PSA has refined and continued to refine its manufacturing organization, and achieved good results in terms of cost reduction. However, it may already have reaped most of the benefits of this, and suppliers need to look for new ways to help PSA further reduce costs and maintain its market position. Susan Brown reports


PSA’s defining feature is the fact that it remained independent throughout the mergermania period of the 1990s, and kept a clear focus on profitability. As a result it now has a very lean and efficient model program focused on just three major platforms, and one of the most advanced modules and systems strategies of all OEMs. It has particularly good utilization of engines and transmissions, which it also sells to other OEMs. At the same time PSA is producing a number of exciting new models, increasing volumes (now over three million units per annum) and has good capacity utilization. According Pwc AUTOFACTS, PSA is a leader amongst OEMs in several key areas. “PSA’s organizational and product focus brings benefits and it is bucking the global trend by both growing sales and boosting its bottom line,” said Calum MacRae, an analyst with PwC AUTOFACTS.


Supplier relations are central to PSA’s strategic objectives of growth, innovation and profitability, and it expects supplier relations to become increasingly important. Suppliers will need to help bring new and innovative products to market quickly and more often, and by operating its “Extended Enterprise” policy, PSA expects them to co-operate in its platform and module policy, operate flexibly with good cost control, and expand internationally with PSA. These core aims are reflected in the results of SupplierBusiness.com supplier satisfaction survey, which finds PSA broadly on a par with Volkswagen in terms of increasing pressure on suppliers to reduce price, and demanding ever higher quality. It compares well with other OEMs surveyed so far in its willingness to reward cost saving ideas, and this is an area that will help define PSA in the next few years.

Click to enlarge

Forward model plans
PSA has a very cohesive platform policy and modular architecture, enabling 26 new products between 2003 and 2006, according to the company. Three platforms, named PF1, PF2 and PF3 will account for 85% of vehicles made by the group in 2004, and the target for 2006 is above 90%, said Herve Guyot, director of purchasing at PSA. The table below highlights the three main models and the three JV programmes, one with Toyota in small cars and two with Fiat, in MPVs and vans.


Ahead of this reorganization, the only plant that had been making vehicles on a single platform was the UK plant at Ryton. The changeover to the new platforms and model line-up will be complete by 2006 when the new 207, replacing the 206, comes on stream. PSA is currently at a peak in its model cycle. The last time it was at a similar peak was 1990.





































 
Platform Main models Original assembly plants New assembly plants
PF1 106 (107), 206, C2, C3 Aulnay, Poissy, Ryton, Sochaux Aulnay, Poissy, Ryton, Madrid, Trnava (Slovakia)
PF2 307, Xsara (C4) Rennes, Mulhouse, Madrid, Vigo (Aulnay and Poissy also to make older models in this size) Mulhouse, Sochaux, Vigo (Tall-bodied vehicles only at Vigo)
PF3 406 (407), 607, C5, C6 Sochaux and Rennes Rennes
Toyota JV Names to be confirmed Kolin, Czech Republic All new plant
Fiat JV MPVs and vans Valenciennes (France), Val di Sangro (Italy) No change

Source: Modules & Systems Report, to be published by AutoBusiness later in 2004

Extended Enterprise
The purchasing division is headed up by Herve Guyot and is part of the Platforms, Engineering and Purchasing Division (DPTA), in turn headed up by Gilles Michel. Group purchasing amounted to €27.5bn in 2002. The Purchasing Division has local representatives in the different countries where there are production centres of the Group (Spain, Great Britain, Brazil and Argentina).


PSA views its supplier relations as an “extended enterprise” with five key facets. In a written response to SupplierBusiness.com Guyot summarized its renewed vision of the extended enterprise as follows:



  • at the innovation stage, we have modified our organization so as to benefit from the supplier’s proposals, and we have innovation agreements with our main suppliers;

  • our specifications are more functional, and less technical, and the suppliers have the full opportunity to propose the best technical and economical solutions to our projects;

  • the suppliers have to follow our project organization, with its milestones;

  • industrialization so as to be able to meet our ramp up deadlines, and

  • securitization of the serial deliveries.

