Value Chain Collaboration in a Speed-to-Market World”
Steve Hanley
Vice President - Systems Integration Group
Dana Corporation

2001 University of Michigan Management Briefing Seminars
August 7, 2001 – Traverse City, Michigan

“Despite our best intentions, it often seems that suppliers and manufacturers have become encamped in pre-defined roles that limit the very nature and depth of our interactions. ” 

Good afternoon. For more than three decades, these Management Briefing Seminars have provided a terrific opportunity to gather and explore critical issues facing the automotive industry. So it is both a pleasure and an honor to participate in today’s session.

The theme of this year’s event is, “Collaboration, Knowledge, & Vision.” And I can’t think of three terms any more pertinent to our efforts on the systems integration front. 

Effective collaboration is key to any successful systems integration effort. In fact, this is precisely why system-oriented projects provide some of the very best examples of value chain collaboration.

Of course, knowledge and experience are obvious prerequisites, regardless of your position in the value chain. 

And vision is absolutely critical to the long-term success of any systems-related enterprise. 

Over the next several minutes, I’ll focus on a number of issues that help foster collaboration, knowledge, and vision. 

Along the way, I’ll provide a system integrator’s perspective on improving “Value Chain Collaboration in a Speed-to-Market World.” 

I must forewarn you, however, that I won’t talk much about revolutionary production theories or “space-age” technologies today. 

Instead, the common thread through my remarks will be the importance of enhancing communication and trust. In other words, developing a sincere dialogue between suppliers and OEMs. 

Now I realize that terms like “communication,” “trust,” and “relationship” might sound more like the vocabulary of a marriage counselor than the words of a systems integrator. 

But perhaps that’s appropriate. After all, our joint efforts do comprise a marriage of sorts. 

In any case, I hope you’ll ultimately agree that this isn’t just a “warm and fuzzy” concept. 

By refining our approach and employing some very basic concepts, I believe that suppliers and OEMs alike can achieve very real gains in adding value to our collaborative efforts. 

So to begin, let’s take a brief look at the recent evolution of modular activity and examine where we stand today, as well as where we’re headed. 

As we are moving from mass production to a consumption-based, direct pull system, it’s clear that suppliers and vehicle producers need to become more closely aligned. 

Modular programs will play a critical role in the success of this effort.

There is little doubt that over the course of the current decade, integrated systems and modules will continue to help automakers achieve greater efficiency.

Many industry experts are predicting that OEMs will build a more strategic relationship with their supply chain. Some will do this for no reason other than economic necessity. 

This trend is becoming more and more obvious. As we look at the modular continuum, we see a growing shift from component manufacturing to true systems integration. 

Moving further along this continuum, we can see where a typical vehicle platform might move from say 10,000 discrete components several years ago … to perhaps 6,000 components and 5 modules more recently … to a day when the entire vehicle could be quickly assembled from 16 or 20 modules.

As this transition occurs, suppliers like Dana will better leverage the entire supply chain to optimize value and – in our case at least – focus on five or six modules that best fit our content and expertise. 

In turn, this approach will help speed efficiencies, enhance capital efficiency, and improve our collective return on invested capital, as well as shareholder value. “Enhancements in the amount and flow of information clearly represent one of our greatest opportunities for quantum improvement.“

From the supplier perspective, we also believe systems integration offers tremendous opportunity in enhancing value and speeding the vehicle development process. 

On a more practical level, this concept also enables the OEMs to simplify current assembly methods, and achieve greater efficiency. And it significantly contributes to our collective ability to profitably exploit growing niche market opportunities.

With that background, let’s now explore some of the elements that will actually help fuel value chain collaboration. 

I’ll begin with what is perhaps the most basic of concepts – but one that is all-too-often paid only lip-service – and that is communication. Here I’m really talking about the concept of information flow.

From the perspective of the systems integrator, enhancements in the amount and flow of information clearly represent one of our greatest opportunities for quantum improvement. 

