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automotive industry report f Together in the fast lane To alleviate pressure generated by rising costs and the need to innovate, automobile manufacturers are increasingly transferring development and production tasks to their suppliers. With the right cooperation strategy, productivity and quality can show double-digit increases. : Wendelin Wiedeking, Porsche’s CEO, was worried. In June 2004—and for the second time in just four months—the Stuttgart, Germany-based car manufacturer had to recall its Cayenne model. After experiencing problems with the cable harness in February, the car now had defective seatbelts. Another warning signal surfaced in the malfunction rankings compiled by ADAC, a German automobile club. Porsche had recently dropped a few places because its new cars broke down up to three times more frequently than those of its German competitors. The company’s solid reputation was at stake, and Wiedeking placed the blame firmly on the company’s suppliers. He accused them of modifying production processes to cut costs without coordinating the changes with car builders. “At some point I’ll reveal the names of the suppliers,” Wiedeking said angrily in June. Despite the company’s sustained success, the Porsche CEO had now been acquainted with the downside of growth. At Porsche’s new plant in Leipzig, Germany, where the Cayenne is assembled, suppliers were responsible for almost all aspects of production. Porsche, in turn, had kept less than 10 percent of the production process in-house, putting it well below the industry average. For example, the engine of the six-cylinder Cayenne V6 does not even come from the original equipment manufacturer (OEM). Volkswagen delivers the engine block, and the Porsche engineers have only reworked the motor management. Nevertheless, Porsche’s fate does not depend on its suppliers, says Wiedeking, as long as the company has a handle on all of the processes in its value chain. “The traditional role of OEMs is changing,” says Professor Ferdinand Dudenhoeffer, head of the Center for Automotive Research (CAR) in Gelsenkirchen, Germany, outlining the consequences of this development. “They need to become more like conductors who don’t play instruments AUTO MANUFACTURERS HAVE LESS AND LESS TIME TO READY NEW DEVELOPMENTS FOR THE MARKET themselves but can draw the best out of their musicians.” The importance of the interplay between car manufacturers and suppliers is also highlighted in a study titled “Automotive Engineering 2010” by <strong>Roland</strong> <strong>Berger</strong> Strategy Consultants. According to this study, US auto manufacturers have less and less time to develop a market-ready product once the design is established. From 1994 to the present, this development period has been cut in half to around 18 months. The global rollout of production models is also accelerating. In the early 1990s, Volkswagen took more than five years to get the Jetta, already introduced in Germany, trimmed out to suit the tastes of Chinese buyers. In comparison, with its Sunny, Nissan recently took less than six months to do the same. However, research and development budgets are not keeping up with this accelerated process. On average, a mere 4 percent of total revenue has in recent years been made available to engineers for new developments. “That won’t change anytime soon,” note the study’s authors, Mahesh Lunani and Wim van Acker. “The OEMs need to develop more with fewer funds, and to do this they need the expertise of suppliers.” Researchers at the Fraunhofer Institute for Production Engineering and Automation in Stuttgart believe that to meet these challenges, the OEMs will be forced to continue reducing the proportion of production they keep in-house. This is forecast to drop from 35 percent today down to as little as 20 percent by 2015. That’s just one of the reasons why many CEOs in the auto industry are adopting a cooperative tone when dealing with their suppliers. “We rely on close cooperation between the development division and suppliers, starting with the first pencil sketch,” says Martin Winterkorn, chairman of the board at Audi. Tony Brown, head of purchasing at Ford, wants to reduce purchase prices by 15 percent and is taking pains to maintain good working relationships. He says, “The pharaohs got bricks from the SUCCESSFUL MANUFACTURERS ARE DISTINGUISHED BY AN ABOVE-AVERAGE WILLINGNESS TO COOPERATE Israelites by the ton, but I doubt they were getting top quality.” His credo is, “Both sides need to feel good about what they’re doing.” An above-average willingness to cooperate with suppliers does indeed appear to be a key criterion for success. This was substantiated in a study of Toyota Motor Corporation conducted by Jeffrey Dyer and Nile Hatch at Brigham Young University’s Marriott School of Management in Provo, Utah. The two professors were trying to discover why think: act 41
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