There is high set up costs with automation because it takes time to clear the line, change over and make necessary customizations. From a quality perspective, automated processes were easier to control and monitor, and product quality would be improved. They were expecting to reach FTY of 98%, compared to older plants that used a full manual process that had FTY of 87-88%. Greater quality and less rework mean decreased costs. Automation could therefore reduce product costs as a result of better product quality.
With automation, ITT would therefore loose some flexibility due to the fact that manual processes are most flexible, which would affect product variations. However, greater product quality, reduced costs, modular design, operators with product-independent skills and easier coordination between the plants are major advantages with the automation.
The statement “If you automate, you stagnate.” therefore seems a bit out of context. There are major advantages regarding automation, and in a cost-driven market it seems necessary to take action in order to stay competitive and position oneself strategically. There may be ways to improve the manual labor, such as by doing Kaizen, but over time it seems necessary to automate high-volume tasks, and reduce the volume intense high-paid labor. A hybrid solution with only the some processes automated is the way to go, but it looks as if full automation of possible processes is the way of the future, so why wait.
What are your recommendations regarding the issue of standardizing process technology across all plants? Are there motives behind this proposal, other than those stated in the case?
First, it seems necessary to be aware that there are international differences regarding customer relationships and production and delivery throughout the world. As a global supplier, and the only ABS producer in the world to have presence on three continents, ITT encountered challenges in understanding and serving customers worldwide. They observed, that:
- In Europe, suppliers have close working relationships with the customer, one get a commitment from the customer early on, and it is a positive dynamic relationship.
- In the US, the customers are sharp-penciled business people, fair but very formal about things. They check the contract instead of trying to figure something out.
- In Japan, the customer will never give a formal long-term commitment, but rather do everything in good faith. Partners for life.
Different structures and ways of doing business may affect the plant layout, if the plants located on different continents are supposed to feed its market. But since the current 4 ABS plants were located in Europe (Frankfurt, Germany; Mechelen, Belgium) and the US (Morganton, NC; Asheville, NC), such a problem is currently not the case. ITT planned to produce the MK20 in all four existing plants, phasing out the current production while ramping up volumes of the MK20.
A critical aspect of ITT’s strategy was to use the same assembly process across all plants, allowing them to source globally, so that the MK20 could be produced in any of the plants for any customer, depending on available capacity and customer location. As mentioned, using one process also had the advantage that plants could benefit from each other’s learning, allowing the machines and production lines to become process-capable much more quickly, since one doesn’t have to worry about having different problems at each site.
Standardizing the process technology would also allow ITT to run pre-production series for customers long before the commercial production began, and therefore they did not have to invest in production capacity in advance. To me the standardization seems as a very good idea, once they have decided to fully automate the production lines and having common and recognizable software to accompany it. It would make the process of production more flexible and responsive to orders, while keeping costs at the same low as high-volume orders. Transfer of labor across plants without having to re-train individuals is a positive effect, and if a plant suddenly encounter problems, the other plants may avoid similar problems through being better safe than sorry, and adjust the machinery in accordance with the original plant.
In the long run, it seems as there are only positives with standardizing the process technology given the strategy of automating the production lines.
As Juergen Geissinger, how would you go about implementing your recommendation? How would you overcome resistance from the plants? As Steve Dickerson, the plant manager at Asheville, NC, what line of reasoning would you use to convince senior management that full automation is the less desirable alternative?
Geissinger was somewhat new at ITT Automotive – he joined in December 1992, and one of his primary responsibilities was to oversee the development of the MK20. Given that ITT was to fully automate their processes across all four plants while standardizing the process technology, the implementation didn’t necessarily have to happen at the same time. A gradual implementation in order to reduce and solve potential problems at a smaller scale would be a potential solution.
Having a strict product timeline that only allowed 2 years for development (from concept to market) for the MK20, the whole idea of implementing machines and production lines while developing the MK20 itself was a huge challenge, and needed fresh thinking. There seems to be an agreement that parallel efforts is necessary to reach the deadline – design and manufacture had to go hand in hand throughout the process. The simultaneous engineering resulted in more interaction and integrating of efforts between different development groups, resulting in increased efficiency.
At this point, there also was an understanding that the MK20 was a highly sophisticated product requiring a high degree of operator skill, so that the final assembly couldn’t be performed in a low wage country. This means that the four existing plants are the ones that should be taken into consideration at this point. However, in the future some degree of outsourcing may be made possible.
Following previous successful patterns used for other ABS products, production of the MK20 would begin in Frankfurt. Initial test production runs would begin in October 1994, and the first shipments would be made in January 1995. The three-month lag would allow ITT to solve (un)expected problems, and ramping up production. This plant would focus primarily on the European market, beginning with the major European automobile company that made the initial commitment allowing ITT to fully develop the MK20.
The Morganton-plant would be the second plant initiating production of the MK20 (June 1995), followed by the Asheville-plant (January 1996). Both of these would primarily supply customers in North America. Following this plan, it seems natural to begin implementing the automation-process at the Frankfurt-plant. This plant is ready for changes, among other reasons due to the high costs of manual processes. Expensive labor makes it easier to start implementing automated machinery and robots, from an administrative point of view. Although the start up of production in October 1994 was expected to be a challenge, the challenges were not increased because of the automation. The MK20 was such a drastically new product that differs from previous ABS’s, so starting up with automated processes would not be any more complex than starting up with a new set of manual processes. Automation would get a warm welcome at the Frankfurt plant, and should be initiated from the beginning.