PSA has a total of over 850 suppliers, representing 459 financial groups, but just 19 suppliers account for over 50% of PSA’s purchases. They are the main beneficiaries of the “extended enterprise” and will account for 70% of PSA’s purchases in the medium term, according to forecasts by PwC AUTOFACTS.






The Top 19 suppliers to PSA



  • Arcelor

  • Autoliv

  • Koyo

  • Bosch

  • Visteon

  • ZF

  • CF Gomma

  • Lear

  • Magneti Marelli

  • MGI Coutier

  • Siemens VDO

  • Faurecia

  • Johnson Controls

  • TRW Automotive

  • Continental

  • Michelin

  • Delphi

  • Valeo

  • Trèves

Source: PSA Peugeot & Citroën


Outsourcing
Despite being a proponent of a modules and systems strategy, PSA has held onto component manufacture and assembly in a number of areas for longer than its competitors. For example, PSA still assembles some seats at Sochaux, France and also meets a large proportion of the company’s needs for shock absorbers. It also maintains some wiring harness assembly and assembles dashboards at its Poissy plant.


More outsourcing is likely to take place as PSA extends its modules and systems policy further, although Guyot explains that “we do not intend to use modules, which would not bring value in design and inustrialization. For instance the door module is not implemented at PSA.”


51 key modules and components have been selected for use across the three core platforms. The company has indicated that it will give out more responsibility to suppliers, but equally it intends to remain as the key overall integrator and vehicle designer.


Although PSA has not officially released the full set of 51 modules, which have been selected as the basis of this approach, they are understood to include the following areas and the key components within:



  • Powertrain, ie engine, transmission, ECUs

  • Steering

  • HVAC and climate control

  • Seats

  • Brakes, including ABS

  • Radios and telematics.

In addition, bumpers, front-ends and cockpits have been designated as modules, but they will not necessarily be standardized across models owing to the need to retain design flexibility and allow for visual differentiation between models and the Peugeot and Citroën brands. As outlined in the Wagon profile, PSA has also outsourced assembly of a niche body structure for the first time, with a 307 CC model


Cost reduction
Pressure to reduce price has increased in the last two years, according to virtually all respondents to our survey. Like all OEMs pressure to reduce prices is a big factor, and several respondents noted that this was a critical issue to their relationship with PSA.


Click to enlargeCrucial to achieving cost reduction at PSA are the application of a modular strategy and improved productivity. PSA expects suppliers to improve their cost competitiveness during production, by working with suppliers to enhance productivity and add volume by re-using modules in other models.


At the start of this decade PSA established the Committee for Commonality, Savings and Standardization (CCETS). This largely unpublicized team has been responsible for extending the idea of commonality and standardization beyond the key “headline” components referred to above. The CCETS has identified diverse areas of the car that can benefit from standardization, such as loudspeakers, seat fabric, airbag initiators and many other “hidden” components.






PSA terms and acronyms


ISA – Automotive Systems Engineering
SOD – new Operational Development Chart
DPTA – Platforms, Engineering and Purchasing Division
DRIA – Automotive Innovation and Research Division
CCETS – Committee for Commonality, Savings and Standardization


60% of the value of components is shared between vehicles on a given platform. Furthermore there is strong interplatform standardization. This allows PSA to achieve economies of scale. The strategy has been applied to powertrains since 1999.


Standardizing on less obvious parts has potentially significant savings throughout the supply chain. Common fabrics can mean savings on raw materials, including dyes, plus time saved on dyeing, which in turn saves processing costs; these can be further reduced through adopting common processes and using one set of machinery. Furthermore, commonization in this area saves on storage costs for raw materials and finished or semi-finished goods alike.


Between 1998 and 2002, PSA claims the early part of its platform-based approach to parts and module sharing had already saved €300 per vehicle; this is expected to rise by a further €150 per vehicle by 2006. Total savings by 2006 are expected to reach €800m, while manufacturing efficiency improvements – as outlined below – will save €350m per year by 2006.


One respondent to our survey noted that there are advantages from PSA’s platform policies but that it is difficult to make further cost savings. “Platform policies make much bigger volumes and PSA expects price reductions accordingly, not always possible.” Another criticized the use of quality controls as a cost-reduction tool, “PSA use the Quality File to pressure suppliers to reduce prices – this is a constant threat.”


























