Automakers learned how to become leaner manufacturers during the 1990s, and they drove their largest suppliers down the same path.
But at the dawn of this new decade, the quest for lean not only continues but will intensify.
Automakers and suppliers agree that lean thinking and lean manufacturing are a continuous process that must be driven even further down the supply chain. The rewards looming in the near future can be remarkable.
A panel of executives representing automakers, a Tier 1 supplier and an industry consultant suggested during the Automotive News World Congress that up to 50 percent of the industry's costs still can be whacked from the automaker-supplier chain during this decade.
And the growth of e-commerce in the industry is giving automakers and suppliers another tool to help them achieve that lofty goal.
`A LOT OF GOOD THINGS'
'I spend a lot of time with suppliers, and, yes, a lot of them are doing a lot of good things,' said Gary Henson, executive vice president of manufacturing at DaimlerChrysler.
'Up to 50 percent of the cost could be out of the system if we really got lean in the total enterprise. I'm talking about Tier 2, Tier 3 and Tier 4 suppliers. That's one of the things we've missed.'
At Nissan Motor Manufacturing Corp. U.S.A., the focus during the 1990s was on quality improvements, said Dan Gaudette, senior vice president of manufacturing. During that period, all manufacturers tightened vehicle quality and the gap between manufacturers narrowed, he said.
With quality now a given, the focus has shifted to weeding out cost in the entire automaker-supplier system, Gaudette said.
'What we're trying to do is not only work to improve what we do within our shops, but also help our suppliers be as lean as they possibly can, so you're not just squeezing the margins,' Gaudette said. 'You are actually taking cost out of the process.'
Nissan has been reducing inventories by getting suppliers to ship parts to its assembly plant in Smyrna, Tenn., in the order the parts are needed, he said.
The automaker is helping suppliers reduce their own inventories by helping them order parts from their Tier 2 and Tier 3 suppliers on a sequential basis, Gaudette said.
He would not estimate how much cost the industry can shave from the manufacturing process but said it was a 'tremendous amount of money.'
Sam Licavoli, chairman of Textron Automotive Co., agreed that the industry still has tremendous potential for cutting costs.
'I'm not sure where it's all going, except to say it's a lot, whether it's 50 percent or 60 percent,' he said.
But it will entail much more work by the automakers and the Tier 1 suppliers, Licavoli said. The automakers have been the most adept at making the system leaner simply because they have the most resources, he said.
Licavoli said he is concerned about smaller suppliers who have fewer resources and are led by executives who have to wear several hats.
'As you get down to the Tier 3s and Tier 4s, somehow (companies must) work with each other to help each other,' he said.
WHAT'S THE LIMIT?
James Womack, co-author of The Machine That Changed the World, said he does not know how much more can be saved.
'I don't know what the upper limit is,' he said. He often is approached by people who say, for example, they have taken 30 percent out of their costs. 'I always, of course, say no, you can always do more,' Womack said.
Louise Goeser, Ford Motor Co.'s vice president of quality, said the automaker has embarked on a quality program it calls Customer-Driven Six Sigma. The program slashes costs by reducing variability and defects in products, services and processes, Goeser said.
The six sigma level refers to 3.4 defects per million, she said. Most major corporations fall between three sigma and four sigma, she said. A company with a four sigma level is operating with about 6,000 defective parts per million.
'Just shifting one sigma drives around 20-plus percent of cost out of the system,' Goeser said.
The burgeoning use of the Internet between automakers and suppliers is becoming another method of driving cost - especially repetitive information handling - out of the system, Goeser said.
'I think we all understand the power of e-commerce,' Henson added.
DaimlerChrysler eventually may hold online auctions in which suppliers can bid on certain business, Henson said. But if that happens, the automaker would start with something easy, perhaps fasteners, he said.
Said Henson: 'But your major commodities or systems in a vehicle will never go out to auction.'