Would you say your relationship to your customers is better or worse than it's been, with recent pressures on supply and costs?
The short answer is, I think our relationships with our customers are better than they have been, but that's not to suggest that they are perfect. Our motto at Adient is to focus on everything that's within our control and really push to be collaborative. I think we elevated our credibility as a supplier during COVID. We never really created a disruption for our customers. We demonstrated that we were a reliable supplier, and that is going to make all these other conversations go a lot better when we have to talk about material [price] recovery and semiconductor disruptions.
How are you handling production stoppages that might be out of your control, from a labor standpoint?
Over Easter, we had a customer that on relatively short notice notified us that their plant was going to be down for a full month. We recognized that in the labor environment we are operating in right now, that likely those employees would look for alternative work. So, we ended up compensating 80 percent of their salary to retain them, with no production revenue. That is the level of measures that we are taking to provide stability to our customers when they have this level of disruption. The real trick is staying close with our customers, particularly as a just-in-time supplier, because when they start up, we have to immediately start. We operate with essentially zero inventory in the pipeline. And that's been a real challenge for us, but so far we have been managing it.
Have some of the recent events you mentioned caused you to rethink your view of globalization?
We have gone into our supply chain and looked at everything that is made offshore and imported into another region. We have had to reexamine every one of those business cases because the input costs from before are obsolete. We have taken some “self-help” measures, such as looking at how we can change our [shipping] pack density. On the question of do we re-shore, it's always a function of return on capital. You are duplicating capacity that already exists in an attempt to offset input costs. The automotive industry has been notorious in duplicating capacities to look for material savings. That's not a very attractive financial model to pursue. I think we will continue to operate with a global supply base, but we may change some of that in the near term based on the risk profile. A big component for us is if you re-shore, there is a fair amount of validation cost that goes into that equation because we are essentially a safety product. We are looking at whether we should validate an alternative site to have it on the shelf if we get into a Ukraine situation where we have to move quickly.
What has been the effect of the conflict in Ukraine? Adient has a factory in Togliatti that serves the Lada plant.
That is the extent of our operations in Russia. We are essentially a Tier 2 supplier there. That plant has been essentially shut down, but it's relatively minor to us financially. We are operating under a nondisclosure agreement, so I can't really say what we are going to do there in the long term.
In seating, are you seeing more demand from customers for sustainable materials, and are they willing to pay more for it?
Initially, what people thought about seating systems with regard to EVs, autonomous vehicles or sustainability is that they are kind of agnostic and there is not much you can do in those areas. We think there is a lot you can do. Historically, surface material has been the selection of the automaker as part of their overall styling process and our part has been more on the manufacturability side. We are now doing more upfront work, collaborating with “vegan leather” producers and others to have a product to show to customers that includes everything that we think falls under the umbrella of sustainability. If we are smart about it, I don't think cost is really going to be the issue, because we are showing some alternative construction that is actually lower cost, such as flexible structures that can replace the amount of polyurethane foam you need in a seat.
How else has the push for sustainability affected Adient?
One of the things that is important to us as a company is ESG, or sustainability, more broadly. When I look at 2021, our sustainability report was light years ahead of anything else we had communicated. I would expect that we will have that kind of quantum leap in our 2022 report. I think we always intended to lead in that area, but this kind of self-reflection and making it part of your business plan has been a pretty cool development, too.
When you refer to sustainability, is that tied to materials specifically?
We are very conscientious that we never want to be perceived as “greenwashing” our messaging. Everything we have put in place, we have spent a fair amount of time talking about and researching. You know, a year ago, I didn't really appreciate that there was a deforestation issue [with leather seating], and didn't really understand the role [environmental groups thought we] played in that. And then we sat down with them and explained how the process works. So, when we uncover something, even if we have to correct what we previously stated, we are willing to do that. We want to be really transparent and sincere in our approach.