved individual results such as reducing production line rejects by 67 per cent, reducing equipment changeover time by 70 per cent and improving equipment up-time by four hours a week.

Other results include reducing assembly time by 25 per cent in one case and, in another, improving value add per capita by 24 per cent by introducing standardised work procedures. Another company improved its floor space utilisation by 50 per cent.

These results are from areas where ''hard'' results can be measured, but ASEA also looks at people performance in areas including financial systems, customer focus, analysis of cost structures and, crucially, management and leadership.

The results of ASEA's work are backed up by feedback from the companies, as part of the validation process supporting the use of government funds, Siede said.

Clients are asked to rate ASEA's contribution on a scale of one to seven where rankings one and two mean ASEA did not meet expectations and six and seven mean ASEA exceeded expectations.

''This hasn't been released before. We have had feedback from 64 of the 65 projects that have been completed and the average result over all the questions is a ranking of 5.4. Asked whether they would recommend their company participate in additional ASEA projects, the ranking was 6.3 out of seven,'' Siede said.

''If they weren't seeing value, they wouldn't want to continue. It's been exceptional, the feedback we have had.''

But that only serves to increase his frustration at the lack of interest being shown by the tier-two suppliers, many of which are as critical to the tier-one suppliers as the tier-one suppliers are to the car makers.

There are 213 tier-two and tier-three suppliers considered critical to the parts sector and last year the Department of Industry, Innovation, Science, Research and Tertiary Education asked ASEA to focus on them.

ASEA issued a general invitation and waited. And waited.

''It has taken us 12 months, but we now have 12 companies signed up for the program,'' Siede said.

''It's about 5 per cent of the total: that's nothing.''

This story Parts makers taking wrong turn first appeared on The Sydney Morning Herald.