Week of May 26, 2003
Snapshot from the Field
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Taking the Leap Beyond 'Lean'
Site Selection and Conway Data, Inc.
BIRMINGHAM, Ala. So you want to compete with the manufacturing practices of the world's best automakers?
Buckle your seatbelt. Your ride is about to accelerate.
At the recent Automotive News Manufacturing Conference in Birmingham, Ala., top executives from OEM's and Tier 1 suppliers told 300 attendees that what they see on the shop floor today isn't anything like what they'll see in a few years.
The factories of the future will use more technology, occupy less space, employ fewer workers and require less capital.
That may not be what economic developers and labor unions want to hear, but that's what's happening.
"Efficiency is the big thing," said Tom LaSorda, executive vice president of manufacturing for DaimlerChrysler Corp. (www.daimlerchrysler.com). "Our bolder objective is transformation of the company, and manufacturing is the minister of flexibility."
That transformation is already taking shape, said LaSorda. Program spending has been cut by $11.7 billion in just two years. "Our five-year capital plan slashed our overall program from $41.9 billion to $30.2 billion," he said. "And we are doing this while launching new products. Our goal is to match Toyota's quality by 2007. At DaimlerChrysler, we are in the game again."
Strong words and ambitious goals, but they echoed virtually every other speaker at the three-day forum. Titled "After Efficient, Then What? The Next Frontiers in Manufacturing," the conference showcased bold plans of OEM's and top suppliers to rebuild factories and retool companies.
The common denominator: no one's standing pat. DaimlerChrysler may be trying to catch Toyota in quality, but General Motors has its sights set even higher.
"Within 10 years, our goal is to become the leanest and most focused automotive company in the world," said James Wiemels, vice president of global manufacturing for General Motors (www.gm.com). "Our goal is to fulfill Chairman Jack Smith's vision to become the best auto company on the planet, not just the biggest."
But the executives didn't just share corporate goals. They shared the tactics they're employing to achieve new levels of efficiency and profitability.
The bottom line: suppliers will be asked to do more, supply-chain logistics will be more critical than ever, and flexible factories are the wave of the future.
'Squeezing' Suppliers or Stretching Them?OEM's don't like to use the term "squeezing" when talking about relationships with suppliers, but it's clear that every company in the automotive assembly supply chain is being stretched to new limits to achieve better results for the world's largest car companies.
Emil Hassan, senior vice president of manufacturing, purchasing, quality and logistics for Nissan North America Inc. (www.nissan-na.com), explained how this works at Nissan's new $1.4-billion vehicle assembly plant in Canton, Miss.
"When we were planning the plant, we wanted to develop a facility where the integration of our supply base, quality systems, manufacturing techniques, logistics networks and our productivity levels could be both blended and challenged to achieve even higher productivity and quality targets," Hassan said. "Integrated manufacturing requires a collaborative effort with our supply base, where Nissan learns from its suppliers and our suppliers learn from and grow with us. It demands a lot of flexibility, which is the first component of our process."
Hassan explained that, in Canton, Nissan uses common assembly lines and what the company calls "Flexible Manufacturing System (FMS)" to keep production fluid. "For instance, in our body shop we'll have one body main and respot line, which will be fed by various floor and body-side lines," he noted. "The benefits of this are obvious reduced floor space, reduced capital investment for changeovers and a more agile response to changing market conditions."
Tight Supplier Clustering a MustThis requires supplier proximity, said Hassan. "In Canton, we have suppliers attached to our plant and also located nearby. Some of them are actually on our property."
By having suppliers close, Nissan reduces transportation costs, reduces inventory and is able to share many of the benefits that module assembly achieves.
A number of suppliers share space in Nissan's on-site Logistics Center. Suppliers provide glass, headliners, wire harnesses and other commodities at the LC after completing their final assemblies.
Within just a few miles of the plant, other suppliers provide assemblies such as seats, frames and trim components. Still other suppliers are in other parts of Mississippi, where they provide parts like stampings, exhaust systems and suspension components.
"It is not about squeezing suppliers," said R. David Nelson, vice president of global purchasing for Delphi Corp. (www.delphi.com). "It is about getting costs out of the manufacturing processes and out of the parts."
Delphi squeezes out costs by using a common manufacturing system in every one of its plants around the globe. For a company that had 2002 sales of $27.4 billion, said Nelson, "Lean is Plan A. There is no Plan B. We must become leaner in our plants and help our suppliers become leaner in order to be more competitive."
Delphi spends $15 billion a year buying parts and services from more than 7,000 suppliers. About 80 of those companies are "core" suppliers, said Nelson, echoing another trend in the industry - fewer, but larger, suppliers.
Slicing Costs in the Supply ChainMaking all parts of the supply chain work together seamlessly falls to the logistics and transportation experts.
Slicing costs in this area is critical, contends Bob Parker, vice president of research for AMR Research Inc. (www.amrresearch.com), because the median performing company in the automotive sector spends 30 percent of its revenue on supply-chain management. "Supply-chain costs are high, and they're getting higher," he said.
One company bucking that trend is Caterpillar. Ron Kruse, president of the client services division of Caterpillar Logistics Services Inc. (www.catlogistics.com), said his company achieved 23 percent cost reduction in logistics over three years. Moreover, he said, the company improved its inventory availability service from 94 percent to 96 percent.
"By 2006, we will have achieved more than $300 million in savings through improved logistics," Kruse said. "There will be no 'best' logistics operating model, but successful models will align logistics, supply chain and business strategy."
Caterpillar achieved these results through effective partnering with niche experts in logistics and supply-chain management. The firm also realigned its various logistics operating units by core competency.
Honda's Goal: 14-Day Order/Delivery Cycle TimeHonda did something even more basic: it purchased a new fleet of trucks.
Charles Ernst, plant manager and vice president of operations for Honda Manufacturing of Alabama LLC (world.honda.com/HondaManufacturingAlabama), said his company follows a mantra that guides every aspect of production: "Move material the shortest distance using the least amount of space in the shortest amount of time."
Honda replaced all of its sleeper-cab trucks with day-cab trucks and saved $18,000 per truck per year. Honda now uses day trips instead of overnight drives to transport its finished Odyssey minivans, saving the company more than $400,000 a year.
"In the coming months, one of our greatest challenges is to lower the dealer order/delivery cycle time from the 30-day period where we are now to a 20-day turnaround, and eventually to just 14 days," said Ernst. "During the 18 months HMA has been in mass production, we have had reports where our Alabama-built Odysseys have rolled off our final line on a Monday and were parked in a customer's driveway by Friday. And a few of our nearby Honda dealers have told us about receiving 'factory fresh' Odysseys at their lots just one day after we made them in Lincoln.
"Of course, that's probably the ultimate dream of both the manufacturing side and the retail side of the industry - to sell as quickly as you can build."
Thanks to new technology transforming automotive manufacturing, that dream is quickly coming true.
©2003 Conway Data, Inc. All rights reserved. Data is from many sources and is not warranted to be accurate or current.