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In this Automotive Leaders Podcast episode, host Jan Griffiths and Thomas Kowal, the president of Seraph North America, discuss the current state of the automotive supply base during the UAW strike. They begin the episode by exploring MEMA's statistics, shedding light on concerns about layoffs, financial viability, and restart times, emphasizing the importance of understanding the strike's impact on the supply base across various timeframes.
The conversation shifts to the importance of conserving cash, including labor reduction and inventory optimization. They also address the potential challenges that could arise when trying to restart production after supply chain disruptions. Stressing the significance of working on rapid ROI projects, finding ways to collaborate with consulting firms when financial constraints exist, and building relationships with OEMs.
Thomas shares practical advice on how to prepare for the production restart, including conducting startup FMEA, analyzing logistics, and improving communication with suppliers. He suggests creating a startup plan and involving the workforce to ensure a smooth transition when production resumes. The episode concludes with insights into evolving automotive dynamics, adaptability, and leadership's role in a positive workplace.
Themes discussed in this episode:
- Impact of the ongoing UAW Strike
- Strategies for cash conservation
- Outline of potential short-term to long-term scenarios for suppliers
- Decision-making for CEOs
- The importance of proactive preparation
- Role of leadership during restart
- The new normal of the auto industry
Featured Guest: Thomas Kowal
On leadership: “I recommend the plant office people, when you start back up again, get out on that shop floor, be with the people, solve the problem for them, take this as an opportunity to rebuild the relationship with the workforce.”
Mentioned in this episode:
- IHS Markit LTD / S&P Global
- Published Document by MEMA
- OEE - Overall Equipment Effectiveness
- FMEA - Failure Mode and Effects Analysis
[00:02:35] Understanding Challenges: The discussion dissects key MEMA statistics, highlighting challenges in the auto supply chain during ongoing strikes. Thomas offers insights into short, medium, and long-term implications. They also examine how strikes affect suppliers' finances, program management, and the potential shift to low-cost regions.
[00:10:06] Industry Layoffs and Resilience: The unexpected salary layoffs in the supply base due to the strike's indirect impact. Insights on addressing this issue through workforce training line adjustments and the importance of long-term strategic planning and open communication for industry resilience.
[00:16:10] Advice for CEOs: Practical advice is provided for CEOs and leaders facing liquidity challenges, including considering rapid ROI projects and seeking collaboration with consulting firms while finding financial solutions.
[00:20:50] Strengthening OEM Relationships: The importance of building strong relationships with OEMs and working on solutions proactively is emphasized.
[00:25:15] Strategies for Production Restart: The episode highlights the need for open communication in preparing for production restart, suggesting strategies such as conducting startup FMEA, analyzing logistics, and rebuilding relationships with the workforce during startup.
[00:27:54] Leadership in Shifting Auto Industry: The role of leadership in fostering a positive and productive work environment is discussed, along with the evolving dynamics in the automotive industry and the need for adaptability.
[00:21:54] Thomas: “If an OEM does not have a good relationship with a supplier, they will do everything, not only to hide it but to fight the OEM.”
[00:23:20] Thomas: “If you haven't done it already, try to work on a solution; they [OEMs] will not stop their production, they will bring people in and they will be much tougher with the suppliers that were not at least open and try to work with them beforehand.”
[00:28:33] Jan: “But it's the leadership and the enthusiasm that comes along with it that will really make the difference, I see an opportunity, for leadership to be real cheerleaders for the shop floor.”
