Achieving profitable business
Pre-production visibility and
a) Estimating and quoting
There is agreement that the most important issue is accurate estimating and quoting. Nearly three out of every five respondents rated this issue as 'very important'. This applies to respondents from all countries with the exception of Australia, where the mean rating is neutral. With 50% of supply plants in Europe giving accurate estimation and quoting as a very important rating, it is clear that some traditional skills remain vital to competitive success. However, concerns are even greater outside Europe, in the USA 73% of suppliers rate this issue as very important (Fig. 12).
Fig.12 - Importance of estimating and quoting accurately
The bidding process with vehicle manufacturers varies from case to case, but in almost all it is becoming more detailed and comprehensive. While most vehicle manufacturers in Europe fall short of full open-book accounting with their suppliers, there are greater levels of transparency on costs, cost reduction, and profitability. With most contracts involving year-on-year cost reductions, it is important that suppliers get quoting and estimating right in the first place. Price is especially important in the USA, probably a reflection of the 'commodity' status of cars in that market.
b) Research & Development (R&D)
Attitudes to R&D are again a clear indication of closer relationships throughout the supply chain, and of early vendor involvement in product development. 46% of those surveyed see R&D integration as very important. First Tier suppliers in particular are involved in this activity, as shown by the fact that 49% of such suppliers rate integration of R&D as very important.
Fig.13 - Importance of integration of R&D programs with customers and suppliers
Once again, there is a clear distinction between France, 10% of supply plants see integration of R&D as not important at all, and Italy, where 66% of supply plants rate the issue as very important (Fig. 13). Surprisingly, the issue of integration of R&D programs with customers and suppliers is perceived as being only marginally more important among Tier one suppliers than Tiers Two and Three.
The issues of 'Prototype program management' and 'Comparison with production launch quote' both rate less highly for the supply base in the automotive components industry. Concern over prototype program management is greatest in the UK, where 48% of suppliers rate this as very important, and in first Tier suppliers of whom 46% rate this as very important. It is to be expected that those suppliers undertaking large amounts of prototype work will be most concerned with this issue, but at plant level not all sites will have this function. With regard to the importance placed upon comparison of production launch and quote, the average position of Italy may be an indication of problems previously experienced between suppliers and Fiat/Iveco. Conversely, the Australian perception is once again that this issue is unimportant in comparison to the tracking and managing of prototype programs (the only pre-production issue which Australian suppliers rated above the median).
Product execution discipline
Overall, competitive purchasing is considered to be the most important product execution discipline (Fig. 14). Finite scheduling received the lowest rating across all regions. The ratings by supplier Tier are constant across the three, although, purchasing competitively is more of an issue in Germany, possibly due to suppliers' worries about the costs of the German location. Suppliers in South Africa and the USA also appear to be voicing these concerns.
Fig.14 - Product execution discipline - overall rating
a) Purchase competitively
Price pressure is most strongly felt in the USA (66% of supply plants rate this as a very important issue), South Africa (65%) and Germany (63%). The price pressure in the USA has already been referred to. Of course, Germany has long been a relatively high cost production location in Europe, but has balanced this with high productivity and higher value-added products. The emphasis by German supply plants (shown elsewhere in this survey) on R&D and quality issues shows this strategy remains key to long term competitive success. Interestingly, in terms of the supply base as a whole, it is the second and third Tier, small-to-medium size firms that also rate purchasing competitively as very important. Of second Tier supply plants, 59% rate this issue as very important, as do 56% of those in the low revenue category.
b) Flexible schedules
Flexible scheduling of manufacture is more of an issue in France, UK and USA than in Germany and particularly Australia. However, it should be re-stated that Australian suppliers gave generally lower ratings for the importance of the business process issues than all other countries. In contrast with the findings of the survey on Just In Time and sequential production, where the UK gave the lowest rating to the issue, the UK rates flexible scheduling of manufacturing almost as highly as France (46% in the UK rate this as very important; 49% in France). In fact, concern is even greater in the USA where 53 % of suppliers rate this as a very important issue. Certainly, it has been the North American vehicle manufacturers that have been most fervent in their desire to improve flexibility. Again it is not just in the first Tier level that concerns over this issue are strong (49% of suppliers rate this as very important), 44% of supply plants in the medium revenue category rate this issue as very important, as do 43% of second Tier supply plants.
c) Exact Just In Time (JIT)/Sequential
The view of Just In Time (JIT) and sequential delivery revealed by the survey shows some surprises. While European suppliers as a whole consider this more important than suppliers elsewhere, it is notable that in the UK, home to several Japanese vehicle manufacturers (Nissan, Honda, Toyota), supply plants rate the issue so low. Only 24% of supply plants in the UK consider JIT and sequential delivery as very important, compared with 74% in Italy. What is less surprising is the distribution of responses in terms of size and position in the supply chain. Of first Tier supply plants in Europe, 58% rate JIT and sequential delivery as very important.
