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Crises make automakers rethink lean parts supplies

DETROIT — For the first time in more than 20 years, U.S. automakers are questioning a pillar of manufacturing: The practice of bringing parts to assembly lines right before they’re used.

General Motors employees work on a van assembly line at GM's plant in Wentzville, Mo.

So-called just-in-time deliveries have helped automakers save billions and run their factories more efficiently. But the approach also relies on an almost perfect supply chain. And twice in the last year, weak links have been exposed.

An earthquake in March 2011 knocked out many Japanese parts makers, resulting in factory shutdowns and model shortages around the world. And last month, an explosion at a German chemical plant cut off supplies of a resin essential in car fuel lines. Without those parts, assembly lines could slow or grind to a halt within weeks, causing shortages of cars on dealer lots later this year.

Carmakers are scrambling to find alternatives to the resin. The threat of a new shortage comes as U.S. auto sales are just becoming healthy again.

Supply problems in the auto industry are unavoidable sometimes, but car manufacturers are starting to rethink the just-in-time system, which is more global than ever and relies on increasingly specialized parts from fewer suppliers.

The system, developed by Toyota in the 1970s and brought to the U.S. in the 1980s, discourages big stockpiles of parts in favor of deliveries shortly before they’re needed. It saves companies the cost of storing the parts or carrying them on their books. For those reasons, automakers and large suppliers typically store only a few weeks’ worth of parts.

“It’s pretty fragile,” says Steven Wybo, a managing director and automotive expert at Conway Mackenzie, a consulting firm that handles industry restructurings. “The only way to protect supply is to build up inventory. Until that happens, we’re going to continue to see problems like this.”

U.S. automakers say they are studying parts supplies to figure out what they need to stockpile.

Many of a car’s 3,000 parts have become so specialized that they’re made only by a few factories worldwide. That leaves the industry vulnerable to fires, natural disasters or other problems that may knock out a single parts factory.

The answer may be to stock up on parts that come from one factory, says David Cole, chairman emeritus of the Center for Automotive Research, an industry think tank and research group.

“You can never take away risk completely,” he says. “You want to minimize it.”

The industry used to be on firmer footing. Twenty years ago, companies relied less on suppliers and made more of their own parts. But General Motors Co. and Ford Motor Co. spun off their parts businesses in 1999 and 2000, a move that saved money but gave them less control over inventory.

And other trends are magnifying the risk of the just-in-time approach. Parts supply companies downsized significantly during the recession, and the remaining firms don’t have the money or staff to stock up on raw materials in case of a disruption. The industry also shrank because carmakers needed increasingly specialized parts to meet government safety and fuel economy standards. Suppliers without those products went out of business.

In the U.S. alone, at least 57 parts makers have closed, were bought out or went into bankruptcy since 2008, according to the Original Equipment Suppliers Association.

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