The North American Automotive market is having a tough go of it. Brand owners continue to lose business and valuable market share to Asian rivals, and domestic suppliers, feeling the brunt, have been forced to declare bankruptcy. With suppliers providing more than 65% of the content in the average car today and a projected 74% by 2015, brand owners and suppliers must find a way to work together profitably or suffer the slow but inevitable extinction of the domestic Auto industry.

At the recent annual Management Briefing Seminars, industry leaders tried to answer this year’s conference theme: “Is there calm after the storm?” They are looking for calm in a superior business model, which some members of the industry have moved toward and others achieved. Brand owners have done it by improving their demand management, suppliers by improving their manufacturing efficiency, and both by working together to develop and deliver high-quality, customizable vehicles.

Balancing near-term demands for long-term success

Fact is, today’s manufacturers must concentrate on a variety of near-term issues, including shrinking cycle times, product standardization, and the continued adoption of lean manufacturing. To succeed in the long run, though, auto manufacturers must do more:

• Become an expert at fast, cost-effective new product development and introductions. Lean manufacturing efforts must move further into flexible manufacturer patterns and adopt a more comprehensive use of postponement strategies, similar to those employed by the High-Tech industry (see my previous column “Automotive Industry: Look to High-Tech for Clues for Survival”). The standardization of components and parts across customer bases will level manufacturing and improve asset returns, requiring a more robust awareness of product development costs.
• Invest in future industry trends, not today’s operations. Brand owners should increasingly divest manufacturing and assembly operations and rely on the supply chain for quality product components at target prices. Profitable tier manufacturers should rely on their ability to use customer demand across internal operations, mainly through the use of enhanced scheduling and forecasting tools. The retail channel should concentrate on customization or “tuning” of vehicles before they leave the showroom.
• Focus on core strengths. Brand owners must invest heavily in retail and customer visibility systems to capture current and future product requirements. Tier 0.5 suppliers and system integrators need to invest in program and financial management systems for product development. Tier Ns must invest in manufacturing systems to maintain flexible manufacturing processes and improve quality programs—a critical effort as more warranty recovery for failed products will be aimed at manufacturers.

In addition, domestic brand owners and suppliers will need to redefine their relationship. This revised relationship must be built on both parties accepting new demands and expectations and transforming current ways of thinking, responsibilities, and processes.

Brand owners must:

• Work closely with suppliers in new vehicle development programs to ensure profitable new launches
• Accept that many supplier parts, such as engines, will be available to competitors
• Understand that innovation will be increasingly about being able to tailor products to smaller segments of buyers

Suppliers must:

• Continuously improve part quality to ensure that they are not swamped with a rise in warranty claims that match their part contributions to vehicles
• Increase manufacturing efficiency and push costs down in order to ensure that they remain part of the ever-shrinking supply base
• Tailor processes to the mass customization needs of brand owners in both the manufacturing and post-delivery stages