- Transforming UAW Strike Negotiations for a Win-Win Outcome
- Leadership in Crisis: Navigating the UAW Strike
- UAW Strike and the Automotive Industry: Supply Chain Insights
Mentioned in this episode:
Welcome to the Automotive Leaders Podcast, where we help you prepare for the future by sharing stories, insights and skills from leading voices in the automotive world with a mission to transform this industry together. I'm your host, Jan Griffiths, that passionate, rebellious farmer's daughter from Wales, with over 35 years of experience in our beloved auto industry, and a commitment to empowering fellow leaders to be their best authentic selves. Stay true to yourself, be you, and lead with Gravitas, the hallmark of authentic leadership. Let's dive in.Jan Griffiths:
And here we are, again, with another strike-related episode; today is October 10, 2023. It's important to understand exactly where we're at in the middle of the strike timeline. And we have been talking a lot lately about what is happening in the supply base. And I wanted to bring on this show. I wanted to bring on somebody who really understands not only what's happening in the supply base but what it takes to fix it. So, if you're a tier one or tier two, and you're in trouble right now, what are some of the things that you need to be thinking about? A company that I know and trust that I have dealt with several times in my career is Seraph, and I am thrilled to bring on the show today Thomas Kowal, and Thomas is the president of Seraph North America. If you don't know Seraph, they are a company focused on operations consulting, not only in automotive in multiple industries but today we are going to focus on automotive. Thomas, welcome to the show.Thomas Kowal:
Thank you very much. And it's been a pleasure following you the last couple of years since Gravitas started. And yeah, thank you so much for having me on. I wish it was under a bit better circumstances on more positive topics. But this is Automotive in 2023. We've got some challenges we've been facing in the last couple of years. And we're going to get through this just like the rest of them. So, thank you for having me.Jan Griffiths:
Of course. And, like you say, we've been through many challenges in this industry. We've been through the chip crisis, we've been through COVID, and you've seen it all Seraph has had to deal with the backlash. And let's get into some of that. Let's start off with some data. So, MEMA, previously known as OESA, MEMA published a document. They recently completed a survey on September 29th. They published this document on October 3rd, and they said that additional supplier layoffs are expected with more than 60% of their members. Now, understanding that MEMA represents the supply base in North America, that is a huge number. They also say that 70% of vehicle suppliers have concerns about their sub-suppliers ongoing financial viability. And also, they say that more than 50% of idle suppliers indicated they need at least one week to return to production and pre-strike levels. So, let's tear into this a little bit. What are you seeing out there right now, Thomas, in the supply base in the tier one and tier two supply base? What's really happening out there?Thomas Kowal:
Yeah, it's interesting to listen to the statistics that you just shared. This morning, I was on the phone with a company that we partner with at times to bring in direct labor into companies. The owner also owns a headhunting staffing company as well for higher-level positions. And he mentioned that for his direct labor business, they are down 50%. He anticipated that 50%, that's, you know, obviously we saw this coming, and we know that the tier one, tier two, everyone is trying to conserve cash. So the first thing that happens, unfortunately, is in many facilities, direct labor is asked to stay home until production resumes, but what he did not anticipate was for some of the indirect roles or material planners, engineers, and directors, he has seen a reduction of 25% he was anticipating somewhere between 5 to 8%. Which then brings this up if one looks at it from pretty much three perspectives. One is what's happening short term, medium term, and then long term. Short term, now what we're seeing is everyone is looking at conserving cash. Nobody knows how long this is going to last. So some of the suppliers decide not to pay the other suppliers, and then the next supplier decides not to pay further down, and in the food chain, one can understand everyone's trying to conserve cash. And on the other hand, when we restart after that, those discussions, those battles of you haven't paid me, you took 60, 90 days to pay me, I'm not shipping you parts until you have trued up what you owe me from a cash standpoint so that that can be an issue. So one is conserving cash that's done through labor, reducing labor. Two is obviously inventory that you know very well from your data supply chain is freeing up cash. Now, the inventory topic is quite interesting and makes me a little bit nervous of what we're seeing, many of the OEMs have not stopped the releases. So what happens is that the releases are out there goes into the tier one, the tier one system immediately sends out releases to tier two and tier threes. So they start shipping to those releases. Now, what does the tier one need to do? They're gonna have to go in and manipulate the system to say, "Stop, I don't want you to deliver because I'm being measured right now on freeing up cash and not holding too much inventory in the factory." So when the OEMs