This reinforces the message that new approaches to the vehicle manufacturer-supplier relationship are percolating through the supply chain, but the process is far from complete. Both South African and Australian suppliers show a marked lack of interest on this issue - 29% and |26% respectively considered this very important. One explanation may be the relative isolation of the two industries. Exact JIT/sequential delivery control may be 'hotter' issues in Spain and Italy and as such are seen as being more important than is the case in the UK, South Africa and USA, where perceptions may be colored by previous experience.
d) Plant Maintenance
The findings on 'Plant Maintenance' are also noteworthy. In the UK, 10% of supply plants rate this issue as not important at all, but in Italy 60% rate it as very important (Fig. 15). Such a spread of views is difficult to explain. Perhaps one partial explanation is the historic underinvestment in capital in the UK, and an overall finance rather than production bias.
Fig.15 - Importance of plant maintenance
The rating of this issue in terms of plant size and Tier level accords with the wider picture painted by the survey. In terms of plant maintenance it is the very large and the very small supply plants which do not rate plant maintenance as an important issue, while it is the intermediate size plants which do so most. Of second Tier plants, 45% rate this a very important issue, as do 49% in the middle turnover revenue group.
Larger, first Tier supply plants perhaps have newer, larger and more recent investments and are most likely to have already adopted planned maintenance programs. They are likely to have acquired the bulk of their production equipment direct from the machine maker, and may well have bought into (i.e. outsourced) the major aspects of the maintenance program. Very small suppliers at the third Tier level are more likely to have older equipment, long amortized in terms of the original investment, in which maintenance is simply a question of keeping the equipment going as and when necessary. It is a feature of equipment that the older it gets the more unpredictable becomes the failure mode. Between these two extremes are medium-sized suppliers, most likely to buy second-hand equipment and most in need of planned maintenance programs but perhaps lacking internal resources to undertake the task.
Of the Australian industry, a remarkable 29% consider plant maintenance as not important at all in terms of its contribution to continued business success in the automotive industry.
Customer Service and Logistics
Geographic, rather than size/Tier status, differences are more evident in the survey findings on customer service and logistics. Inevitably, these are geographic issues in which place, location, infrastructure, etc. will all make a difference.
Fig.16 - Customer service and logistics - overall rating
As expected, faster communication is the most highly rated issue overall. There is a clear grouping of issues. The more positively rated factors are:
- Faster communication
- Automatic response to customer re-scheduling
- Transport and distribution planning
- Schedule manipulation and progression
Factors which were rated closer to the median are:
- Integrated electronic commerce
- Integrated time and attendance
- Integrated payroll
a) Faster communications
The emphasis on faster communication and automatic response to re-scheduling is part of the wider picture in which inter-relationships and demand-pull supply have become important. In the UK, only 38% rate this issue as very important, compared with 71% of those in Germany and 68% of those in Spain (Fig. 17).
Fig.17 - Importance of faster communication
A similarly low rating is given by UK supply plants to the issue of transport and distribution planning, where only 20% rate this as very important compared with 56% of those in Spain. Perhaps UK plants still have a largely UK customer focus, and in this context logistics and delivery are quite simple. In many cases (for example Ford, Nissan) the vehicle manufacturers arrange logistics via independent specialists or in-house.
On the other hand, the comparatively low rating given by UK suppliers of the importance of faster communication indicates that these respondents may feel that this has been achieved, along with the influence the of Japanese transplants bringing greater schedule stability. Higher ratings from Germany, Spain and South Africa indicate then that they are probably more realistic about the current status and the potential for improvement. However they may have longer supply routes which become costly in times of schedule instability. Automatic responses minimizing this expense. Again, there is little variation between Tiers.
The US has not benefited from a unified approach to EDI as Europe has. Hence the unifying experience of the Automotive Network eXchange (ANX) initiative has reinforced the importance of improvement.
Australian CKD production is supported via a very long sea supply chain. As the assembler has visibility of this pipeline in weeks, a stabilising effect on local production occurs, as forward schedules are firm, obviating the need for re-scheduling.
b) Transport and distribution planning
Transport and distribution planning is an area where more outsourcing is occurring and is consequently perceived as being less important (Fig. 16). If much of the logistics function is subcontracted this ceases to be so much of an issue. UK, France, Australia and USA are taking the lead in this area.
c) Integrated electronic communications
Fig.18 - Importance of integrated electronic commerce
The ratings given for 'importance of integrated electronic commerce' appear to be inconsistent with the ever increasing use of e-commerce in the market and therefore there may have been some confusion in respondents' understanding of the term (Fig. 18).
Human resource management issues are typically regarded as unimportant in comparison to the others. Hence, integrated payroll and integrated time and attendance both achieve an overall median rating. Ratings such as these can be considered as comparatively low rather than average, as there is a tendency for respondents to score positively rather than negatively. Tier One companies rate automatic response to customer re-scheduling higher than those that class themselves as Tier Two and Tier Three. Spain and Germany again give similarly high ratings, as do the USA and South Africa.