Defining modules – the vital competitive weapon

Of course, the vital issue is the way in which modules are
defined, an issue which is not treated in the same way by all vehicle manufacturers or
indeed by all suppliers. Despite the prevalence of the term, there is no simple or
consistent definition of a module. It is possible to identify a range of approaches to the
definition of modules, which may overlap to some degree:

  • Assembly module
  • Product module
  • Vertical module
  • Horizontal module
  • Integrating module

Assembly module
Here a module is defined in terms of final vehicle assembly operations. That is,
components are defined as modules when they are bulky, labour intensive, fragile, heavy,
have long assembly cycle times, and are liable to vary on a per model basis. This is the
approach taken by Ford at its Valencia plant for example, where the intention is to have
up to 50 suppliers alongside the assembly plant. Note that in the Valencia case not all
these suppliers provide components – there is for example one supplier who has taken on
the task of die maintenance for the Ford press-shop. The assembly module approach may be
overlaid on the existing supply infrastructure. For example, GM at Antwerp uses an on-site
third-party logistics company to assemble and deliver complete bumper units to the final
assembly line. This logistics company takes responsibility for managing the sub-supply
base, but was not the company who lead the bumper design and manufacturing process.

Product module
The process of seeking market leadership in discrete product areas has led to modules
being defined in terms of those product areas, that is within the traditional boundaries
known and understood by the automotive components industry. There are two main forms. On
the one hand, a supplier may define a module in terms of a distinct functional product
(clutch, starter motor, windscreen wiper, etc.) over which it retains complete control. On
the other hand, a supplier may define a module in terms of a range of parts which are
found in a functional product (e.g. engine parts such as pistons, rings, valves, bearings,
etc.) but where the supplier does not control the entire product module.

Vertical module
In the case of the vertical module, the supplier firm offers a range of competencies and
skills in order to win overall control of a module. An example of this is the Krupp-Hoesch
group which can deploy its skills in steelmaking (Krupp and Hoesch), suspension units
(Boge), and suspension/underbody pressings (Tallent, Camford Engineering) to win control
over the suspension module.

Horizontal module
The horizontal module is essentially the result of supply base rationalisation. Instead of
having several suppliers of, say, small body in white pressings, the vehicle manufacturer
has reduced these to just one or two. In the horizontal module the supplier wins control
over all of the applications on the vehicle of their particular product. This might also
be described as a process module whereby a supplier concentrates on providing a particular
area of production expertise – for example NYEL alongside the Nissan assembly plant near
Sunderland undertakes almost all of the small body in white pressings and sub-assembly for

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This pattern has particularly applied to pressings,
castings, material supply and rubber extrusions. However, for many cases this must be
considered a temporary position, a more likely scenario is that in the future these
process-based module suppliers will become integrated into a different definition of
modules. In the case of the Smart model outlined below, it is interesting that Magna (a
supplier of pressed sub-assemblies) has secured the control of the entire steel body frame
structure. It is difficult to imagine this will be replicated in more traditional vehicles
and plants, not least because press-shops represent a core area for most vehicle
manufacturers and have long been an area of high investment for them. As with vertical
modules, most horizontal modules will entail the management of sub-suppliers. They can
however be contained within a single supplier – for example Norsk Hydro supplies the
entire aluminium chassis for the Lotus Elise.

Integrating module
The integrating module is one which seeks to cut across traditional boundaries in the
component supply chain and offer innovative solutions to the vehicle manufacturers’
needs. It is precisely this area which is the most fluid at present, and which is
essentially the competitive battleground for the bulk of the automotive components
industry. The integrating module need not be obvious or even static, rather it is an
elastic and dynamic concept in which suppliers combine and re-combine internal and
external capabilities within networks of relationships to present the vehicle
manufacturers with innovative approaches to vehicle design and assembly.

Modular supply – some examples

It is worthwhile to look at recent attempts at
modularisation in Europe, as they illustrate some of the difficulties involved for both
vehicle manufacturers and their suppliers. Figure 1 gives the examples of the VW Passat
and the Audi A3.

