Monitoring quality at Takata

The last few years have been rather rough on Takata. Once the firm could accurately have been described as a fairly anonymous auto parts supplier. Your car may have contained some components made by Takata, but you were likely unaware of just what they were. That has changed rather significantly has it has come to light that the firm has produced a large number of defective airbags. Defective in the sense that they explode and send shrapnel into the car as opposed to inflating. To date, numerous automakers have recalled over 24 million vehicles in the US. To put that number in perspective, total car sales in the US set a record at 17.5 million last year.

As you might expect, the firm has been involved in the requisite activities of apologizing and ass-covering. As part of the latter, they commissioned a committee led by a former transportation secretary to review how the firm has managed. The resulting report doesn’t pick a particularly nice picture (Takata Lacks Processes for Tackling Air-Bag Defects, Panel Says, Wall St. Journal, Feb 2).

Takata Corp., the supplier behind defective air bags in millions of recalled vehicles, lacks clear processes for tackling potential safety defects and needs improved manufacturing methods, an outside panel the company commissioned found.

Takata employees tasked with raising safety concerns don’t have well-defined roles and rely on reports from auto makers about quality problems instead of ferreting out problems themselves, according to the report from the panel led by Samuel Skinner, the former transportation secretary under President George H.W. Bush.

The report found Takata lacked its own program for spotting defects in air bags once they’re installed in vehicles that now typically stay on U.S. roads for more than a decade.

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Who would build an Apple car?

Apple is apparently getting serious about cars. It came out this week that building an electric car is now a “committed project” at Apple (Apple Targets Electric-Car Shipping Date for 2019, Wall Street Journal, Sep 21). But that raises the question of who would actually build it for them. It’s not that Apple has never made stuff before, but recent years they have generally leaned on the likes of Hon Hai Precision Industry (aka Foxconn) to assemble phones and laptops and such on their behalf.

That got me thinking about a quote from Carlos Ghosn, who runs both Nissan and Renault, that appeared last week in Automotive News (Ghosn sees tough time ahead for industry disruptors, Sep 18).

Renault-Nissan CEO Carlos Ghosn said aggressive hiring of auto industry executives by software companies shows how vital it is for new players to understand manufacturing and vehicle design. …

The complexity of cars means it will be tough for new players to enter the auto industry. ..

“That is one of the reasons you are seeing the outsiders massively hiring engineers from our industry. Why? Because they need to understand the product more in order to make the transformation they think they can make,” Ghosn said at a press conference here Wednesday.

Ghosn is not the only one thinking about what it would take for a tech giant like Apple or Google to get into the auto business (Apple and Google Create a Buzz at Frankfurt Motor Show, New York Times, Sep 17).

“What is important for us is that the brain of the car, the operating system, is not iOS or Android or someone else but it’s our brain,” Dieter Zetsche, the chief executive of Daimler, the maker of Mercedes vehicles, told reporters at the car show. IOS is Apple’s operating system for mobile devices.

“We do not plan to become the Foxconn of Apple,” Mr. Zetsche said, referring to the Taiwanese-owned company that manufactures iPhones in China.

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How are West Coast port problems affecting supply chains?

As you may have heard, West Coast ports are having some labor issues. The Pacific Maritime Association (which represents the shipping lines and terminal operators) and the International Longshore and Warehouse Union have been going at it, affecting about 20,000 workers at 29 West Coast ports. (Can’t name 29 Wet Coast ports? See here.) The LA Times has a nice summary of what is in play. In a nutshell, management claims that the union is engaging in a slow down (effectively striking while getting paid, see here) while the union claims that they are responding to safety concerns (at LA and Long Beach) and that management is misrepresenting their position. In any event, what has resulted is lots of delays and a  slew of ships waiting off the coast for their chance to unload. (Never seen a slew of ships? Check out these images.)

OK, that’s all well and good, but how is this affecting supply chains? The sheer scale of the problem is rather mind-blowing. If it were just a question of losing one port, things wouldn’t be too bad. Ships bound for LA, could be sent to Oakland or Seattle. But it’s the entire West Coast. If the goods need to be offload to an US port, that means going all the way to the Gulf Coast or the East Coast. It’s not clear that is an easy solution. Part of why LA and Long Beach are such busy ports is that they have an entire infrastructure to support them. Even if a ship could get to, say, Charleston, it’s not clear that it would do a lot of good for some of the customers whose stuff is on the ship. If a company’s whole logistics system is based on breaking bulk in the Central Valley, having a bunch of containers in South Carolina is, at best, an inconvenience.

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Incentives in scheduling service

When should phone calls go to front-line service personnel and when should they go to a call center? The best arrangement obviously is going to depend on the setting so let’s consider the case of a car dealer considered in a recent Automotive News article (Call center keeps the service bays packed, Jan 23). The dealership in question has two stores — a Honda dealership and an Acura dealership. The status quo had service calls going directly to the service advisers, i.e., the folks who speak to customers when they drop off their cars or call them with news about what problems were found and how much it would cost to fix it. The proposal would route inbound calls looking to schedule appointments etc to a call center instead of the service advisors.

Now, it seems upfront that there are some real benefits of pulling these calls out of the service department. The call center would keep advisors from having to ditch in person customers to take call. It would also allow for some pooling across the stores. However, these efficiency gains are not what sealed the deal for the dealership. Rather, it was the opportunity to gain better control over scheduling.

“We were able to regain control of scheduling appointments in the service drive, and that’s important because we’re only open a certain amount of hours, so we want to load our shop,” says Proctor, managing partner of Metro Honda and Metro Acura in Montclair, Calif. “The service advisers didn’t see it that way.” …

By creating the call center, Proctor took service scheduling away from service advisers. They are often reluctant to book small jobs, such as oil changes and tire rotations, because they earn smaller commissions on those jobs compared with, say, a three-hour brake repair, he says. …

Proctor’s inspiration for the call center came about 21/2 years ago. He was listening to recordings of randomly selected inbound dealership calls, and one especially disturbed him.

“A customer wanted a warranty-repair appointment, and our associate said no appointments were available for three weeks,” Proctor says.

The customer wanted it done sooner. Proctor listened in shock as the service adviser gave the customer a competitor’s phone number to do the work, he says. ..

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Managing quality risk in the auto industry

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.

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Shifting power in auto supply chains

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?

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Making cars in Mexico

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?

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Coordinating a service supply chain

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?

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The cash-to-cash cycle across industries

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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BMW’s new i3 electric carbon car

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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