issue 1 - Roland Berger

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 Roland Berger 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