Rethinking Cost -- Engineers, managers a world apart

Once a year we get Christmas, once a year we get Thanksgiving and once a year we get a new Harbour report. The day that the Harbour report comes out is not yet a national holiday, but the press and some auto industry dignitaries treat it as sort of a holy rite.

I have written many times that the numbers in the Harbour report, when put in their proper context, do not represent what most people thinkthey represent. The Harbour report provides excellent media fodder for some sensational stories. The media like it because the productivity comparison is easy to grasp. The press is not too much concerned that the report is an oversimplification. The industry, on the other hand, doesn't question the report because it uses the numbers to gain more concessions from organized labor.

The Harbour Report also raised eyebrows when last year it rated Nissan as the most efficient carmaker. Soon after, Nissan revealed it was on the verge of bankruptcy and later had to be bailed out by Renault.

This is not a contradiction to me, because I have pointed out on numerous occasions that worker efficiency is only part of what affects the total cost of a car.

It's like the old story, if you want to know every thing a horse eats you don't go to the horse's rear, you go to the front and check out the trough he's eating from. The same holds true if you are looking for ways to reduce the cost of a car. You have to look at all aspects that make up the cost including selling costs, administrative costs, investment, etc., and not just labor costs because it's the easiest to measure.

Although many things make up the cost of a car I would like to concentrate on its design. The design engineer can have a large impact on a majority of the cost of building a car. The most obvious is assembly and part costs. However, he also can have a significant effect on the cost of repairs, warranty and insurance. Design can have subtle effects in other areas, as well, such as customer satisfaction.

You would assume that all information related to these major cost areas would be at the fingertips of the designer and engineer. Apparently this is not the case, based on a survey made by Patrick Dessert PhD., director of the Product Development and Manufacturing Center at Oakland University.

The survey went to both management and engineers at the Big Three and to all of their large suppliers. I was most impressed by the wide disparity between the information that engineers said was available to them and what their managers thought was available.

Piece-cost information was the only area in which both managers and engineers totally agreed that they had the information available to make the necessary decisions in creating their designs. In the major areas of repairs, warranty and insurance, however, the necessary cost information was not available to the engineers, according to their replies in the survey.

It's hard to believe this situation exists, especially when automakers continually talk about how serious they are about cutting costs.

Repair costs, for example, are a major customer complaint because they have a direct effect on insurance costs. If responsible evaluations are not being made when creating a design, you can get some bad distortions between piece cost and repair costs. Let's say an engineer has several options on how to design the front end of a car, which includes the bumper, the grille, and the headlights. He selects a modular design integrating many of the pieces into a single part, thereby reducing the overall cost by $4 or $5.

But if you damage the front of the car, even slightly, you would have to replace the entire front end. The cost could be up to half the original cost of the car. This sends the customer's insurance cost sky high.

According to Dr. Dessert's study, GM alone spent $3.5 billion a year on warranty work and has 22 million claims per year.

All of the car companies have huge warranty costs, and they all talk about programs to reduce these costs. Yet you have to question the effectiveness of these programs. There are cars with designs that make it almost impossible to get at the battery. In some cases it's a real chore just to get jumper cables on them, and you could have a 1- or 2-hour warranty claim just to remove the battery.

There also are plenty of cases where you end up with a $200 repair bill when what needs to be replaced is an inexpensive item.

The survey also notes that the skill level of the mechanic to find a failure in the car's system in some cases is equal to that of a surgeon.

The bottom line of this report is that design engineers, for the most part, do not take into consideration many factors that could have a dramatic effect on costs. Nor do they have the information to make these decisions. Also, to a surprising extent, the report says managers believe that engineers have the information to make evaluations.

Those of you interested in the full report can contact Prof. Dessert, c/o Oakland University, Rochester, MI 48309-4401. Also, I would like to hear from you engineers in this regard. o

- Stephan Sharf is a former Chrysler Corp. executive vice president for manufacturing