When you thing of the auto industry, you likely focus on big players like Ford, General Motors, Toyota and Mercedes. Names like Magna International and Denso may not mean a whole lot to you. But you should know those names. They likely make more of your car than you realize. “Mega suppliers” like Magna and Denso have been growing for years and in the process have been sifting the balance of power in the industry (Age of mega supplier heralds danger for carmakers, Financial Times, May 18).
There are now 16 major car manufacturers that sell more than 1m vehicles a year. But those cars are built from parts supplied by just 10 major component makers – meaning that under the individually styled bodywork, cars are sharing more parts.
Whether a driver chooses to buy a BMW, an Audi or a Mercedes-Benz five-door saloon, the chances are high that the anti-lock brakes will be built by Continental, the battery will come from Johnson Controls, and Denso will have provided the exhaust
Bosch, the world’s largest automotive supplier by revenue, reckons that at least one of its parts is built into almost every new car sold anywhere in the world – regardless of brand, market, price point or geography.
The article goes on to note that the top ten suppliers capture 60% of the revenue generated by the top 100 suppliers.
Given this situation, two questions seem relevant. First, how did automakers find themselves in this situation? Second, what are the implications for how the industry functions? (more…)
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Posted in Auto Industry, global operations, Manufacturing, Network, Operations Strategy, Supply Chain, tagged Auto Industry, global operations, Manufacturing, Operations Strategy, Supply Chain on March 13, 2014 |
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Check out this spiffy graphic from Automotive News on the evolution of auto assembly in Mexico (Japanese automakers march into Mexico, set up export base, Mar 10).
That expansion has to a large extent come at the expense of the rest of the North American industry as this graph from the Chicago Federal Reserve demonstrates.
Note that overall assembly capacity has declined. That’s not too surprising. The industry was generally seen as being overcapacitated, and the Big Three took the never-let-a-crisis-go-to-waste route to reduce the number of factories and resize their business. But Mexico clearly gained and it is forecasted to gain even more. Here’s another graph from the Chicago Fed.
It should be noted that this growth is driven by Japanese brands. GM is the only US or European firm to open a new plant following NAFTA. All the action lately has been due to the likes of Honda, Mazda and Nissan. Given this growth in capacity, it is not too surprising that Mexico is expected to pass Japan this year and Canada next year to become the top source of imported cars in the US. But why has there been such a rush invest there? (more…)
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Ford has a new version of its F-150 pick up coming out. That per se isn’t all that exciting to me, but everyone says that thus truck is a big deal because of it represents a shift from steel to aluminum. Here is how Dan Neil put it in the Wall Street Journal (Detroit’s Big Three Are Returning to Excellence, Jan 17).
But now, without further eloquence, the news: Ford changed the game this week when it unveiled its aluminum-intensive pickup truck, the 2015 F-150, that is as much as 700 pounds lighter than a comparable steel-bodied vehicle. In an industry that celebrates the power of small numbers and incremental weight savings, 700 pounds is a staggering figure, and it is weight savings that directly and proportionally improves hauling and towing capacity and fuel economy, which are prime metrics in the truck segment.
Wait, Upper West Sider, don’t rush off to the wine column. To the casual observer, the anticipated 3 mpg (20%) increase gained by Ford’s high-tech “light weighting” (a term of art) may seem marginal, but I assure you it is a figure of immediate and national consequence. … By virtue of the hundreds of millions of miles rolled up by the F-series annually, you are looking at the single biggest real-world advance in fuel economy in any vehicle since the Arab oil embargo.
So all that aluminum gives us a game changer — and not just in the realm of fuel economy. Automotive News reports that it has major implications for Ford dealers and their body shops (Ford dealers will gear up to fix new F-150, Feb 3). Ford’s collision marketing manager (that’s just a great job title) says that 80% of repairs on the new F-150 can be done in a standard body shop but that other 20% is going to require special capabilities — in part because aluminum dust reacts badly with steel parts so aluminum work must be kept physically separate from the rest of the shop. All told, a dealer needs to spend 30 to 50 grand in order to be ready for the F-150.
