One of the most significant and potentially far-reaching trends impacting today's auto industry is the shift in the balance of influence, importance and power from auto assemblers (i.e., original equipment manufacturers, or OEMs) to global Tier 1 suppliers.
It's ironic that during this year's centennial celebration of the U.S. auto industry, OEM/supplier relationships are migrating back toward the supplier-OEM model used during the industry's formative years.
Many domestic automobile pioneers launched their businesses primarily as designers and assemblers of automobiles. The manufacture of bearings, wheels, radiators, transmissions and suspension parts was left to thousands of independent entrepreneurs.
Vertical integration, through which automakers owned part or all of their major suppliers, started around 1918 withCorp.'s takeover of United Motors, which included familiar names such as Hyatt Roller-Bearing Co., New Departure Mfg. Co., Remy Electric Co., and Harrison Radiator Corp. Economies of scale, quality improvement and operating control quickly became irresistible advantages.
Henrytook the concept to its logical conclusion in 1929 with the fully integrated Dearborn manufacturing and assembly complex.
And it is many of these same factors --cost, control and quality--that are driving automaker/supplier relationships back to the original supply-chain model. only this time, multibillion-dollar international Tier 1 suppliers and their subsuppliers are manufacturing the parts, assemblies and systems demanded by their OEM customers.
Although goals and some of the strategies may be similar, performance expectations certainly are not.
Performance targets for OEMs by the year 2010 are eye-opening. Automakers are looking for initial product quality of less than 25 defects per 100 vehicles, less than 10 assembly hours per vehicle, 18-month timing from program approval to Job 1, and platform investment of less than $2.5 billion per vehicle, including engine and transmission.
Gradual improvement will not be enough to reach these ambitious goals by 2010. Instead, breakthrough improvements will be required--and global Tier 1 system integrators will be drivers in a new supply-chain structure.Corp., for example, intends to supply automakers with entire interior modules containing everything from seats to instrument panels to door liners.
Eighteen-month vehicle development cycles, two-thirds fewer customer defects and smaller capital budgets undoubtedly will lead to radical changes in the product-development process. Key changes will include an empowered program management structure and more tightly coordinated supplier networks.
Future new vehicle programs will be directed by a vehicle development team leader (VDTL) with "turbocharged" authority rather than simply a vehicle program manager.
Just look at GM's new Vehicle Line Executives. A VLE will be empowered to make decisions within broad program objectives and to ensure that all key vehicle performance goals (including market share, timing, quality and profit) are met. The marketplace will be the ultimate judge of the VDTL's success or failure.
Vehicle engineering and development centers (VEDCs) will become the epicenter for platform engineering and development activities. These centers (one for each new vehicle/platform) might be similar to the traditional space station. Each "system integrator" will occupy a spoke that connects to the center of the VEDC.
The VDTL will manage coordination issues between and among system integrators from the hub of the VEDC. Resident engineers from each of the system integrators will be clustered within and around the spokes, performing a wide variety of engineering and development activities.
System integrators will be selected for each of the main vehicle systems--body-in-white, powertrain, chassis and electrical. These people will be responsible for the systems' design, development and functional performance within the total vehicle.
Key sub-suppliers, such as instrument panel and occupant restraint system manufacturers (for the interior system), will have specifically assigned offices, computers and prototype development rooms.
Other smaller sub-suppliers, such as a console or headliner producer, might have space assigned during select periods in the 1 8-month development cycle necessary for them to perform their design, development and coordination work.
VEDC staff, system integrator engineers and sub-supplier personnel will use one common and fully integrated CAD/ CAM system with substantially enhanced functionality.
Examples of advanced features include common databases, design for manufacturability simulation and analysis, pulldown windows displaying existing parts (to reduce part proliferation) and databases containing hard and soft point locations.
These enhanced systems also will be able to simulate various testing methods, prepare rough-cut bills of material and critical timing charts. Rapid prototyping equipment will be integrated into the system so that packaging, service and appearance issues can be evaluated quickly.
OEMs that achieve a product-development model based on tightly connected supply chain networks, empowered vehicle development team structures and enhanced CAD/CAM functionality will create a significant and powerful competitive advantage.
Shifting the balance of influence may be uncomfortable for the OEMs, but it will be essential for meeting tomorrow's customer expectations.
Craig Fitzgerald directs The Automotive Supplier Consulting Practice and is a principal in the Manufacturing Consulting Practice for Plante & Moran, a Michigan-based CPA firm.