Tag: auto parts manufacture

OM in the News: Ethical Dilemmas in U.S. Auto Parts Plants

Alabama has been trying on the nickname “New Detroit.” Its burgeoning auto parts industry employs 26,000 workers, who last year earned $1.3 billion in wages. Georgia and Mississippi have similar, though smaller, auto parts sectors. This factory growth, after the long, painful demise of the region’s textile industry, would seem to be just the kind of manufacturing renaissance the U.S. needs.

“Except that it also epitomizes the global economy’s race to the bottom,” writes Businessweek’s cover story (March 27-April 2, 2017). Parts suppliers in the American South compete for low-margin orders against suppliers in Mexico and Asia. They promise delivery schedules they can’t possibly meet and face ruinous penalties if they fall short. Employees work ungodly hours, 6-7 days a week, for months on end. Pay is low, turnover is high, training is scant, and safety is an afterthought, usually after someone is badly hurt. Many of the same woes that typify work conditions at contract manufacturers across Asia now bedevil parts plants in the South. In 2015, the chances of losing a finger or limb in an Alabama parts factory was double the amputation risk nationally for the industry, 65% higher than in Michigan and 33% above the rate in Ohio–both union states.

Korean-owned plants, which make up roughly a quarter of parts suppliers in Alabama, have the most safety violations in the state, accounting for 36% of all infractions and 52% of total fines, from 2012-2016. According to OSHA, one of them, Matsu Alabama, had provided no hands-on training, routinely ordered untrained temps to operate machines, sped up presses beyond manufacturers’ specifications, and allowed oil to leak onto the floor. “Upper management knew all that. They just looked the other way,” said a staffing specialist. “They treated people like interchangeable parts.”

Classroom discussion questions:

  1. The Ethical Dilemma exercise in Chapter 10 describes Johnson Foundry. Have your students read this Businessweek article and compare the two stories.
  2. What does the article mean by “race to the bottom?”

OM in the News: The New Push for Standard Auto Parts

 

Volkswagen's modular set of underpinnings, code-named MQB, is an example of efforts to standardize modules and systems.
Volkswagen’s modular set of underpinnings, code-named MQB, is an example of efforts to standardize modules and systems.

“Automakers have long sought standard parts that can be used in various cars to cut costs,” writes Automotive News (Aug. 6, 2014). Now they want standardized modules and systems. “The requirement that we face is clearly to develop products from the outset in such a way that they can be used in all the platform derivatives without the expense of making changes,” said one German exec. But with mass standardization, a part with a quality problem can now be supplied to millions of vehicles. That puts a premium on quality.

The growth of global platforms is accelerating the trend of standardized parts. Currently, 24% of all manufactured vehicles are built on the 10 biggest platforms worldwide, with the figure expected to rise to 30% by 2020. In the process, the need for common parts that can be swapped in and out of various models will grow substantially. Why are car makers moving in this direction? First, building multiple models off one basic platform saves money in product development, tooling, and facilities. Second, manufacturers benefit from risk pooling; if one model is not selling well, it may be offset by another that can be built at the same plant.

Meanwhile, internationalization complicates the job of making standard parts and systems. To exploit regional cost advantages, automakers are pushing their system suppliers to make parts purchases in local markets. But the quality standards of suppliers in different markets vary greatly.  “When there are new product launches, we train our suppliers in the appropriate methods and processes when necessary and go into their factories to make sure there is a stable production process,” said a parts supplier. Common parts with the same specifications from various countries and on different tools may have to be manufactured in a way that they are absolutely identical in quality so that they can be installed at any other factory at any time.

Classroom discussion questions:

1. Why are standardized parts and systems so important?

2. Why are global platforms becoming the norm?

OM in the News: The Age of the Mega Suppliers of Auto Parts

Revenues of parts suppliers vs. auto makers
Revenues of parts suppliers vs. auto makers

Densco, Continental, Bosch, and Magna may not be as well-known to you and your students as GM, Ford, VW, and Mercedes.  But they can build almost every part of your car; they own the rights to tomorrow’s technologies; and they are more profitable than the companies they sell to. Welcome to the world of the auto industry mega supplier.

An ever greater reliance on this small cadre of suppliers is changing the balance of power in the car industry, reports The Financial Times (May 18, 2014). It is now the makers of the parts under the hoods, not the owners of the brand name on the grill, that are the dominant force. There are 16 major car manufacturers that sell more than 1 million vehicles a year. But those cars are built from parts supplied by just 10 major component makers – meaning that under the individually styled bodywork, cars are sharing more parts. Bosch, the world’s largest automotive supplier, says that at least one of its parts is built into almost every new car sold anywhere in the world – regardless of brand, market, price point or geography.