How is Ford going to make that happen? (more…)
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I spent this weekend in Miami (OK, Coral Gables) teaching the core Ops class for an executive MBA section. One of the topics we usually cover in the core (especially with execs) is the cash-to-cash cycle. The cash-to-cash cycle (intuitively) measures how long it takes a firm to capture the gain on its investment in inventory. Mathematically, it consists of days of inventory plus days of accounts receivable minus days of accounts payable. Thus when a firm purchases inventory, it takes a while for those goods to sell. It may then need to wait to collect cash from its customers. However, it may get credit from its suppliers so time in inventory may be offset by the time it has to pay its suppliers. Taken together, these measures give an idea of how effectively a firm uses its working capital. It also may suggest where the firm should target improvement. For example, benchmarking might show that its accounts receivable is out of whack with industry norms so that could be a real opportunity to pursue.
As I said, I had to teach this stuff this weekend. Fortuitously for me, Supply Chain Insights just happened to publish a whole report on the cash-to-cash cycle packed with data and eye candy (Supply Chain Metrics That Matter: A Closer Look at the Cash-To-Cash Cycle (2000-2012), Nov 11). To start with, here is some data on how cash-to-cash cycles vary across industries and over time.
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Posted in Auto Industry, global operations, Green ops, Innovation, Luxury goods, Manufacturing, Network, Offshoring, Product Development, product variety, Technology on November 13, 2013 |
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Three weeks ago, I had the pleasure to visit one branch of my extended family and BMW Welt (BMW World), the “multi-functional customer experience and exhibition facility of the BMW AG, located in Munich, Germany.” Supposedly, BMW Welt is the second most popular tourist destination around Munich, after Neuschwanstein Castle which inspired Disneylands’ Sleeping Beauty Castle. If you like architecture or cars, you should visit BMW Welt.
OK, but this is the Operations Room, so what else is worth knowing? It turns out that this month, BMW starts selling in Germany its long-awaited i3 (the USA will have to wait until 2014) and here’s some personal pictures to highlight three aspects:
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The National Highway Traffic Safety Administration maintains a website that users track how many motor vehicle recalls there have been this month. As I am writing this, there have already been 17 in November. As the graphs below show, there have been an increasing number of recalls in recent years affecting an increasing number of vehicles.
Those graphs come from an Automotive News article (Despite quality improvements, costly safety issues continue to dog automakers, Oct 28) that gets to an interesting question: If the general quality of cars has improved, why are there so many more recalls? (more…)
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A few weeks ago we had a post on 100th anniversary of Ford’s moving assembly line. Now the New York Times has an article on how the assembly line has evolved at Ford and other automakers (100 Years Down the Line, Oct 29). What stands out is how Ford and others are seeking to manage variety.
Flash forward to today, inside Ford’s five-million-square-foot, ultramodern Michigan Assembly Plant in the city of Wayne. Nearly 5,000 hourly workers staff the plant in three shifts. The assembly line is three miles long and features more than 900 robots. In the last four years, Ford has spent more than $500 million to refurbish the plant, which dates from 1957.
What makes the plant unusual is the variety of vehicles it makes. Its primary product is the Focus, one of the best-selling cars in the world. But the factory does not just build Focuses with traditional gasoline engines. It can also build them in electric and plug-in hybrid versions.
And the company recently added production of the new C-Max Hybrid — a smallish wagon that shares many parts with the Focus but has an entirely different shape and style.
Recently, as Focuses and C-Maxes hummed smoothly along the line behind him, Mr. Fleming, the Ford executive, said that the company was intent on making all its plants as flexible as Michigan Assembly.
“Within the next five years, our plants globally will be able to produce an average of four different models or derivatives of a model,” he said.