Supplier Innovation Plans

Bosch Safety, passenger
comfort, pollution control
and fuel consumption
Trèves Passenger comfort, noise
levels, integrated safety
systems in the interior
compartment and the
engine bay
Magneti
Marelli
Drivetrains and chassis
modules, heating and
cooling systems
management, onboard
telematics and
communications systems,
and electrical and
electronic equipment
Pechiney Aluminium, long-term
sourcing contract
Valeo Active safety and comfort
Delphi Active and passive safety,
passenger comfort and
onboard energy
management. In
November 2001, both
partners presented three
demonstration models,
which incorporate
technologies designed
together under the terms
of this innovation plan

Source: PSA Peugeot Citroën

Design & development
One of the areas of improvement in purchasing that PSA is working on is involving suppliers earlier in the development process, according to Guyot. He says that in that way PSA can “benefit from technico-economical improvements from the supplier, and collaborative development management so as to optimize our development costs and pricing.” PSA aims to reduce development time from three to two years and suppliers are required to be strongly involved in the Group’s modular policy by applying its new design methods. PSA has invested heavily in unified CAD and digital mock-up technology. “More than 130 suppliers use the digital mock-up,” said Guyot.


Innovation
PSA seeks innovative solutions from suppliers and the purchasing department works closely with the group’s Automotive Innovation and Research Department (DRIA) to push forward suppliers’ ideas. It states four strategic areas of innovation – namely safety, reducing fuel consumption, improving the ‘on-board experience’, that is making it easier for passengers to get in and out of vehicles, improving interface ergonomics and developing the connected car, and finally developing new vehicle concepts, as it has done with cars such as the sports couple-cabriolets and C3 Pluriel.


To try and foster innovation PSA has linked with six key suppliers and established Supplier Innovation Plans. These include involving suppliers early in the product development process and a period of exclusivity for new technology. Six suppliers have signed cooperation agreements covering areas described in the table.


PSA’s focus on innovation does pose some risks to PSA, according to MacRae. “Experience has shown that technology and feature innovation are a competitive necessity, but it does not confer sustainable competitive advantage. Technology and feature innovation is not the answer on its own.” According to MacRae, the real source of innovation for PSA suppliers should be in process improvement, so that they can offer their customer lower costs. “Process improvement and cost improvement are as important as technical and product innovation,” he said.


PSA is realistic about the extent to which it can tie-in suppliers’ technology. “We always ask for an initial period of exclusivity on a given innovation, but we are also aware that, for the price to go down, the innovation must be sold to other customers,” said Guyot.


To further support its innovation strategy the Group is putting its design and technical teams into a new Design Center later this year. It is designed to allow teams to develop and build more concept cars and new production models more quickly.


At the end of 2003 PSA joined AUTOSAR, a cooperation program amongst several OEMs and key electronics suppliers, designed to supply a common software architecture for in-vehicle electronics. This is development, which could help contain R&D costs. Electronic systems currently represent 20% of the a vehicle’s production cost at PSA – a percentage, which it says could increase sharply if no measures are taken to generation economies of scale through measures such as AUTOSAR. PSA’s joint venture partner, Toyota, joined at the same time, giving a further impetus to the project. Gilles Michel, head of Platforms, Technical Affairs and Purchasing and member of the Executive Committee, said: “Our membership in AUTOSAR is consistent with our strategy of useful, affordable innovation for all. AUTOSAR ’s software architecture will be an important lever for maintaining a high level of innovation in our line-up, from economy models to luxury vehicles.”


E-business
PSA was involved with Covisint at an early stage and has used many of its tools, but it also developed its own dedicated supplier portal alongside – www.psa-suppliers.com.


The PSA portal hosts applications that are considered strategic,or that are not available elsewhere. The portal is divided into three areas:



  • A shared area open to all authenticated suppliers;

  • Supplier areas, to enable one-to-one communication between each supplier and the Group;

  • A collaborative area, to enable communication between several suppliers and the Group.

  • he portal offers a large number of application services supporting co-design (the digital model),

procurement marketing, quality, logistics (the monthly production program), and document management (reference and standards documents).