decide, or when we get through this, and they start back up again, if there's been turnover, or somebody has changed a role inside the company, we will see a similar effect to what I think we saw during COVID. Meaning that, say, a material planner or materials scheduler has decided to just cancel releases, and then they don't go back in again. And we revamped the MRP system or the scheduling agreement. So that's something to really keep an eye on. So short term, everybody is going to keep a very strong eye on cash, through labor, through inventory. And then things such as small capital decisions that they were planning on spending money on say, I don't know, gravity racks, or new, high low, those kinds of things are definitely not going to be invested into. And in that, too, some of these events. Maybe there are industry events that people had planned on going to, and they're deciding, you know what, we're not going to travel to that event, we're not going to spend the money. And we're not going to go and visit this customer. We're not doing this company event for Christmas, whatever that might be. Everyone's focusing short-term on cash. And I'm sure you're probably seeing something similar, right?Jan Griffiths:
I'm feeling it. Yeah. Yeah. Believe me, a workshop with me or an internal podcast with me is not high in the priority right now. But that's okay. No, it'll all come back. But I hear you.Thomas Kowal:
It will, it will. And then I think most tier one companies were planning somewhere realistically planning on, say, a four-week strike. I don't think people were planning on much longer. And we're seeing this continuing, unfortunately. From the medium term, we see that suppliers will start trying to figure out how to cover the cash crunch, whether they go back to banks, whether they go to the OEMs, or their customers to figure out some type of loan just to survive. I do worry about the fact already the supply base if you look at what IHS has, and when we look at the forecast, we start seeing much higher launches coming in 24, 25, 26. With all these EV launches, the supply base has already struggled from a program management standpoint. My fear is in the medium term. Oh, suppliers will end up deciding maybe to reduce headcount even in the headquarters that are working on some of these projects, delaying capital even further. And long term, if the UAW negotiation somehow does not become positive for the OEMs at all, and they take it's going to be tough for them financially. They have invested a lot towards EV, a tremendous amount of capital. Yes, they have gained a lot of profits in the last few years. But that party is over we see Tesla everybody's reducing their pricing. So costs have gone up pricing is coming down. They made some money during those years, but they're also investing a tremendous amount towards the shift, towards electrification. So, long term though, if it's not favorable, and it's a real hit towards the OEMs. My fear is that there will be a bigger focus towards low-cost countries or right-to-work states. And we're gonna start seeing those shifts, which is not good for Michigan, in my opinion.Jan Griffiths:
I like the way you frame that up in terms of short, medium, and long-term. But I'd like to take you back to the comment that you made at the beginning about the indirect side of this. And we tend to be, you know, we've been very focused on the UAW, the OEMs, the immediate impact of the suppliers to current product. I like you, I was surprised, I'm hearing of salary layoffs already that started last week in the supply base. I didn't expect to be hearing that quite so soon, to be honest, I didn't.Thomas Kowal:
Me neither. And when my friend told me the numbers he was expecting 5 to 8%, during this period, and he's seen a 25% reduction, that's making us nervous, because after COVID, through COVID, looking at the cuts that tier one companies and tier twos already had to make, because we all know they were not as profitable, their costs had gone up, the pricing stayed the same. Now, yes, we're starting to see some things happening there. But they've had to reduce their investment in their people. So on a positive note, what we're seeing companies do well, the companies that do have some money that are looking at, okay, let's take advantage of this situation, it's companies that are deciding to train workers, moving some other workers from one factory to another one, many suppliers are in backlog today. So they are deciding to, okay, let's shove the people over to this plant, get out of backlog, fix OEE issues, solve some of these quality problems that we've seen in the past, resolve downtime, that type of work. And from a Seraph standpoint, we've been fortunate, we have been heavily involved in some of those long-term projects that they're now deciding to really tackle so that when they come out of this, they don't have as much of issues that they may have seen after COVID, for example. So that is really positive to see folks doing lots of focus on training developing the workforce, moving lines, they had already made strategic plans before that they're taking advantage of right now because they built up banks, let's move the lines. And on another positive aspect, one company I know that decided to talk to the workforce, because everyone that's going to restart, that does not have strong communication with the labor that they've had to lay off, keeping them up to speed are going to struggle when they restart again, new people, new training, all of that stuff. So the one company that we've worked with, they did something really cool that connected with the people before and said, "We don't know how long this will be, you will get paid some. But if you come back, you will get a bit of a bonus if you come back to us after maintaining that connection. So I thought that was really smart.Jan Griffiths:
No, I like that. And I agree with you too. It's mindset. Two things, right? It's mindset and money. So if you've got the cash because I do recognize that some companies just don't have the cash, and they gotta strip everything out, I get that, right? But if you're in this for the long term, and typically in auto, we have this nasty habit of this knee-jerk reaction, right? So when something like this happens, let's just cut everything and slash everything, right? But really think about this long term, this is going to come to an end. We don't know exactly when, but you have to think about the future. If you see this as an opportunity to redeploy resources to vote. You just mentioned PM, PM is classic, right? Training, cross-training, maybe focusing more on startups, on launches, right? Getting those launches really dialed into where they need to be, doing a lot of that prep work, right? The timeline work, the pre-planning, we're getting ready for the startup. That's a mindset shift. So those companies are the companies that will come out of this far better than the ones who fall back into that knee-jerk reaction. Just shut everything down. You know, the sky is falling mentality, right?Thomas Kowal:
Yeah. And what was really surprising to me, not to say that everybody's involved in MEMA, but MEMA did a couple of couple of talks with experts in there to prepare for the strike. And Seraph was part of that. Jay Butler on our team and Brian Fairchild went to speak, we had created a checklist and all that good stuff that we told folks, but it was surprising to me how many people didn't really prepare and just laid people off. And what was surprising also the line of credit to secure a line of credit for cash for this. There was a company that we worked with where I was extremely impressed by the CEO. He had prepared everything beforehand and we had nothing to suggest to him whatsoever he had done all the work that was required. But there were a lot of companies that did not.Jan Griffiths:
There's a lot to think about. If you're a CEO of a tier two, even a tier one, right? And you're on that ragged edge of cash is just depleted. Maybe you don't have that line of credit secured yet, or maybe you just can't afford it, for whatever reason, what are some of the criteria that perhaps a CEO would have to think about before they bring you in? Because this hit me the other day, actually, I was going on one of my morning walks, right? And that's where I do my best thinking. And I thought, if I was a CEO of a tier two, my dilemma would be, I know, I need some help here. But my problem is, I don't have cash. How and when do I make a decision to bring in a company like Seraph, who I know has a proven track record and will turn me around? And my ego is probably in the way, right? Like I can fix this myself, you know, we got this, we don't need it. So what advice do you give leaders out there who are perhaps struggling with this kind of decision?Thomas Kowal:
I don't want to come on here and just say, well, you should just hire consultants. And if you can't, if you really have financial difficulty, and just say you should just spend more money on consultants, I think that one is dangerous advice if you really have financial problems, and you're not able to come up with some type of agreement where say, the consulting company and you somehow share in the winds as well. And to be fair on consulting companies nowadays, nobody's going to if you don't have any cash, why would I want to go and do business with you, because maybe I spend $500,000 with consultants in there. And then I don't get paid. That is the reality that has happened. And then you go into lawsuits and things and never gets, it's never good. But what I would recommend to somebody that is in a financial situation, meeting with a consulting company to say, "Okay, what can we do for rapid ROI, really do bring in cash immediately." So if we look around in the auto industry today, really even since COVID, most companies are running around, I don't know, 50, 60, maybe 70%, OEE? If you can immediately look at some of the buckets from quality, what are you spending on scrap? Okay, so does Sarah believe, for example, that we can reduce that immediately, that'll generate, I don't know, $50,000, extra a week, whatever that may be? So rapid ROI projects that then ourselves and the client, if they have no money, can somehow take advantage of, and then there's some skin in the game on our side. But I also think you hit on the nail in regard to the ego. And many operations are tough, macho people and strong that have gotten to where they are because they are really, really stubborn. And they solve problems that way. But many of those people that have reached that level in the plants today or in organizations today came from when the organizations in 2015 and 2016 were much stronger, you had more stability, you had a better workforce, you had a better team to execute with. You may not have that team, and you may not fully realize the risk or the weakness of your material planners. Logistically, I mean, I'm bringing up logistics, because this is every single client, whether it's automotive, medical device, or defense, everyone is struggling with logistics at the moment when