So how is Ford able to manage so much variety on one line? (more…)
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A few months ago I had a post on stair-step incentives. These are incentive schemes that car manufacturers offer dealers that essentially pay rebates on cars that have been sold once sales cross a specified threshold. In that post, I noted that these schemes had the potential to skew competition in local markets:
If you and I own competing dealerships across town, I have a serious leg up on you if I am the first to reach a threshold. I can price more competitively since I know that I am guaranteed to get a rebate while you are still striving to make the threshold. Note this makes everything all that more sensitive to how individual dealer thresholds are set. If mine were skewed low while yours were too high, it’s game over and I eat your lunch.
Obviously, from a dealer’s perspective, this is an issue. Dealers don’t necessarily know how car makers set their targets. They, for example, may be basing targets on national trends that may not apply locally. Further dealers may be facing challenges that the automakers don’t know (e.g., a top sales person just left). Even if a dealer knows how his target was set, he may not know what the target is for a neighboring dealer of the same brand or what is happening with a competing brand. Hence, he could be blind sided when a competing dealer reaches her threshold and starts pricing very aggressively. Is there an easy answer to this dealer’s conundrum?
Enter the New Hampshire state legislature. (more…)
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The early years of my research career were largely focused on supply chain contracting with some focus on the auto industry. I am consequently a sucker for any good story about how automakers use their terms of trade to bend dealers to their will. Thus I read a recent Automotive News article on stair-step incentives with interest (GM stair-step aims to juice Chevy sales, Aug 19). Stair-step programs are dealer-based incentives based around quotas. A car manufacturer may offer a dealer three targets, say, 50, 100 and 125 units. If the dealer sells 50 cars in a specified time period (often a month), he will get, say, $500 per car rebated back to him. If he gets to 100 units, he would get something like $1,000 back per unit and then a bigger number if he goes over 125. So stair-step schemes offer bigger and bigger rewards as sales go up. The actual mechanics of plans can differ. For example, the increased rebate from crossing higher and higher levels may go back to early sales. For example, crossing from 124 to 125 in my example, may mean getting the top reward on every car sold that month. The other complication is what actually counts toward the target. Stair-steps may apply only to some models or to a wide set of models. The article notes that Chevy’s current program is exceptionally broad.
Sales of 2014 and 2013 Impalas, Camaros, Cruzes and Sonics are eligible under a GM stair-step program for August. The program pays dealers escalating bonuses as they hit factory-set sales thresholds. Sales of 2013 Malibus also are included; the 2014 model of the mid-sized sedan goes on sale this fall. …
Dealers say it’s unusual for GM to include so many nameplates in one stair-step program. Some also were surprised that the incentive includes the redesigned 2014 Impala, which has won critical praise since its May debut, including being rated the top sedan by Consumer Reports.
So why are stair-step programs interesting?
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If you look at what it costs an automaker to build a vehicle, purchased components are going to represent a big, big chunk. How an automaker deals with its suppliers and how it chooses just who is going to make what is then critical to its overall success. Automotive News has a pair of stories that highlight how two carmakers are taking somewhat different approaches to managing purchasing.
First up is Chrysler which is opting for a kinder, gentler approach to sourcing. Specifically, it is floating the idea of assigning some parts without putting them out to bid (Chrysler pilots no-bid contracts on new minivan, Aug 5). Essentially, Chrysler is willing to guarantee that a supplier gets the work if it is willing to share a significant amount of financial data.
Chrysler Group is using its next minivan to pilot a collaborative, no-bid purchasing system that guarantees favored suppliers a profit but requires them to open up their financial books. …
The presourcing arrangements between an automaker and supplier are designed to allow both to cut engineering costs, build trust and improve long-term planning. They are common among suppliers at Honda Motor Co. and Toyota Motor Corp., but haven’t caught on among domestic suppliers. …
Long-term, no-bid agreements give suppliers more predictable revenue, allowing them to invest with reduced risk. And suppliers say they provide their best technology to automakers that are loyal to them and offer the best profit opportunities.
For automakers, the no-bid agreements help ensure an uninterrupted flow of parts and access to a supplier’s best technology.
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