Original Equipment Manufacturers (OEMs) are
very demanding and regulatory in their requirements from their suppliers. As the biggest
manufacturing industry in the world, the competitive nature of the Automotive sector has
pioneered new management techniques, which are adopted by many other industries. In
Europe, the US and Japan, OEMs are dealing with a mature market. This is a replacement
buying market in which they develop:

  • more niche type vehicles
  • with more options
  • and made-to-order

This development of vehicles is done with
quicker time scales to produce vehicles cheaper. In turn, this generates the revenue for
survival. As the root of the strategy of all the OEMs this unifies the whole Industry in
managerial focus.

Car buyers today get a lot more for their money. In the past, chrome wing mirrors
were comprised of three parts and could be placed on either side of the vehicle. Next,
door mirrors arrived making adjustment from the driver’s seat practical. An internal knob
design was introduced and eventually, a button was designed to electrically adjust the
mirror. Another step further saw the invention of electrically heated mirrors. In
addition, the development of paint processes for plastic resulted in coloured mirrors.
This increasing complexity means the Industry must manage 20 components that can be
assembled into 256 derivatives or options on a single model range. The effect on
schedules, data and sequencing has grown from this progress.

Time to market
Time to market describes the time taken to develop a car from the drawing board
to first production. Reducing the time to market for new models saves costs in development
and delivers to niches quickly. To do this, OEM’s are delegating design and development to
super suppliers or Tier Ones – in turn, they can provide the expertise to produce the
parts and to design, develop, assemble and project manage modules on behalf of OEMs.

Production and distribution
OEM’s see a significant opportunity to release capital tied up in inventory by
compressing the delivery time for a car. A reduction of 80 percent is being planned. This
time can be reduced by the customer directly inputting the order onto the OEM’s production
facility. From here, the schedule for that vehicle will cascade through the supply chain.
This results in the delivery of modules, assemblies and components on a Just In Time (JIT)
basis. The car can then be made specifically to the customer’s order rather than for
stock. This process demands the late configuration of sub assemblies.

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Time to market, derivatives, make-to-order
and delivery time compression have led to the supply base being re-organized into a
different hierarchy. The tiered structure of three levels or more is being developed
throughout the Industry. This is leading to mergers and acquisitions, joint ventures,
expansions and investments. The effect on the Industry will be a reengineering of this
hierarchy, as activities previously undertaken by the OEM are passed to Tier One suppliers
who, in turn, pass them down the chain.

What effect does this have on IT?
Niche design and make-to-order will complicate the control of suppliers
manufacturing processes as assembly work done previously by the OEM is out-sourced. The
articles presented in this guide will give an insight into how IT is facilitating the
leaning process that can be called Lean IT.

Facts and figures
Figure 2 presents a good picture of the OEM’s motivation for change. The cost of
components and assembly are 70 percent of the vehicles’ cost which leaves 30 percent in
sales and distribution. This puts the pressure clearly on the component suppliers. However
as 80 percent of the cost of a product is determined in the design, stronger links are
required between the suppliers and the OEM’s for cost savings. Sales, distribution and
dealer costs at 30 percent give another opportunity for improvement and pull systems are
being engineered into this avenue.


Fig.2 Contributions
to the cost of a car


Figure 3 shows components traditionally
supplied by the OEMs themselves. The engine, body and gearbox only account for 35 percent
of the vehicle costs, so the OEM sees its supplier base as the best opportunity to reduce
the product cost. This places more pressure on suppliers in an area where lean IT can

Fig.3 Components breakdown of a car – by value
35.5% Vehicle
Seats and seat belts
Road contact parts
Plastic parts
Electrical equipment