Challenge

The challenge I have faced is related to the delivery of a cover  subassembly for the automotive industry which is delivered by a  leading supplier of the German automotive market. This product is  part of the Electronic throttle control (ETC), an automobile  technology which electronically connects the accelerator pedal to  the throttle, replacing a mechanical linkage. In other words there  is no mechanical linkage between the accelerator pedal and the  throttle valve with electronic throttle control. Instead, the position  of the throttle valve, which controls the amount of air coming into the engine is fully controlled by the  ETC software via the electric motor. Our supplier is asking for a price increase of 46%, due to rump  down quantities and increase production costs related to the product.

Selection

The learning launch method combined with visualization (as a form of visual thinking) have been  chosen to get closer to the root-cause of the problem and to understand to cost drivers coming from  the production. The helpful perspectives of colleagues coming from Automotive Supplier  Development to conduct Value Stream Analysis and from Expert Calculators to carry out CSA (Cost  Structure Analysis) have been integrated to widen the perspective and understanding we have from  the product and all integrated production costs. This has been in my concept the best alternative  available to build the negotiation strategy and to structure the measurements to be introduced.

Application

The first attempt to apply this method included visiting the production facilities located at the north- east region of Germany. We have previously prepared a cost break down including all relevant  knowledge we had about the material, montage and overhead costs submitted by the supplier from  the past. This served as a basis for further calculations and to raise concrete and smart questions about  cost drivers for the material (related to glue paste and sealing), OEE (Overall Equipment Efficiency) for  the manufacturing process and quality costs related to the product. This helped as gained a better  understanding of the cost drivers and to evaluate the arguments delivered by the supplier.

On a second step we again visited the supplier one week later together with the Automotive Supplier  Development experts to conduct a Value Stream Mapping. This was very helpful to register all the  sequent steps involved in the production process and better understand where possible bottlenecks  during the assembly process. Unfortunately the supplier was not willing to disclose further required  information related to specific cycle times and other major shortcomings coming the design concept  of the production.

This however helped us understand the current situation related to the high energy costs and other  aspects which lead to inefficiency, waste of material and increase of maintenance costs.

Insight

After the application phase we meaningfully used the gained insights to conduct the Cost Structure  Analysis. Our Automotive Supplier Development experts recognized the low inefficiency of the  production line due to the low demands of the product and the age of the line. For this reason we  have set a conservative OEE (Overall Equipment Efficiency) of 60% and a scrapping rate of 3% due to  the downtimes of the old machines involved in the production line and the continuous switch on and  off of the machine. The results of the Cost Structure Analysis though, showed that a price increase of  +27% (instead of +46%) was more than reasonable and a good starting point for our negotiation  strategy. A new cost break down was again prepared including all blocks related to Material, Assembly  and Overhead costs and were then explicitly discussed during our negotiation with the supplier.

As a result we achieved a better price which was accepted by the business unit (+32%) and helped  reduce the negative impact for the plants involved.

Approach

What would I do differently next time? I think, I will try to integrate my colleagues from the purchasing  department in the whole process to profit from their knowledge dealing with difficult suppliers and in  order to analyze the situation from other perspectives. For the above I will definitely use again the  visual thinking tool and the Mind Mapping approach as a complement.

