Here is an interesting factoid for you: 24% of all the vehicles manufactured right now are built on just ten platforms. What’s more, by the end of the decade that number is expected to grow to 30%. The number comes from an Automotive News article that looks at some of the consequences of the trend (With the push for standard parts, quality is key, Aug 6).
First, why automakers are trying to move in this direction is clear. Being able to build multiple model off one basic platform saves a ton of money in product development as well as tooling and build manufacturing facilities. Further, they benefit from a bit of risk pooling; if one model is not selling particularly well, that may be offset by another that can be built at the same plant. Thus, even if a model slumps, all that expensive capacity is till being used. (See this post from last fall on how Ford is cutting its number of platforms from 15 to 9.) Globalization also plays a part in this. What kinds of vehicles sell well might vary across different continents, but if European, Asian and North American models can all be built on the same platforms, manufacturers with a global footprint can be ever more cost competitive.
But what about suppliers? With purchased components making up a significant chunk of the cost of a vehicle, car makers would like standardization there. In a perfect world, you would have the same break system on every model built on a platform, but that brings challenges.
“The requirement that we face is clearly to develop products from the outset in such a way that they can be used in all the platform derivatives without the expense of making changes,” said Sabine Woytowicz, regional quality director at Valeo in Germany.
But with mass standardization, a part with a quality problem can now be supplied to millions of vehicles. That puts a premium on quality. …
Martin Thier, director of corporate quality management at the Mahle Group, said: “When obtaining an order, we check its feasibility for both product development and manufacturing even more closely.”
It comes down to “knowing precisely what you do, what you can do and how good you are at it.”
For example, he said, there is now a more intense interest in investigating how an inconsequential error in one part would produce an effect in a different component.
This is an interesting intersection of product design, risk management, and supply chain management. From the perspective of product design, the rationale for standardization is clear. While it benefits the firm making the cars, there are clearly gains for the supplier as well — lower development costs and a whole lot of volume. That volume is where the risk comes in. If there is a flaw in the design or poor manufacturing, the resulting complications and concomitant liabilities are going to be huge. It is not clear how those risk should be shared. Yes, some suppliers are big firms whose pockets may be deep enough to recover from a serious mess up but not every supplier would be in that position.
That is where the supply chain management angle comes in. If the suppliers are the real source of risk, then it would be efficient for them to bear the brunt of a failure. They would then have the maximum incentive to avoid problems. However, if risk lies at the interactions between systems, then it may not be efficient to let the manufacturer off the hook. Someone has to have the incentive to really manage the integration of different components and the auto maker is in the natural position to do that. (Of course, one could argue that with their brands at risk, the auto makers have a reason to care about integration even if they can force suppliers to cough up cash when something goes wrong.)
There is another supply chain management twist here:
Meanwhile, internationalization complicates the job of making standard parts and systems. To exploit regional cost advantages, automakers are pushing their system suppliers to make parts purchases in local markets.
But the quality standards of suppliers in different markets vary greatly. That is why system suppliers are increasingly using the approach that they know from their customers: “When there are new product launches, we train our suppliers in the appropriate methods and processes when necessary and go into their factories to make sure there is a stable production process,” Woytowicz said.
So automakers want the same quality in China or Thailand as they get in Michigan or Germany. That puts a lot of pressure on the Tier 1 suppliers. Recently an auto parts plant in China blew up killing 75 workers. The plant was making components for GM but not selling directly to GM. However, as the Wall Street Journal tells it, GM sees managing production at lower tier suppliers is the job of the Tier 1 suppliers (GM Doesn’t Plan to Change Supply-Chain Safety Process, Aug 5).
The auto maker will continue the prevailing industry practice in which car makers rely on their direct component suppliers to monitor the safety standards of indirect suppliers further down the chain, the company’s president said.
“Our tier-one suppliers on a global basis are required to make sure that they are sourcing from suppliers that are implementing the right safety standards,” GM President Dan Ammann said, referring to auto-component suppliers that deal directly with car makers. “We have uniform focus on safety from a company perspective all around the world.”