we talk about logistics, material planning, and production planning. So anyway, if you can get away from your ego, and then decide to talk to, say, a proven consulting company that can help them and figure out a plan together. That's one way, ultimately. And that can also build for much long-term relationships. So it's maybe if you think about it from, say, an EV startup or a startup, maybe there are ways that you can figure things out, even though sales are not quite there yet. The other one is the OEMs have had to spend a lot of time, effort, and money the last couple of years to try to bring suppliers that have gone into bankruptcy. And the OEMs are extremely worried about more companies going into bankruptcy, and so am I, by the way. They know and they're smart enough that if you get in earlier to try to solve these problems, and you have somebody that's humble, that's willing to work. Maybe this is something that the OEM, the supplier, and the consulting company can come together to figure out some way financially; how do we solve rapid ROI projects together? And how do we fund this?Jan Griffiths:
I love that approach. And I love it for a couple of reasons. I think that there's a fear out there, which is, that it's a myth that calling a consulting company is going to cost them a ridiculous amount of money, right? And, it can, but it doesn't have to just start the conversation somewhere, right? Don't be afraid to pick up the phone, whether it's you or, you know, whatever company they're comfortable with, start the conversation sooner rather than later. But the other thing is, and listening to you talk, and I was thinking about this. There's a fear, having spent 36 years in the supply base, I know this to be true. There's a fear of, "Oh, no, I don't want the OEMs to know I'm in trouble." Because if they get an inkling that I'm in trouble, they're going to send an army of people in here, and my life is going to be a living hell. And that's a very real fear.Thomas Kowal:
It is, it is. However, most of the OEMs know now, especially through COVID, that many of these companies, already know about the really tough ones. And I will say in the last couple of years, the relationships between the OEMs and suppliers have changed. And I think if an OEM worked well with a supplier through COVID, I think that the supplier would be more willing and open to talk about it and maintain that relationship. I do have to say, and it worries me coming through this. If an OEM does not have a good relationship with a supplier, exactly what you just mentioned, they will do everything, not only to hide it but to fight the OEM. And we've seen some of that the last couple of years as well. So the relationship between the supplier and the OEMs is critical when production comes back up again.Jan Griffiths:
And one of the things that I enjoyed about working with Seraph is that you help broker that relationship, that discussion, you know, you get in the middle of that. So when you see suppliers that are terrified of the OEM, I've seen you, with your connections, get in the middle of that. And there's a tremendous amount of value there. And I didn't expect that, to be honest, when I first started working with Seraph, I thought, well, you wouldn't you want to kind of in the middle of that. And you did. So I think there was a lot of fear out there. But it doesn't have to be just pick up the phone and start the conversation with whatever third party you're comfortable with. But start it sooner rather than later.Thomas Kowal:
Absolutely, because we're all hoping this is gonna change very, very quickly here. And I'm not going to pretend to say that I have some secret information here. But no matter what, if you are in a difficult situation, the OEMs are going to want to run extremely hard. As soon as they come back up again.Jan Griffiths:
Yes, yes.Thomas Kowal:
Do not expect anything else. And if you haven't done it already, try to work on a solution, they will bring it they will not stop their production, they will bring people in. And they will be much tougher with the suppliers that were not at least open and try to work with them beforehand. Nobody, as we all know, our bosses have told us nobody likes a surprise.Jan Griffiths:
Right, that's true. As these companies start to contemplate the startup, I agree with you wholeheartedly, it's going to be a full bore, let's go, right? The communication through the entire supply chain is critical. So whether you're a tier one looking at your tier twos, or tier two looking at your tier threes, you have the signal. And you'd already said that, in some cases, the OEMs are not cutting the releases, which was extremely problematic yesterday. And so understanding, I would say understanding your material system and how it works, because there's a lot of people out there who don't really know how it works. This is a great time to go in and make sure your lead times are correct. So that when you crank that system back up, you know what's going on, but more importantly, to communicate constantly with the suppliers what's going on and what lines are going to come back up first? What are their issues? Having those conversations now. So maybe the conversation is something like this, "Hey if we were to start up tomorrow, what does that look like for you? What is your lead time look like?" It may or may not be the same that's in the ERP system. What do you need from us? Have those conversations and start nurturing that relationship now, don't wait for the OEMs to turn that faucet back on, and then you're in trouble. And then you realize you got all these problems, you can find out the problems now, if you open up the communication, don't you think?Thomas Kowal:
A hundred percent. And a client asked us two days ago, "What should we do to prepare?"And I said I know nobody likes to do these. But do your almost like startup FMEA. Try to look at it from logistics, what's going to happen? Who are my critical suppliers? Purchasing: who did we decide to delay payments to? So we got to kind of get ahead of this; we're starting to hear, for example, that a resolution is going to come. Who are we going to need to call, literally, immediately? HR from the people standpoint, who are we contacting, the people, who are the most critical? Did we take care of them with some kind of bonus or something? What's that favorite maintenance person in that plant that if we don't have that person come in and week ahead of time, I would also say bring in a bit of a skeleton crew. One, of course, is to make sure the equipment runs. Two, of course, to ensure that you have a little bit of inventory. Most suppliers have already done that. I think some of the OEMs have already stored some extra material. But when people come back, and we see this at Seraph all the time, when we come into a critical line that's not running, especially during a launch, people get set on a number. So say, for example, that they're supposed to hit 40 an hour, but they're hitting about 20 an hour. And we come into a client, and they say, "Oh, we just can't move the needle." You have to restart with some kind of run-out rates to make sure that they're playing the game at the high level immediately, not at the 20 jobs per hour. So somehow creating games, the week beforehand, we're going to do a burst build, we're going to so that people get used to running at that rate where they were at before. So from an operations standpoint, logistics, obviously there we talked about quality, what do we know when we do a startup of any launch any line, normally, there are some quality issues. Maybe the first week, have a bit of a firewall, put your favorite quality people at the end of the line just to verify, and really, I recommend the plant office people, when you start back up again, get out on that shop floor, be with the people, solve the problem for them take this as an opportunity to rebuild the relationship with the workforce. I can't tell you how many companies that we go into. And I will say immediately, Seraph gets you 10% OEE immediately, and they're like, "Oh, it's magic." No, there's no magic. It's because when we go there and do our assessments, we never see anyone in the office on the shop floor. They're just sitting in their offices all day long. And you just give the operators help with some small tasks. Holy cow, it all creates positivity and reaction immediately. So the message is there: work with the workforce, to your point, definitely with the suppliers, and then get everybody engaged. It's almost like it's fun, guys. We've got this task. We got to relaunch again. That's what we would recommend. Do a boring FMEA, but it's worth it.Jan Griffiths:
Oh, no, it's not. But the FMEA is the methodology, right? But it's the leadership and the enthusiasm that comes along with it that will really make the difference, which is what you're just describing, and I see the moment, and maybe as a tier one or tier two, you could do this now, you could. Assuming you've got a crisis team, a crisis room, or something for the strike right now. I would hope you've got that. But take that focus. And instead of looking at where we're at today, run a dummy startup launch, run a dummy launch. Say, "Okay, you know what, we just got the call. It's all back on." Imagine these releases are turned on literally overnight. What are we going to do and practice it and I see an opportunity, just like you say, for leadership to be real cheerleaders for the shop floor. Get everybody, maybe not everybody, but get a whole crew of people from the office to be out there. Getting coffee, getting lunches, walking on the shop floor, wearing company t-shirts, going out there going, "Yay, come on, we got this." I mean, I totally see it, right? I'd be all about that.Thomas Kowal:
That's the fun stuff, so you can take an opportunity to turn it into something positive, for sure. And they're going to face and I know a lot of people are a bit burned out from COVID and everything else, but you know what, I think this is the new normal still. We have, yes, the UAW strikes right now. We came through COVID. But there are geopolitical topics that are going to impact probably supply chain in the future; we're going to come into the EVs, and some models are going to run way more than they originally predicted. Some are going to run a lot less. And so were the good old days of kind of understanding from IHS; we saw the volumes, and this is how things are going to run. We have to be a lot more agile. We're going into a whole new, different way of doing our business.Jan Griffiths:
We are indeed, and that is the perfect way to close today. Thomas, thank you so much for joining me today.Thomas Kowal:
Thank you very much. I really appreciate it. Thank you.Jan Griffiths:
Thank you for listening to the Automotive Leaders podcast. Click the listen link in the show notes to subscribe for free on your platform of choice. And don't forget to download the 21 Traits of Authentic Leadership PDF by clicking on the link below. And remember, stay true to yourself, be you, and lead with Gravitas, the hallmark of authentic leadership.