Supplier quotas: Who's kidding whom?

In recent years, the University of Michigan and numerous other American colleges have been embroiled in controversy over the acceptance policies for incoming students. It involves the affirmative action policies meant to insure balanced integration of races across college campuses. Supporters of the policies insist it is the only way to guarantee an equal shot for minorities. Opponents claim it's just more discrimination in reverse.

In the auto industry, we have our own version of this scenario. It's being played out in selection of suppliers.

It's not unusual to hear suppliers complain about how hard it is to develop new business with auto companies these days. Suppliers can lose business because they lack the required size, don't have a global presence or are without the socalled black-box design/manufacturing/delivery capability. Even more difficult is knowing the work was awarded to a competitor because it was a minority supplier and there were quotas to meet Worse yet is knowing your capability or quality was better than theirs.

Any honest purchasing executive will admit what a dilemma this is for the automakers. All the auto companies sincerely would like to see diversity in their supply base. Over the next few years purchases from minority suppliers will reach $9 to $10 billion, with a goal by the OEMs to source at least 5% to minority-owned companies.

Certainly the manufacturers have had a lot of prodding from various political factions and individuals, such as the Rev Jesse Jackson, to do more. Agreements have been struck with the U.S. Small Business Administration. Unfortunately, meeting the objectives has been difficult due to a shortage of "qualified," high-quality minority suppliers.

On a recent tour of a minority-owned supplier, we were shown a fairly large module assembly the company was shipping to several vehicle assembly plants. Each module was valued at over $200 and included stamping, molded parts, fasteners, paint, wiring and various other brackets and small parts. Ironically, the only work being done by this minority supplier was assembling the various pieces, sequencing and packaging them for shipment. All fabrication was done by suppliers selected by the OEMs and directed to ship to the minority supplier for assembly.

Although the total value added by the supplier was minimal, the OEMs were able to take credit for the total amount of over $200 per shipment toward their minority supplier credit Who's fooling whom?

The proponents of minority supplier sourcing should consider such practices a slap in the face. They are not benefiting from the jobs that would be created if the entire work was theirs. They aren't being trusted to do any of the more difficult work that ultimately determines cost and quality.

The above situation is certainly not the story with every minority supplier in the auto industry. We all know there are numerous minority-owned companies with outstanding performance, who deserve the contracts they have secured based on quality, cost and delivery performance. But there are still too many of the above cases where suppliers have received work based solely on their race or national origin. But they lose as much as the Ultimate Customer.

Diversity in the supply base is important and must be cultivated by every OEM. But selection must ultimately be performance-based. Efforts must be stepped up to help these suppliers through supplier-assistance programs. That includes conducting workshops on lean manufacturing, integrating them in training and education programs, involving them in product and process development, and helping with recruiting and new employee training.

Patronizing minority suppliers with low-skill assembly or sequencing work, simply for the purpose of fulfilling quotas, ultimately does little to improve their situation. Investing time and resources to improve the performance of all suppliers will guarantee work goes to those whose performance alone warrants it.

[Author Affiliation]

Ron Harbour is president of Harbour and Assoc., manufacturing consultants in Troy, Mich.