The Morganton was scheduled to get the production equipment during the fourth quarter of 1994. This plant was used to a relatively high level of automation (for the MK4-Gi), and the workforce was comfortable with a high level of automation. The MK20 would go one step further, by introducing fully automated materials handling. However, the management had concerns about the level of automation proposed for the MK20, feeling that standardizing the process across all plants would affect the attraction of customers. They reasoned that this was due to different supplier conditions in the US and Europe – in the US there was a much higher defect rate, 10x higher than in Europe. Having a much stricter quality control of the suppliers in the US could solve this. If the suppliers were given strict guidelines regarding quality, perhaps initially followed by bonuses issued from ITT, this issue would be greatly reduced.
The plant manager also argued that the workforce would be outdated, and that they needed a new set of skills to manage the new equipment. However, they could invest in those interested proper training, having them experiencing the production in Frankfurt first hand, and some would nevertheless need to control the production lines. Even though the plant itself showed good results due to the implementation of Kaizen, this may not be for the best of ITT. From a total perspective, automating and standardizing the four initial plants may very well be the key to future success, allowing ITT to shift the production to where it’s most needed and the capacity is available. It is important that the plants start thinking about the whole, instead of its own good.
The Asheville plant was used to a semi-automatic manufacturing process, with much manual labor. Convincing the plant manager that an automated, standardized process was the most desired option would be tough. However, Dickerson seems like a well-reflected man that saw the positives and possibilities of both sides. He early on instituted a hiring freeze, and connected with his workforce by being honest, saying that they may need more skilled operators five years down the road. This was a good start, giving those motivated the chance of educating themselves, and others the possibility to change employer in time. The Asheville plant was scheduled to begin production 6-7 months after Morganton. If they were to receive the equipment when Morganton began production, they would have a good foundation to befriend the machinery and be ready for production half a year later. They could experience the production lines first hand at their sister plant, increasing their knowledge and preparing for production launch at Asheville.
From my point of view, Dickerson seems prepared to make changes over time. If the other plants starts implementing it there is no reason why Asheville shouldn’t, and therefore the best would be to prepare for this. But if he was to argue, his most effective arguments are the ones that points towards the differences between the plants in Europe and the US. These are direct differences that make a lot of difference regarding strategy when comparing plants. The fact that the labor costs are much lesser than in Europe, a non-union environment and a single culture, single language workforce differentiates itself from the workforce in Europe. They have different basis of production, and the Asheville plant may very well cope with the production elsewhere without automating. However, this solution doesn’t realize the full potential of the plant, working alongside the other.
As Klaus Lederer, what option would you like to see pursued? How do various options fit into the broader corporate strategy of ITT Automotive?
Professor Klaus Lederer was the president of ITT Automotive Europe, and assumed responsibility for the brake systems group. In 1993, the group was the world’s leading supplier of ABS and traction control systems. Following the company’s restructuring in 1992, ITT Automotive Europe began stepping up efforts to cut labor costs. A key part of this strategy, headed by Lederer, involved transferring manufacturing of highly labor-intensive or relatively unsophisticated products outside Germany, to countries with lower wages.
When developing the MK20, he alongside the senior management every 6-8 weeks met with teams of people representing design, engineering, manufacturing, and quality, to give an update on project progress.
Lederer gives the impression of being susceptible to change, and as head of the brake systems group, I would therefore do all possible to keep the position of market leader also in the future, and to do so one would have to seek a low-cost strategy. This is achieved through moving manufacturing of unsophisticated products to low-wage countries (as already begun), as well as targeting a highly automated and standardized process technology. The reasons for this are previously mentioned.
To achieve sustainable competitive advantage and long-term success, ITT Automotive should formulate a business strategy that incorporates either cost leadership, differentiation, or focus. In the market of anti-lock brake systems, where the products rapidly became less expensive (and more sophisticated) each year, it seems obvious that to maintain its strong position, ITT Automotive should try to be cost leader.
By maintaining flexibility in production due to standardized equipment across the plants, ITT may serve customers from the most suitable plant, the plants may collaborate to eliminate problems and maintain future success. The automated production gives high-quality products and few defects, given proper suppliers. This gives reduced costs, and should be pursued.
The modular design is also an important part of future success, and gives some degree of customization to the customer while keeping an automated and standardized production in-house. This may attract customers, who are able to choose from various options at a low price.
The proposed option of automated and standardized process technology therefore suits ITT’s strategy of being cost leader and maintain its strong position very well, and should be initiated.
In general, when should copy exactly be used?
Copy EXACTLY! is a factory strategy model developed by Intel to build new manufacturing facilities with high capacity practices already in place. The capital letters, underline, and exclamation point emphasize the paradigm shift that is required to transfer technology using this method.
In its simplest form, “everything which might affect the process, or how it is run” is to be copied down to the finest detail, unless it is either physically impossible to do so, or there is an overwhelming competitive benefit to introducing a change.
Manufacturing improvement systems need to be fast moving, and multiple plants running the same process and products should remain matched, but not necessarily identical at all times. New approaches should be tested at one site and proliferated to the other plants when proved successful. The method may therefore be applied when erecting a new site that is to produce the exact same product as another plant.
If applied correctly, new plants should be successfully brought on line with the same yield results as the original line. Further, all production lines should be able to improve their yields by implementing improvements simultaneously. Other parameters such as product quality, reliability, and manufacturing efficiency are also matched very closely.
Bibliography
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Wikipedia. (n.d.). Retrieved January 24, 2012, from http://en.wikipedia.org/wiki/Automation