Despite our best intentions, it often seems that suppliers and manufacturers have become encamped in pre-defined roles that limit the very nature and depth of our interactions.

Instead of isolating our interaction to delivering a very specific component for a very specific need, I believe most suppliers would prefer to establish a dialogue in which we discuss the overall context and rationale for our efforts. 

After all, it seems clear that there would be an advantage to combining our unique talents and perspectives to efficiently produce end-consumer-driven solutions. 

“What is best for the end consumer?” And, “what approach best supports the OE’s manufacturing and investment strategies?”

The very best answers to these questions come when they are actually asked. 

I want to be clear that I’m not talking about suppliers sticking their nose into vehicle development and marketing. But we must be certain that we’re all on the same page. This will help the OEs get the most out of what their suppliers, have to offer. 

Communication is a two-way street. And while the supply community desires to be brought deeper into the projects we support, we also owe it to our customers to bring along a fresh, unique approach to each project. 

Just as we don’t want to be treated like homogenous commodities, neither do our customers. 

This means that we must deliver state-of-the-art, customer-driven technologies. Performance technologies … communication technologies … and convenience technologies, to name only a few.

Each of our customers has particular approaches, principles, and strengths that demand our recognition and support. If we don’t do this, we’re frankly not worthy of the respect we desire from them.

Our Systems Integration Group at Dana has observed that virtually every vehicle manufacturer is on a differing path to modular assembly and systems integration. 

We work hard to gain consistent direction from our customers because we know confusion often causes those who influence opinions to withhold decisions. 

We can better align our direction by working with our customers to define their needs, and more importantly, deploying this definition across both our companies – on a global, regional, platform, and even a plant-to-plant basis. 

Of course, trust is a critical component to the level of communication and interaction I am describing. 

We would all be best served by a more cooperative approach to vehicle development. Again, I’m not talking about taking away any control from the OEM. The manufacturer is in charge of its vehicles. Period. 

But at the same time, I believe we are all most inclined to design in our best product technologies when we feel we’re “in the loop” and truly part of a core team.

Let me provide you with an example of a truly cooperative approach in the form of an exciting new project with Ford Motor Company in Australia.

Today, Dana is preparing to support production of the Ford Barra, a passenger car expected to become Ford’s largest selling vehicle in Australia when it debuts during the 2003 model year. 

Dana is a full-service supplier for this project, overseeing production of a key suspension module. 

Our task has included design responsibility, coordination of third-party engineering resources, and co-location of Dana engineers at Ford, Tier II sourcing and selection, and overall program management.

To date, we have successfully achieved aggressive cost and weight reduction goals, and we’re beating prototype deadlines as we approach production next year.

This type of success is only possible through the trust and communication extended by our customer.

Tony Simpson, Ford of Australia Vice President of Purchasing, recently provided some feedback on how pleased Ford is with the progress our joint Ford of Australia/Dana team has made in the areas of cost, quality, and functionality improvement. 

As Tony, himself said during recent remarks to the Dana team, “We have integrated Dana into the Ford Engineering Organization. And this has been a major breakthrough … in terms of how we’ve managed engineering development between the two organizations.”

Now that type of customer endorsement speaks volumes about the value Ford places on communication and trust. It also explains why these elements have become cornerstones of the Barra project. 

However, production and process approaches cannot be isolated to the OE and Tier I supplier. Often, our greatest communication challenges come as we work to integrate the efforts of Tier II suppliers and subsequent tiers in the supply base. 

While I’m addressing the broader supply base, let me just mention the topic of e-commerce. After all, virtually every conversation about the supply base these days seems to invoke this topic. 

Over the past day and a half, we’ve all heard much about how e-commerce can speed communication. 

While this is true, it’s equally important that we not lose sight of improving communication. This is a task that requires face-to-face encounters. It simply cannot be automated.

