The Automotive Consulting Group, Inc.

 

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I. Executive Summary

"Doing more for less" is the burden shared by many U.S. automotive suppliers as auto makers extend their outsourcing to include broader requirements. Domestic auto makers are being hard-pressed to further reduce costs to cope with unceasing consumer demands and re-intensifying foreign competition. Suppliers are being asked to assume greater responsibilities in engineering, product development, warranty, and global support while meeting stricter quality and timing standards, and price-reduction requirements. The effects of these demands are cascading through the supply base.

The industry structure has dramatically changed, leaving the traditional picture of assembler versus tiered suppliers obsolete. OEM’s are moving toward a more systems-oriented approach in which a limited number of system suppliers or system integrators – with design, engineering, and other advanced capabilities – supply fully assembled and tested modular systems. OEM's expect these system suppliers and integrators to coordinate both internal and external product development activities with their own supply base.

This restructuring of the supply base, as depicted in Figure 1, has resulted in a fundamental shift. This shift is from a tier mentality to one of competitive position based upon core competencies and integrated supply based management. (1)

Figure 1. Supplier Evolution to Integrated Supply Based Management

(1) Dennis Virag and Norman Stoller, "Doing more for less" in Automotive Engineering, July 1996

As a result of these changes, product development is now a strategic function that critically influences the performance of a supplier organization. How one manages resources, both internally and externally across their supply base, is an important element of the overall product development process.

The extended enterprise is now a reality. Synchronous simultaneous engineering, defined as the process of managing interdependent simultaneous engineering programs across key suppliers in a product development program, is a critical tool for achieving cost, quality and timing targets.

The OEM challenge is clear: How to develop better vehicles in less time and at less cost? The supplier challenge is also clear: How to fulfill the needs of the OEM customer and remain profitable? Both are formidable challenges and it is not likely that every firm will succeed. However, those firms who learn to manage the overall product development process, internally and across their suppliers, will be in the best competitive position.

Best Practices in Product Development among Automotive Suppliers presents the key traits and factors of best-in-class automotive suppliers in product development.

Analyses determined that the following elements define best-in-class practices:

1. Integrated supply based management by early involvement
2. Development tool integration with customers and suppliers
3. Cross-functional and extended project team management
4. Senior management focused project phase reviews
5. Development process metrics and process improvement actions
6. Continuous product and manufacturing process improvement
7. Strategic cross-generational product and platform management
8. Technical, team-based evaluation, reward and promotion systems

Automotive suppliers seeking to significantly increase their responsibilities for design work will find themselves with significant deficits in key management practices.

Even the best-in-class of these non-major designers lack critical capabilities in involving system and subsystem sub-suppliers throughout the product development process, and, in particular, involving sub-suppliers during the concept development, quote packaging, engineering design, and launch phases of product development.

They also lack the experience in leveraging engineering and design work through North American and European sub-suppliers, especially with system, subsystem and tooling and equipment sub-suppliers.

Best-in-class designers with major design responsibilities are more experienced in providing critical specifications to their own sub-suppliers, and co-developing designs with them.

They are better at performing senior management focused project phase reviews, and managing on a cross-functional team basis. Extended project team management capabilities are also greater among the best-in-class of the major designers.

Finally, automotive suppliers seeking to take on major design responsibilities will need to significantly improve their ability to effectively conduct simulations, engineering analyses, and rapid prototyping early and often throughout the design process. Currently they are plagued by a tendency to allow each functional area to specify its own development tools such that individual productivity gains are often offset by functional interface difficulties. They need to dramatically increase their ability to integrate their development tools in-house and with their customers and sub-suppliers.

The competitive landscape of the automotive supply base is changing fast and dramatically. Best-in-class major designers are more able to coordinate the design process internally and across their own supply base. And they are able to do this better on a global basis. These capabilities are significantly related to all dimensions of product development performance, quality, cost and timing.