Figure 1. Illustrations of module supply: the VW Passat and
Audi A3

(Sources: Automotive News Europe, 22/7/96 p16; and 16/9/96 p8. Note: * indicates that
engines may also be sourced from elsewhere in the group)

Figure 1 illustrates that for two models within the same
group (VAG) there appears to be little consistency in the definition of a module –
although the two models used do not share a common platform. In fact, some of the items
listed do not appear to be modules at all, merely components. This is illustrative of the
degree of confusion over modularisation. Indeed, the A3 appears to have 16 modules
compared with 26 for the Passat. In comparison Porsche – already the most vertically
disintegrated of the German vehicle manufacturers – defined 26 module teams for the
development of the recently introduced Boxster model. From the list in Figure 1 it would
appear that there is more scope for combining modules – for example driver and passenger
airbags (perhaps an occupant safety module?), and front and rear lights. An illustration
of the problems of defining a module is the view of Audi compared with VW on whether or
not brakes should be considered as part of the axle module:

‘With some partners (i.e. other members of
VAG), the brake is part of the axle. We have our view that they aren’t…We are at
the top end. It is easier for us to have money for disc brakes on all wheels and for the
others maybe not.’

Martin Freudenberg, Product Development Manager, Audi A3, reported in
Automotive News Europe, 22/6/96 p16

It is interesting that in the case of the Passat, VW
defined just six core teams to control the development process; engine, gearbox, body,
interior, electrical and chassis. The Passat shares the front axle with the Audi A4, and
the rear axle, fuel system, exhaust system, and floorpan with the Audi A6 due in Spring,
1997. By using the platform concept, VW claim to have saved some DM0.5 billion, reducing
total development costs to DM1.6 billion – with subsequent savings in engine designs and
other powertrain items. In contrast, visible differentiation according to VW amounts to
about 40% of the value of the car but 60% of the development cost.

Perhaps the best example of modularisation in Europe is
that of the new Mercedes/Swatch Smart model. This is because not only is modularisation
taken much further, but also because it impinges upon all aspects of the relationship
between the vehicle manufacturer and the suppliers at the point of production. In the
cases of the VW Passat and Audi A3 outlined above, VAG had to contend with existing plants
and practices, the consequences of years of tradition, and this may have circumscribed the
extent to which modularisation has been achieved. VAG has also to contend with the need to
reconcile the demands for platform rationalisation with those for product differentiation
across a range of models. In the case of the Smart however, Mercedes and Swatch were able
to take a new design and an entirely new plant, new working practices, a new supply base,
and new procurement practices – and then integrate them into one ideal factory. Figure 2
shows the system and component module suppliers for the Smart model, both on-site and


Figure 2 Illustrations of module supply: The
Mercedes/Swatch Smart
(Source: L’Information du Vehicule, July 1996 p36)

In seeking suppliers for the Smart model, Mercedes also
sought to establish a new set of rules concerning the vehicle manufacturer – supplier
relationship. This new set of rules included an agreement in advance to significant
year-on-year price reductions. Even further, for those areas considered to be core modules
(i.e. those located alongside final assembly at Hambach) suppliers had to lease their
factory space from a Mercedes/ Swatch holding company – in other words pay their customer
for the privilege of geographically proximate supply.

It is interesting to note that this is precisely what Ford
has done in Valencia where, with the help of state aid, the company has transferred a cost
(in the form of its own seat assembly operation for example) into a source of revenue by
bringing in an external supplier under a lease contract to the site. In this context, it
would appear that some qualified European suppliers declined to participate in the Smart
model on these terms – one reason perhaps why Magna (a Canadian company seeking a
foothold in the European market) was prepared to become an on-site module supplier. Even
the production flow in the Hambach plant has been configured to reduce to a minimum the
distance (and hence time) between the module assembly operations and the final assembly
process. So Hambach does not have the linear flow of a traditional final assembly plant –
the final assembly area is in fact cross shaped.

One consequence of this approach to modularisation is that
a higher proportion of value added is undertaken by the supply base. It is indicative that
final assembly at Hambach will add only 20% to value, because the bulk is contributed by
the large module suppliers alongside. However, as was evident in the Passat case above,
the vehicle manufacturers are still quite willing to describe in-house operations as
module suppliers and this may mitigate the true extent to which more of the added-value in
vehicle assembly is outside the vehicle manufacturers themselves.

The examples of modularisation above also illustrate a key
point about modules from a supplier perspective – that in many cases the leadership of a
module is not self-evident once traditional boundaries are crossed. While it may be
obvious, for example, that the light supplier should control the light module, it is by no
means obvious which supplier should control a front end module. Candidates could include
the supplier of radiators; or lights; or plastic bumpers; or the structural elements of
the body-in-white; or the external body panel supplier; or even (as in the GM example with
bumpers discussed above) a supplier of logistical and sub-assembly services.

Similarly, it is entirely possible that new definitions of
a module will emerge: perhaps safety management would be a category; heat management might
be another. In a recent case, Siemens has created a joint venture with a plastics
mouldings/interior trim company Sommer Alibert to create a focus on entire vehicle
interiors. Yet, it is also the case that some seating suppliers have sought to move into
the entire vehicle interior trim area.