Profit comes from product, process design - Opinion & Analysis Manufacturing - Brief Article

Automotive Industries, August, 2002 by Ron Harbour

There has never been better proof that automotive manufacturers today have no control over the price of their vehicles. In today's environment, where zero percent financing or other incentive-laden deals are no longer the exception but the norm, customers clearly are determining what they will and will not pay for a new car or truck.

Automakers that don't recognize this fact are destined to struggle in the marketplace. They are likely to be following the outdated practice of developing a new vehicle, determining the cost to build it, then adding a profit margin on the price they try to get from customers.

The best companies understand what customers are willing to pay for a certain kind of vehicle, and then figure out how to produce such a vehicle and still return a profit. And that's why product and process design are such critical factors at the beginning phase of a new vehicle's life cycle.

All new car and truck programs begin with grand plans. All new vehicles start out with every latest and greatest gizmo and gadget That's what design studios are all about. But then reality sets in, and a budget is developed that includes material, equipment and facility costs, as well the expected life of the vehicle, its return on investment and other strategic elements.

Then it is up to product and process design to come up with ways to turn those grand plans into profitable vehicles.

Product design must consider vehicle assembly. For example, fit, form and function are obviously important to customers, but they are equally critical to an efficient manufacturing process. Safety, styling and vehicle features also must receive strong consideration when creating a new car or truck. But customers are willing to pay for these features.

Types of materials also must be considered. For example, should the control panel, steering wheel and other interior products be made of leather? There are cost ramifications in every decision made at the product design level, and these decisions also impact the process for manufacturing a vehicle.

Manufacturing, or process design, must concentrate on the factors they can control There is product volume and mix to consider. Is the company planning a high-volume, low-cost, or a fully loaded vehicle?

Sourcing strategy is a critical element, as are manufacturing strategies and process execution. Process design also must focus on many cost factors, such as material costs, labor hours per vehicle, and tooling, equipment and facility costs. For instance, where will the new vehicle be built? How much new tooling and equipment will be needed? And how many systems and processes are already in place that can be applied to the new product?

Product design and process design must work together and resolve these Issues in order to create the best and most profitable vehicle for the company.

The trade-offs required between product and process design and manufacturing can be very difficult at times. Product design may want plan tic fenders because of their lighter weight But manufacturing may oppose the decision because of the higher cost of plastic, higher processing costs, special tooling needed and a more complicated manufacturing process that will ultimately result in a degraded productivity performance and a higher piece cost.

These are not easy decisions. But more than ever, the process must work because driving down costs has never been more important to a new vehicle's success.

It is up to automakers to figure out ways to produce vehicles that customers will buy, at a price customers are willing to pay and still provide companies with a healthy profit margin. And that's why product and process design are so important in today's automotive world.

RON HARBOUR is president of Harbour and Associates, manufacturing consultants in Troy, Mich. www.harbourinc.com