For auto suppliers, this is the Age of the Black Box.
Increasingly, automakers expect greater numbers of 'black-box' products - components that suppliers design themselves, instead of using blueprints supplied by their customers.
So it comes as no surprise that black-box components get so much attention from the judges of the annual Automotive News PACE Awards. The awards - co-sponsored with Ernst & Young LLP - go to suppliers who invent new products that set standards for performance, efficiency and low cost.
Out of 14 finalists this year, six companies earned awards in February: Benteler Automotive Corp., Durr Industries Inc., Gentex Corp., Johnson Controls Inc.'s Prince Automotive, Eaton Corp.'s Spicer Clutch Division and Cooper Automotive's Wagner Lighting Division.
WHAT MAKES A WINNER
Ernst & Young has analyzed the winners' key business strategies in a findings report.
'Suppliers must anticipate consumer trends in terms of entire systems - not just react to (customers') requests for specific subcomponents,' the report said.
In 1996 - the time period covered by the contestants' applications - 67 percent of the components produced by these PACE finalists were designed in-house. That's up from 58 percent at those companies in 1992.
By contrast, only 8 percent of their components were based on designs fully specified by the customers. That's down from 17 percent in 1992.
The remainder of the suppliers' products were so-called 'gray-box' designs - components created with some engineering input from the customers.
Black-box components carry some risk at a time when automakers are reluctant to try new technology unless there is an immediate payoff.
The payoff might be increased consumer satisfaction. That was the selling point for the automatic dimming aspheric mirror developed by Gentex Corp. of Zeeland, Mich. The mirror simultaneously solves two problems: glare and blind spots.
Or the product might help the automaker solve a difficult design problem. For example, Johnson Controls Inc.'s Prince Automotive division, based in Holland, Mich., invented an energy-absorbing substance that minimizes head-impact injuries during accidents. The material does not interfere with the motorist's sight lines, and does not reduce head space.
RISKS ARE ESSENTIAL
To develop such products, the PACE judges say suppliers have to take risks.
'A supplier can't wait to be told by automakers what value-added features to pursue,' the report noted. 'Instead, suppliers are expected to possess the marketplace insight, the r&d and engineering wherewithal, and the willingness to assume risks.'
Conventional wisdom holds that suppliers taking on black-box engineering projects must inflate their r&d budgets. But the average capital investments of the 14 PACE finalists actually declined to $342 million in 1996, down from $404 million in 1992.
These suppliers made efficient use of their capital budgets by coaxing more productivity from employees. To do so, they dramatically expanded worker training programs. From 1992 to 1996, the annual training provided to salaried workers rose from 19 hours to 36 hours.
Training for production workers showed a similar jump, rising from 17 hours per year to 30 hours.
Among other things, the additional training has generated measurable improvements in quality. Scrappage rates have declined to 2.4 percent, down from 3.9 percent in 1992. Moreover, the PACE finalists report defects spotted by the suppliers during final inspection at 1.9 percent of total volume, down sharply from 5.2 percent in 1992.
So why don't all suppliers produce black-box technology? Innovation is risky. There is no rote technique to produce successful black box technology, says Lee Sage, a partner with Ernst & Young.
'The black box requires the supplier to travel an uncharted course,' Sage noted. 'In the old days, you just responded with whatever the customer asked you for. Now, they have to be willing to take on risk.'