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Ron Harbour President Harbour Consulting

Ron Harbour President Harbour Consulting President Harbour Consulting

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Page 1: Ron Harbour President Harbour Consulting President Harbour Consulting

Ron HarbourPresidentHarbour ConsultingPresidentHarbour Consulting

Page 2: Ron Harbour President Harbour Consulting President Harbour Consulting

The Definition of an OEMThe Definition of an OEM

Presented by Ron Harbour

May 17, 2007

Evolution of the Manufacturer / Evolution of the Manufacturer / Supplier ContinuumSupplier Continuum

Page 3: Ron Harbour President Harbour Consulting President Harbour Consulting

The Harbour Report™The Harbour Report™

Page 4: Ron Harbour President Harbour Consulting President Harbour Consulting

Recent ClientsRecent Clients

Page 5: Ron Harbour President Harbour Consulting President Harbour Consulting

The Harbour Enterprise ModelThe Harbour Enterprise Model

Quality Products and Quality Products and Improved ProfitabilityImproved Profitability

Product Quality

Improvement

Part Count and Piece Cost

Optimization

Assembly Time Reduction

Greenfield Plant Design &

Development

Leadership Training

Manufacturing Assessments & Transformations

Global Competitive

Benchmarking

Product Teardown and

Analysis

Global Strategic Footprint

Strategic Sourcing & Supplier Optimization

Lean Product Lean Product & Process & Process

DesignDesign

Manufacturing Manufacturing Process Process

OptimizationOptimization

Page 6: Ron Harbour President Harbour Consulting President Harbour Consulting

2006 Harbour Report™ HPV Trend

2006 Harbour Report™ HPV Trend

GM excludes medium duty. Honda, Nissan and Toyota data includes partial reporting of North American plants.

33.71

40.60

35.79

39.95

33.19

37.14

32.51

34.54

28.46

29.37 29.40

31.22

2002 2003 2004 2005

Percent Changefrom 2005

3.3%

-5.4%

-1.5%

6.0%

-0.2%

3.3%

Page 7: Ron Harbour President Harbour Consulting President Harbour Consulting

IntroductionIntroduction

What is an automotive company?What is an automotive company? What function does an automaker What function does an automaker

perform?perform? What does a manufacturer produce What does a manufacturer produce

(core business)?(core business)?

Page 8: Ron Harbour President Harbour Consulting President Harbour Consulting

(Continued)(Continued)

Where is the line between an automaker Where is the line between an automaker and a supplier (or and a supplier (or isis there one anymore)? there one anymore)?

What forces are most influential What forces are most influential anymore… market economics or labor anymore… market economics or labor unions?unions?

How will the transition define the future?How will the transition define the future?

Page 9: Ron Harbour President Harbour Consulting President Harbour Consulting

The Plant of Yester-YearThe Plant of Yester-Year

Ford Rouge ComplexFord Rouge Complex

Page 10: Ron Harbour President Harbour Consulting President Harbour Consulting

Phase 4Phase 4Phase 3Phase 3Phase 2Phase 2

ProgressProgress

Phase 1Phase 1

High Vertical High Vertical IntegrationIntegration

Modern Sourcing Modern Sourcing DefinitionDefinition

Includes foundries, steel mills, rubber plants, textiles, upholstery, wiring, chassis components

Vehicle assembly, metal stamping, engine, transmission, and select key components

Early to mid 1900’sEarly to mid 1900’s 1950’s to 1980’s1950’s to 1980’s 1980’s to Present1980’s to Present The FutureThe Future

Outsourcing Rush, Outsourcing Rush, Core Re-DefinedCore Re-Defined

No Accepted No Accepted NormNorm

• 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

Page 11: Ron Harbour President Harbour Consulting President Harbour Consulting

Assembly Plant ComponentSourcing Trends

Assembly Plant ComponentSourcing Trends

COMPONENTSCOMPONENTS

% In-House% In-House

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

Page 12: Ron Harbour President Harbour Consulting President Harbour Consulting

Support ServicesSupport Services

% In-House% In-House2001 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 /GM / Chrysler /FordFord

New New DomesticsDomestics

Assembly Support ServicesSourcing Trends

Assembly Support ServicesSourcing Trends

Page 13: Ron Harbour President Harbour Consulting President Harbour Consulting

Engine Sourcing TrendsEngine Sourcing Trends

ComponentsComponents 19891989 20072007 FutureFuture

Engine Assembly & Test X X X

Block Machining X X X

Head Machining X X X

Crankshaft Machining X X X

Camshaft Machining X X

Connecting Rods Machining X X

Flywheel

Exhaust Manifold X

Intake Manifold X

Front Cover

Oil Pan

Oil Pump X

Pistons X

Piston Pins

Water Pump X

5 C’s3 C’s

* U.S. Owned Companies

*

Page 14: Ron Harbour President Harbour Consulting President Harbour Consulting

Transmission Sourcing TrendsTransmission Sourcing TrendsComponentsComponents 19891989 20072007 FutureFutureTransmission Assembly & Test X X X

Carriers X X X

Case X X X

Converter Case X X X

Valve Body & Assembly X X X

Internal Gears X X X

Converter X X

Converter Stampings X X

Stator Assembly X X

Clutches X X

Sun & Pinion Gears X X

Shaft X X X

Supports X

Cover X

Oil Pump X X

Final Drive X

Sprockets X

Page 15: Ron Harbour President Harbour Consulting President Harbour Consulting

The Evolution of the Manufacturer/Supplier Continuum

The Evolution of the Manufacturer/Supplier ContinuumFactory AttributesFactory Attributes 19871987 20072007 20272027

Plant Output 1,000/day 1,000/day 1,000/day

Plant Size 3.5M sq. ft. 2.5M sq. ft. ?

Plant LayoutOne building/

Multi-floor

3-4 separate but close one-story

buildings

Several buildings, one-story

Process Flexibility One vehicle 2-3 vehiclesInfinite # of

vehicles

Workforce Size 3,500 workers 2,500 workers 1,500 workers

Product Complexity 2 models 5-15 modelsInfinite # of

models

Number of Suppliers 2,500 500 100

Part Sequencing None 50-100 key parts 500 key parts

Modularity None SeveralBasic build philosophy

Page 16: Ron Harbour President Harbour Consulting President Harbour Consulting

Assembly Plant Capacity (1990 – 2008)

Assembly Plant Capacity (1990 – 2008)

Annual North American production grew 28% from 12.5 millionvehicles in 1990 to 16 million in 2006.

41

4 4 36

-3-7

-19

-7

Opened Closed

Net

Page 17: Ron Harbour President Harbour Consulting President Harbour Consulting

Component / Service SourcingComponent / Service Sourcing

Labor Cost and

Availability

Product and/or

Process Technology

Control of Overall

Quality of Key Components

Logistics, Containers

The “Core Business” StrategyPart Cost

Available Capital

What influences the sourcing

decision?

What influences the sourcing

decision?

Page 18: Ron Harbour President Harbour Consulting President Harbour Consulting

Why the Major Shift?Why the Major Shift?

Growing gap between supplier and OEM wages

Limited funds for R&D Growing technical complexity of product Lack of flexibility to manage lower volumes

Page 19: Ron Harbour President Harbour Consulting President Harbour Consulting

What Does the Future Hold?What Does the Future Hold?

Demand for more flexibility Less manufacturing process / performance

differentiation Spread of capital required for new product

development