Introduction
By now, automotive materials and components suppliers
should be well aware of the changes in procurement practices which have swept through the
vehicle manufacturers of the west as they have sought to emulate their Japanese
competitors. In Europe and in the USA that process of change has been given added impetus
by the arrival of Japanese transplant assembly plants and a growing R&D presence,
together with the arrival of Japanese components suppliers. So, with existing western
vehicle manufacturers emulating the new lean supply practices of the Japanese, and with
the growth in the direct Japanese presence, the 1990s have seen a continuing
transformation in the way automotive components companies do business.
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Across Europe, the vehicle manufacturers have cut the
number of direct suppliers with whom they deal from thousands to hundreds – in the process
a first tier of suppliers has been created. To date, the main thrust of competitive
strategy in the automotive components sector has been positioning to ensure first tier
status. This has entailed two main elements:
- Internal organisation and systems to ensure the procedures
and practices are in place to deliver quality supply - The search for market leadership in well-defined product
areas
The vehicle manufacturers themselves have invested
considerable effort into ensuring that their supply base is effective. In particular, they
have developed teams of staff whose role it is to audit all aspects of the suppliers’
business – even down to the detail of shop floor layout – and to lay down the terms for
continuous improvement. Materials and components suppliers may be forgiven for thinking
that this is enough. Quite simply, it is not. That is, the ‘Japanisation’ of the
supply base is only a first step for the vehicle manufacturers who, in the face of
mounting competitive pressures and some fundamental threats to core areas of technology,
are seeking to create new ways of thinking about components and materials supply.
The vehicle manufacturers – new procurement
priorities
The automotive materials and components suppliers are well
aware of the emphasis placed on quality by the vehicle manufacturers in recent years, and
equally are well aware of the huge pressure being exerted to contain price increases in
the supply base. Indeed several vehicle manufacturers have taken a more aggressive stance
and demanded year-on-year price reductions from the supply base. We can identify three
main issues in procurement which are underpinning the transition to modular supply:
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By GlobalData- Continuing developments in the search for higher quality
- A wider view of cost savings
- New materials and technologies
Quality and productivity – entry level requirements
There is a growing awareness of the costs to the vehicle
manufacturers of managing the supply base. Large numbers of vehicle manufacturer staff are
engaged in quality and performance audits, logistics, invoicing and contracts, etc. while
the components and materials suppliers often have to face a variety of (sometimes
conflicting) procurement systems run by each vehicle manufacturer. To an extent, the
system approach to quality as epitomised in the Ford Q1 has been seen to have failed, or
at least that while such systems do help ensure that suppliers get the basics right they
have not formed a sound basis for continuous improvement.
The next logical development, therefore, is for quality
systems to become harmonised (and this is already happening in Europe with various vehicle
manufacturers entering bi-lateral agreements to recognise each others’ quality
accreditation), and ultimately to become so firmly embedded in the supply base as to need
much less management from the vehicle manufacturers. The most likely format is QS-9000,
which builds upon the well-known ISO 9000 requirements and is being promoted by Ford, GM
and Chrysler and affects their world-wide suppliers. So, we may expect the vehicle
manufacturers to outsource quality control – putting a greater burden and responsibility
on the supply base. A residual hit squad of production engineers, quality staff and other
key personnel is likely to be retained by the vehicle manufacturers, so that they may be
dispatched to any supplier with a particular problem at any time.
Quality and productivity must be taken as more of a given,
a basic entry requirement because the vehicle manufacturers are not prepared to keep
investing in developing this in suppliers. But this does not mean that quality is no
longer an issue, on the contrary it is one of several areas where pressure will continue
to mount on suppliers.
‘We have to get tougher on quality issues
because our customers are getting tougher on quality issues. They demand more and so must
we.’
Ed Hagenlocker, VPAutomotive
Operations, Ford. Quoted in Automotive International, September 1996, p3
New thinking on costs
The second major development in terms of procurement by the
vehicle manufacturers is a growing willingness to take a wider view of cost savings. Thus
far, the focus has been on driving down the delivered cost piece price. Various vehicle
manufacturers have announced freezes on components spending, as did Ford in 1995 for
example.