Authors Philip Evans and Thomas Wurster discuss the distinction between communication richness and reach in their new book, “Blown to Bits.” 

Richness is defined as the quality of information. Accuracy, bandwidth, currency, relevance, and so forth. Reach, of course, refers to the number of people who participate in sharing that information.

Typically we must make trade-offs between richness and reach. A newspaper ad, for example has great reach, but its richness varies from reader to reader. A personal sales pitch, on the other hand, may present tremendous richness, but its reach is limited. “Without a solid communication foundation, e-business may not be completely worthless, but it will certainly be worth less.”

According to Evans and Wurster, connectivity brings us closer than ever to the best of both worlds: richness and reach. 

And while there is no doubt that e-commerce presents a host of advancements, it also requires a solid communication foundation. Without this footing, e-business may not be completely worthless, but it will certainly be worth less.

Rich information adds value to our supply chain through subtraction – by removing the waste associated with poor communication. 

And surely if we are moving toward a five-day order turn-around, we must value anything that adds efficiency to our processes.

But can we really expect to “compress” time? I believe we must. 

However, simply “electrifying” and automating our processes will produce limited gains if we repeat our old habits. 

Certainly, there are many elements – some tangible and others not – that contribute to any collaborative effort. 

From our physical and intellectual resources to the agility and nimbleness we display, the right combination of these variables can provide greater efficiencies.

But when we dispense with all the buzzwords and hyperbole, the real differentiator is execution. It may be a tired cliché, but the devil is indeed in the details. 

And the extent to which we execute is often dictated by organizational norms. How are you aligned organizationally to attack a project? How nimble are you? How effective are you?

One approach that clearly does work is the Toyota Production System. 

Though some might term it paternalistic, it’s difficult to question a system that has demonstrated such immense success.

Dana has been fortunate to become immersed in the Toyota Production System through our involvement in several projects within our Structural Solutions Group. 

Now I must admit that some of our people registered some skepticism when they first confronted the Toyota system. But as they learned that their ideas and input were truly valued, it was amazing to see how quickly they embraced it.

In fact, within the Toyota system, our customer wonders whether something is wrong when they don’t hear from us.

Clearly we’ve learned that mutual respect translates into mutual benefits. 

Evans and Wurster believe Toyota has effectively narrowed its reach by moving to fewer and larger partnerships. But the fruit these relationships is incredibly rich in terms of coordination and logistics quality. 

I’m convinced that a true partnership – is the key to transforming our industry and delivering innovation to the ultimate consumer, as well as value to our shareholders. It sounds elementary, but we’ve seen it work before. 

Any new business process requires careful planning and attention to detail. But it also requires courage. Courage to try something different. Courage to think – and act – outside of the box.

Frankly, there is a tendency among all of us to resist change and stay within our “Comfort Zone.” 

And although the reality may be that we are all “independent contractors” to some degree, there is much to be said for what we can achieve by leaving our “comfort zone,” taking a leap of faith, and becoming more closely aligned to form a “team.” 

As Dr. David Cole, who spoke here at Traverse City for so many years, puts it, “No one is big enough, smart enough and rich enough to go it alone anymore.” This goes for vehicular suppliers and producers alike. 

Now in closing, let me quickly reiterate a couple of the major points I’ve mentioned today.

Enhanced communication will be absolutely essential to our collaborative efforts. But this effort will require work, prioritization, and trust. Communication simply cannot be “commoditized.” 

By the same token, an atmosphere of trust and cooperation will serve as the catalyst for our best product technologies. 

And it is the understanding and acknowledgement that vehicle development must be a partnership – a mutual pursuit – that will enable both suppliers and vehicle producers to transform our industry and be successful.

To the extent that suppliers can work more closely with one another – and our customers – to develop a mutual trust, I am convinced that our combined efforts will yield the speed to market we all desire, as well as the real value our ultimate customers and shareholders deserve.

Thank you very much.