Ron Harbour

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Ron Harbour

• President
• Harbour Consulting

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Evolution of the Manufacturer / Supplier Continuum

• The Definition of an OEM

Presented by Ron Harbour May 17, 2007
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The Harbour Report
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Recent Clients
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The Harbour Enterprise Model
Global Strategic Footprint
Quality Products and Improved Profitability
Product Teardown and Analysis
Leadership Training
Lean Product Process Design
Manufacturing Process Optimization
Assembly Time Reduction
Greenfield Plant Design Development
Product Quality Improvement
Global Competitive Benchmarking
Strategic Sourcing Supplier Optimization
Part Count and Piece Cost Optimization
Manufacturing Assessments Transformations
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2006 Harbour Report HPV Trend
Percent Change from 2005
-0.2
6.0
3.3
-1.5
-5.4
3.3
GM excludes medium duty. Honda, Nissan and Toyota
data includes partial reporting of North American
plants.
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Introduction

• What is an automotive company?
• What function does an automaker perform?
• What does a manufacturer produce (core business)?

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(Continued)

• Where is the line between an automaker and a
  supplier (or is there one anymore)?
• What forces are most influential anymore market
  economics or labor unions?
• How will the transition define the future?

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The Plant of Yester-Year
Ford Rouge Complex
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Progress
Phase 4
Phase 3
Phase 2
Phase 1
1950s to 1980s
Early to mid 1900s
1980s to Present
The Future
High Vertical Integration
Modern Sourcing Definition
Outsourcing Rush, Core Re-Defined
No Accepted Norm
Includes foundries, steel mills, rubber plants,
textiles, upholstery, wiring, chassis components
Vehicle assembly, metal stamping, engine,
transmission, and select key components

• Marginal outsourcing of services, components
  (seats, IPs, door trim, chassis, bumpers)
• Sequencing centers
• Hallowing out of engineering
• Lean logistics

• Supplier ownership responsibility for body,
  paint, chassis
• Supplier work in OEM plants
• Pay on production
• Major modules delivered

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Assembly Plant ComponentSourcing Trends
COMPONENTS In-House GM / Chrysler / Ford 2000 2007 GM / Chrysler / Ford 2000 2007 New Domestics 2007 HPV Equivalent
Bumper Assembly 73 44 97 0.07
Headliner Assembly 49 28 71 0.15
Instrumental Panel Assembly 67 42 71 0.88
Door Trim Assembly 76 73 97 0.07
Door Inner Hardware Assembly -- 95 98 0.18
HVAC Assembly 40 28 20 0.04
Exhaust System Assembly 47 60 9 0.07
Suspension Assembly 60 61 100 0.28
Fuel Tank Assembly 26 25 40 0.06
Wheels / Tire Assembly 91 76 32 0.14
Engine Transmission Dress Assembly 99 90 59 0.66
Closure Panel Assembly 60 71 100 0.07
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Assembly Support ServicesSourcing Trends
Support Services In-House 2001 2007 2001 2007 2007
Grounds Maintenance 53 35 0
Building Maintenance 72 66 45
Janitorial Services 76 77 5
Miscellaneous Services (security, fire, materials handling, tool maintenance) 54 49 33
Machinery Equipment Maintenance 76 79 68
Assembly Specific (truck loading, sequencing) 45 39 37
Paint Shop (cleaning, sludge/waste) 58 55 22
GM / Chrysler / Ford
New Domestics
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Engine Sourcing Trends
Components 1989 1989 1989 2007 2007 Future Future
Engine Assembly Test X X X X
Block Machining X X X X
Head Machining X X X X
Crankshaft Machining X X X X
Camshaft Machining X X X
Connecting Rods Machining X X X
Flywheel
Exhaust Manifold X
Intake Manifold X
Front Cover
Oil Pan
Oil Pump X
Pistons X
Piston Pins
Water Pump X

3 Cs
5 Cs
U.S. Owned Companies
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Transmission Sourcing Trends
Components 1989 1989 1989 2007 2007 Future Future
Transmission Assembly Test X X X X
Carriers X X X X
Case X X X X
Converter Case X X X X
Valve Body Assembly X X X X
Internal Gears X X X X
Converter X X X
Converter Stampings X X X
Stator Assembly X X X
Clutches X X X
Sun Pinion Gears X X X
Shaft X X X X
Supports X
Cover X
Oil Pump X X X
Final Drive X
Sprockets X
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The Evolution of the Manufacturer/Supplier
Continuum
Factory Attributes Factory Attributes 1987 2007 2027
Plant Output 1,000/day 1,000/day 1,000/day 1,000/day
Plant Size 3.5M sq. ft. 3.5M sq. ft. 2.5M sq. ft. ?
Plant Layout One building/ Multi-floor One building/ Multi-floor 3-4 separate but close one-story buildings Several buildings, one-story
Process Flexibility One vehicle One vehicle 2-3 vehicles Infinite of vehicles
Workforce Size 3,500 workers 3,500 workers 2,500 workers 1,500 workers
Product Complexity 2 models 2 models 5-15 models Infinite of models
Number of Suppliers 2,500 2,500 500 100
Part Sequencing None None 50-100 key parts 500 key parts
Modularity None None Several Basic build philosophy
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Assembly Plant Capacity (1990 2008)
Annual North American production grew 28 from
12.5 million vehicles in 1990 to 16 million in
2006.
Net

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Component / Service Sourcing
The Core Business Strategy
Part Cost
Logistics, Containers
What influences the sourcing decision?
Labor Cost and Availability
Available Capital
Control of Overall Quality of Key Components
Product and/or Process Technology
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Why the Major Shift?

• Growing gap between supplier and OEM wages
• Limited funds for RD
• Growing technical complexity of product
• Lack of flexibility to manage lower volumes

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What Does the Future Hold?

• Demand for more flexibility
• Less manufacturing process / performance
  differentiation
• Spread of capital required for new product
  development