The best-in-class firms, themselves, still have room for significant improvement in certain areas of management practice critical to product development performance. Among best-in-class major designers, the management practices and capabilities with the most room for performance improvement include:

• Customers’ and suppliers’ engineers being part of the project teams
• Cross-generational strategic management capability
• Internal integrated tool capability
• Technically-based team evaluation and reward system capability
• Metrics enabling product development process improvement by pinpointing areas of greatest impact and providing tools to monitor progress
• Insufficient time being allocated to any given project for team members, due to their multiple project assignments
• Satisfactory involvement and support of sub-suppliers for their product development activities

Best-in-class firms, by definition, have fewer opportunities for significant improvement gains, yet have the ability to improve those deficiencies they do have in a more time and cost effective manner than other firms that are not best-in-class.

The information presented in this report constitutes baseline data on current product development practices of automotive suppliers. Performance relationships identified in this study aggregate general tendencies across suppliers with similar performance pressures. This information can be used to improve product development performance by looking at the methods used by the best companies to deliver customer value.

Companies taking a leadership role today set standards based on their best competitors and best industry practices. Additionally and most importantly, they continually seek ways to attain superior performance through frame-breaking ideas that make the competition irrelevant. Through value analysis, they focus attention on factors which actually deliver the highest value to the customer.

Companies use best practices benchmarking to at least accomplish three objectives:

1. to assess their current performance and practices relative to other companies along dimensions most relevant to customer value;
2. to discover and understand new ideas and methods to improve business performance according to a broad view of the system at play, and break out of unquestioned industry traditions; and
3. to identify aggressive, yet achievable, future performance targets most relevant to customer needs and values.

Benchmarking most effectively leads to bottom-line improvements if it goes beyond information exchange to include two even more crucial objectives:

1. to build desire, excitement, and commitment among key individuals and groups to implement significant change or strengthen the company culture; and
2. to manage the company strategically to increase operational performance and competitive advantage, and better satisfy customer values.

The fourth objective causes benchmarking information to be managed not as an end, but as a means to an end, the fifth objective. Gaining knowledge and learning lessons from other companies should not be the end result of benchmarking. The deliverable from benchmarking should be the implementation of real, systematic strategic change at the working level of the organization, in ways that increase competitive advantage, and meet and anticipate needs that customers most value.

Best Practices in Product Development among Automotive Suppliers addresses the first two objectives of the benchmarking process – identifying and understanding best practices in product development systems. This study describes the management practices critical to the success of product development management systems among North American automotive suppliers. Critical success factors are analyzed for their contributions to quality, cost and timing performance in product development. With this information, and the measurement instrument in the Appendix, you can perform a self-assessment and prioritize improvement actions based on the best industry practices.

II. Introduction

This report contains the detailed findings on the best practices in product development of automotive suppliers in North America, and in-depth analyses of issues determined to be critical to the performance of their product development systems.

So that suppliers with major design responsibilities can compare their performance with the best-in-class benchmark appropriate to them, the report categorizes results by supplier hierarchy: system, subsystem, and component suppliers.

Best-in-class product development is also analyzed for suppliers with less significant design responsibilities, but, is not broken down by supplier hierarchy. The authors believe that greater performance pressures are placed on those suppliers with major design responsibilities, and hence focus on these firms for defining best-in-class practices. The last section of the report, on major versus non-major best-in-class designers, emphasizes the capabilities that non-major designers will need to gain in order to perform well at major design work.

The purpose of the study is to develop a benchmark model for automotive supplier product development practices which achieve high performance in terms of cost, quality, and timing measures. By disseminating baseline information on best practices in product development within the automotive supply-base, suppliers may better appraise their current performance and position themselves for competitive success.

A. Study Objective and Methodology

The Automotive Consulting Group, Inc. (ACG), internally funded the study. The purpose of the report is to provide strategic insight and direction to the U.S. automotive industry supply-base. Upon initiating the study, we established the following objectives:

• to baseline product development in the supply base by identifying prevalent practices and their relationships with performance.
• to identify the management of internal and external involvement across phases of product development, and to do this in relation to the newly emerging supplier hierarchy.
• to develop a benchmark model for "best-in-class" product development practices which achieve high performance in terms of cost, quality, and timing measures.
• to identify emerging trends which may provide competitive advantage and become key success factors in product development.