Decades of carmakers’ outsourcing their R&D to suppliers have left them more and more dependent on the expertise – and manufacturing capabilities – of the supply chain. And the carmakers’ need for suppliers to follow them into new markets and build their own factories in places such as China and Brazil, has meant only the largest and most cash-rich component makers have survived. Big suppliers now have the capability between them to build 85% of a car’s internal systems – leaving little more than the engine as the carmaker’s sole domain. This has made the role of a car brand more that of an assembler, rather than a true manufacturer. Crucial parts for future vehicles, such as battery and electric motor management systems, are almost exclusively developed and built by suppliers such as Continental, Denso and Johnson.

Classroom discussion questions:

1. Why do auto makers rely so heavily on these parts suppliers?
2. What are the implications of this trend?

 

OM in the News: Toyota Airbag Cuts Open Doors to Global Suppliers

Cut-away of Toyota's Auris hybrid at Paris auto show
Cut-away of Toyota’s Auris hybrid at Paris auto show

Toyota has decided it no longer needs 50 kinds of airbags to protect drivers’ knees. Ten, the company says, ought to suffice. In one of Toyota’s biggest initiatives since 2009, reports Bloomberg (June 10, 2013), the carmaker is winnowing the number of parts it uses and increasing common components across models. The plan will cut both the time and cost for creating new models by as much as 30%. The automaker spent $9.6 billion in R&D last year.

In the past, Toyota focused on developing custom parts. It needed 50 types of knee-level airbags because seats for various models had different profiles. By standardizing “hip heights” across models, Toyota is reducing knee airbag variants by 80%. Last year, it had slashed radiators to 21 models from about 100. And it is reducing the number of cylinder sizes in its engines to 6 from more than 18. “From now on, Toyota will seek the compatibility of certain parts it uses with standard parts used by many automakers globally,” says the firm.

Toyota’s goal should make the company less vulnerable to supply disruptions by using parts from the largest manufacturers that can be substituted globally. The 2011 earthquake and tsunami in Japan forced Toyota to confront the complexity and risks of relying on thousands of suppliers, sub-contractors and sub-subcontractors making customized parts. The earthquake “really made us to look into our supply chain in great detail and see certain weaknesses there and look into things that needed to be fixed,” said Toyota’s spokesman.

International component makers such as Johnson Controls, Bosch GmbH and TRW Automotive are betting Toyota’s campaign will help them win contracts currently held by smaller Japanese companies. “This should mean more opportunities for global mega-suppliers with worldwide capacity and design expertise,” said one analyst.

Discussion questions:

1. Why is Toyota modifying its component options?

2. Why is this a supply chain issue and what are the potential downfalls?

OM in the News: Increased Efficiency From JIT Comes at a Price

Just as the recovery in US auto sales begins to accelerate, a fire last week at Magna International, a major auto parts manufacturer near Detroit, put a huge scare into  five automakers. Two of them, GM and Mazda, had to close plants and stop making some models. Three others, Ford, Chrysler, and Nissan,  faced the prospect of having to do without critical parts from their only supplier of ceilings, consoles, and other parts.

Yesterday’s Portland Press Herald (March 7,2011) writes: “The impact of the blaze shows how years of work to make auto plants more efficient can fall apart when something interrupts the flow of parts in an intricate supply chain”.  As we discuss in Chapter 16, JIT has proven a wonderful system for 3 decades in the auto industry. Auto companies have cut costs and become more efficient by going to a JIT parts delivery system to avoid paying for huge stockpiles of parts.

But to avoid buying costly machinery, parts firms often make a particular part at only one site. As a result, plants have few parts in storage and are so dependent on every link in the supply chain that the whole system falls apart, as it did in this case, if production is interrupted at a single factory. These days most auto parts are “single-sourced”.

The story for Magna and its customers fortunately (and luckily) had a happy ending today. The company was able to work with its customers to get enough of the equipment up and running to allow auto plants to receive  at least a portion of their needed parts. Our Ch.16 case study, “JIT After a Catastrophe” deals with how Caterpillar faced a very similar disaster when a tornado destroyed its Mississippi couplings plant in 2008.

Discussion questions:

1. How should the auto makers react at this point?

2. What should Magna do in planning for the future?