The next phase is to credit suppliers with cost reductions
if they introduce innovations which reduce costs for the vehicle manufacturer themselves,
for example by reducing the assembly time required to fit a part. That is, rather than
simply seek a piece price reduction, the vehicle manufacturers are taking a broader view
of costs. It also gives suppliers the opportunity to gain competitive edge by offering
services which add-value to their products. As we explain below, modular supply is a key
element here because it drives down the direct assembly hours required per vehicle. It is
illustrative that when Ford introduced a raft of ‘modularisation’ changes to its
Valencia plant in order to build the new Ka model, the number of parts per car directly
handled by Ford workers fell from some 3000 (for the existing Fiesta model) to 1200 for
the Ka, and that as a result final assembly time fell by 25%. It is possible to take this
process further, and have supplier staff actually working on the final assembly line to
install their components, as happens at the VW Brazil plant in Rensede, which produces
light commercial vehicles.
New materials and technologies
At the same time as these major changes to procurement
practices are being pushed through the supply chain, the process of technological change
in the automotive sector remains extremely dynamic. The automotive industry is well used
to the continuous development of established core technologies and sub-technologies. What
is different, however, is that now more than ever before the vehicle manufacturers are
moving into completely new materials and technologies to form the basis of radically
different products.
Some of these new technologies can be bolted on to an
existing vehicle with relatively few implications for the rest of the vehicle –
navigation systems would be an example. Others are much more fundamental, and much more
likely to have widespread impacts throughout the supply chain. Prominent examples here
include battery, electric or hybrid powertrains, and alternatives to the all-steel body.
The vehicle manufacturers act to co-ordinate a constellation of suppliers, but rapid
technological change will entail creating new constellations. In the future material
choices and technology choices will be driven by environmental issues.
The vehicle manufacturers – new R&D practices
The R&D process in the vehicle manufacturers is
critical to the emerging module supply system. By placing responsibility for the detailed
development of a limited set of modules in the hands of suppliers, the vehicle
manufacturers are seeking to reduce co-ordination costs in the R&D process. In a bid
to drive down costs while simultaneously increasing product variety to meet market
fragmentation, the vehicle manufacturers are adopting a two-pronged strategy:
- Platform rationalisation
- Modular design and differentiation
So, in all the vehicle manufacturers the intention is to
reduce the number of vehicle platforms, but also to increase the number of models produced
from each platform. Platforms give core economies of scale over high- investment items in
the vehicle body and suspension, and in powertrain items such as the engine and gearbox.
The vehicle manufacturers are aware of the need to deliver product differentiation to
consumers, and that this must go beyond mere re-badging of models if it is to be
believable. As a result, differentiation is being sought at minimal cost in all areas of
the vehicle which are visible to the consumer. Suppliers involved in core platform
products will clearly enjoy very high volumes across a range of models. Suppliers involved
in product differentiation will face a more difficult and unpredictable situation as their
fortunes may be tied to those of one particular model, rather than the platform as a
whole. The way in which a vehicle manufacturer chooses to define differentiation and the
proliferation of variety will have important consequences for suppliers, especially in
terms of how a module might be defined.
As in production, the vehicle manufacturers are acutely
interested in reductions in development cost and time, and modularisation makes a
contribution here too. Suppliers are provided with performance parameters, packaging
constraints, and cost limits, and then expected to engineer components to meet these
requirements. Major changes in procurement practice also tend to happen at new model time
– it is for these reasons that, for example, the impact of VW’s ex-Director of
Purchasing (Sr. Lopez) – will most clearly be felt on the next generation Golf due out in
1998.
In placing more responsibility on their suppliers, the
vehicle manufacturers are in effect looking for a more pro-active approach to problem
solving. The automotive components industry has often been told that it must meet
‘customer requirements’, but modularisation implies an extension of this
thinking. Again, an example might help to illustrate the point.
In the case of vehicle body structures, the primary
suppliers are the steel materials producers (e.g. British Steel). They have been active in
developing new skills and resources to help the automotive manufacturers get the most out
of steel – for example by developing technical centres with expertise in steel flow under
pressing. This is indeed serving the customer. But what if the best solution to making car
bodies is in fact a multi-material solution embracing aluminium and plastic? If the steel
companies were truly interested in serving customer needs, as opposed to selling more
steel, then it might be the case that external body panels are better made from plastic.
In which case, the problem-solving automotive supplier would have to present such a
multi-material solution. At present in the automotive sector the various materials
suppliers (aluminium, steel, plastic) are aggressive in defending any and all parts of the
vehicle which uses their material regardless of merit.
So, for automotive components and materials suppliers, the
terms of competition are shifting under modularisation. In the past, the main competitive
threat to a supplier was from the supplier of a similar component or material. Under
modularisation, depending on how this is defined, the threat may come from unexpected
quarters. In the next section, we show how modules might be defined, before moving on to
give some recent examples.