We faxed or mailed survey questionnaires to executive, director, and program management engineers at automotive suppliers in the US (see Appendix A for the survey questionnaire). The survey targeted both transplant and domestic companies. We received a total of 138 survey responses.

Twelve respondents participated in in-depth follow-up interviews. The extent of their design responsibilities, performance characteristics, and the involvement of their own suppliers in the product development process determined their selection for interviews.

We classified participants into designers -- companies that had design responsibilities delegated to them by their customers, and non-designers -- suppliers that received complete designs. Of the 138 responses, 101 are from designers. We focused on these designers for detailed analysis.

Figure 2 shows the profile of the designers who participated in this study.

Figure 2. Profile of Designers

Note: Some participants selected more than one category

The significance of their design involvement distinguished major designers from non-major designers. Major designers are those that do all of the following:

• supply either systems, subsystems, or components to the auto industry;
• primarily design the parts or systems they produce;
• receive only concept or critical specifications from their customers;
• either develop the complete design with customer input, or work with the customer to co-develop the design; and
• require their major suppliers to provide engineering support.

Half (51) of the designers who participated in the study are major designers. Major designers are used to identify best-in-class practices, and hence provide a particular focus for the analyses in this report.

Non-designers completed and returned only the first page of the survey which addressed descriptive characteristics of their business responsibilities.

In the rest of the survey, major and non-major designers responded to questions concerning their:

• financing portions of the costs of product development;
• product development management system’s process structure, project teams, project review activities, and tools and techniques;
• internal, cross-functional involvement in decision-making across phases of product development;
• external, customer and supply base involvement in decision-making across phases of product development;
• geographic engineering specifications stipulated by their customers;
• sub-supplier engineering support in terms of specifications provided, design involvement, and geographic design responsibilities;
• internal and external design decision tool use by phase of product development;
• methods for updating engineering changes with customers and suppliers;
• price reduction agreements with customers and suppliers;
• development team reward and incentive systems;
• product development performance in terms of quality, cost and timing; and
• satisfaction with their suppliers involvement and support for their product development activities

Statistical analyses provide the ability to describe the attributes of best-in-class designers in the automotive supply-base from the survey responses. All of the findings stated in this report are substantiated by statistical tests. For the sake of simplicity, these statistical tests are not reported. For further information on these tests, please contact the Automotive Consulting Group directly.

Seven-point agreement scales used by respondents describe the dynamics of product development in their organizations. Composite scales from these measures are derived where they are statistically appropriate and reliable. These composite scales of product development management systems are used to characterize capabilities in various areas of product development activities, such as cross-functional team management. The higher the score on the seven-point scale, the greater agreement the respondent has that these activities, and hence capabilities, occur in their organization.

Throughout this report, figures are presented regarding capabilities in product development which are derived from these seven-point agreement scales. They contain the seven-point scale on the vertical axis.

Performance in product development is also scored on a seven-point scale. The higher the score on the seven-point scale, the higher the respondent’s assessment of their organization’s performance, given the nature of the business and industry trends. Multiple dimensions of quality, cost and timing performance in product development are assessed.

Composite measures of quality, cost and timing performance are derived from statistical and reliability analyses. Figures in the report present these composite performance measures also with the seven-point scales on the vertical axis.

Findings are only stated which are substantiated by statistical analyses. In some cases, relative differences are not stated because they lack statistical significance.

References to the survey items are made throughout the report. Please refer to the survey questionnaire in Appendix A for the text of these survey items.

Quotes from the in-depth follow-up interviews are used to highlight company experiences on the issues, and to bring the data alive beyond the formal charts and figures. These quotes are mostly used in Section III on the best-in-class traits of major designers.

Best Practices in Product Development:

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