Click to enlargeMost suppliers surveyed found the experience of using e-business tools offered by PSA as broadly positive, although several companies commented negatively, when they compared it with other OEMs’ supplier portals. One company said that it found the PSA supplier portal time consuming, and that it had a bad experience of access times and that the availability of the service is too complicated. Another said it found it difficult to input data. Another that it found information difficult to locate – which is surprising given that usually supplier portals are normally considered extremely reliable as a reference tool. Many suppliers said they were using the supplier portal successfully to access production forecast data.


Internationalization
Over 60% of PSA’s output is in France, and a slightly higher proportion of purchases are also sourced from France. By 2010 the proportion of PSA’s output from France will have fallen by ten percentage points, to just over 50%, according to PwC AUTOFACTS, so it is logical to expect sourcing from outside of France to increase too.


The bulk of PSA’s growth is in eastern Europe, which means that PSA’s future is heavily dependent on the region. It has two ventures in the region adding 500,000 units of capacity. PSA is also investing in China and announced in January 2004 that it would double its capacity at its joint venture plant in Wuhan to 300,000 units. It will also open a purchasing office in China this year to increase sourcing from the region. While Toyota has responsibility for designing the cars built at the jointly-owned plant in the Czech Republic, PSA is responsible for purchasing.


Supplier parks
The first PSA supplier park was established not in Europe but in Brazil, attached to its plant at Porto Real. This has been in operation since 2001 and has only recently been followed by the setting-up of a supplier park at Rennes, France. The supplier park in Brazil houses a Faurecia plant, which supplies seats and exhausts, Vallourec, with both front and rear axles and MAC Magneto, with stampings.


The establishment of a supplier park at Rennes coincides with the introduction of the 407 and C6. Around 30 key PSA suppliers already have plants within 30km of the plant, but the need to move to sequenced deliveries of highly variable components persuaded PSA to set up its first European supplier park. Visteon is the first company to set up there and four components have been selected for the initial round of sequenced deliveries. They are fuel tanks (Inergy), door panels (Visteon), and air-conditioning (Visteon); wood trim will also be delivered on a sequenced basis, and other components from Trèves, Faurecia and other suppliers will follow within the next two to three years.


PSA claims the supplier park serving Rennes will save up to 40% on upstream transport costs and as much as 20% of the time in the internal supply chain can be cut. Furthermore, the supplier park is expected to reduce order-to-delivery times, improve production flexibility and component flows – gaining up to two days in the production process. However, there are no known plans for other supplier parks in France, mainly because most PSA suppliers already have plants in the region, if not adjacent to the assembly plants.


Outlook
Of concern is that PSA has grown margins by cutting costs, and there may be limited scope to cut costs further, says MacRae. “Volume and mix growth will be harder to win in the future,” he said. PSA is losing its competitive advantage as competitors apply high volume platform strategies more successfully and spin off new models. PSA has already benefited from the growth in diesel and new product niches (eg Xsara Picasso, Partner), to a large extent, and MacRae is forecasting only marginal growth for PSA by 2010. Critical to its success will be its ability to continue to innovate, not just in terms of new technology but also in terms of more efficient processes and therefore lower costs. Suppliers have a key role to play here.






















SWOT Analysis of Supplying PSA

STRENGTHS WEAKNESSES


  • Good application of platform and modules policy

  • Good e-business facilities in place

  • Supports suppliers with patent applications and cooperates on advance technology development – cooperation champion


  • Has kept some key component operations in-house

  • At peak of model cycle

  • Little further scope for cost reduction

  • Ties in suppliers’ innovation
OPPORTUNITIES THREATS


  • Scale from application of platform and modules policy

  • Link to Toyota through new joint venture – PSA has responsibility for procurement

  • Expansion in eastern Europe could bring opportunities for new sourcing relationships

  • Top 19 suppliers can expect good growth

  • Some potential for further cost reduction from supplier parks


  • PSA losing competitive edge

  • Heavily reliant on growth from eastern Europe?

  • Opportunities are probably limited for suppliers who are not part of the top 19

  • Over-dependent on product innovation – needs other sources of competitive advantage

Source: SupplierBusiness.com