As a Tier 2 Supplier in today’s rapidly changing Automotive market, “status quo” is no longer an option. Gone are the days when volumes were growing, capacity was limited, and all it took was the right relationship, a strong work ethic, and delivering good product on-time at a competitive market price. So, what changed, and what must you do to keep up?
- OEMs and Tier 1 companies are pushing for price downs: Many plastic components have been around for a long time. Sure, there have been improvements made, but over the past few decades automotive manufacturers have dialed in their products to where many plastic components are now commoditized. Being a tier 2 injection molder has become a very competitive landscape and if we don’t increase our value proposition, the result will be less work sourced to you, as larger competitors take advantage of economies of scale and drive unaware Tier 2’s into a pricing death spiral.
- Labor Rates are Increasing: In southeast Michigan it’s common for an entry level job on the production floor to be around $12 per hour. 5-10 years ago, that was a competitive wage compared to big box stores and fast food restaurants that were offering minimum wage jobs. Back then, Tier 2’s were only competing with themselves for talent. Today, with companies like Amazon and Walmart raising entry level wages as high as $15 per hour, if Tier 2’s can’t find a way to offer a competitive advantage or focus on a niche, they’ll at best, see a decline in profit margins due to increasing wage rates, or ultimately, win the race to the bottom and no longer exist.
- Quality Requirements at an All-Time High: In the past decade the automotive industry saw various high-profile recalls including the largest recall in US history. As a result, quality requirements for OEMs and Tier 1 suppliers have increased dramatically. With the implementation of the IATF automotive standard, an increase of customer specific requirements, new record retention requirements, and enhanced focus on dimensional data, quality costs for the Tier 2 supplier using traditional molding methods will rise—resulting in reduced profits. If suppliers don’t adapt to these new requirements efficiently it will lead to de-sourcing, and chew into profits.
- Shortage of Skilled Labor: In today’s landscape even though higher education continues to be more and more expensive year after year, older generations, and even the public-school systems continue to push today’s youth to pursue higher education. Add that to the stigma that trade professions are seen as “below” degreed professions, and you get the skilled labor shortage in today’s manufacturing industry. Finding talent has never been more difficult, the next generation of employees are looking and expecting more from a company than a steady paycheck and a clean shop. Tier 2 molders need to adapt and offer the next generation of employees opportunities above and beyond what has been offered in the past. Tier 2 companies that invests personally and professionally in this generation, and leverages technology in the injection molding operation is set up for success in today’s environment.
- Innovation is Inevitable: If you look at consumer history you can find a lot of examples of companies going under because they failed to innovate and keep up with emerging technologies (See Blockbuster). Change is happening in the automotive industry and it’s not going to stop. The molding company that wants to maintain the status quo will soon find themselves outdated and following the same path as companies such as Blockbuster.
As a Tier 2 supplier, the challenges of falling prices, higher labor rates, enhanced quality requirements, a shortage of skilled labor, and the natural innovation of the industry will mean the end of the line for those Tier 2 injection molders that choose to do business the same way they always have. At the same time, it spells opportunity for the Tier 2 that focuses on turning the challenges into opportunities by investing in people development and leveraging efficient processes, automation, and technical expertise.