ITT Automotive

ITT Automotive | Y Visweswara Reddy (1311208)

ITT Automotive: Global Manufacturing Strategy (1994) ITT Automotive is in the process of developing a new-generation antilock brake system (ABS), designated the MK-20. The case focuses on the level of automation to be used in the production of MK20, and whether plants across locations should use the same processes and technology. Intensified cost pressure and rapidly increasing demand for low cost ABS have resulted in strong favour to use a standardized automated production process in the four plants scheduled to produce MK20 (located in the United stated, Germany and Belgium). Managers at the company's two plants in the United States (Morganton and Asheville plants) favour using lesser automation in order to allow greater flexibility for improving process technology over time on the lines of Kaizen philosophy. 1) 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? Currently, the ABS manufacturing industry seems to be in a mature stage: the market shares of the players are slow to change. Further, this industry seems to be at a disadvantage against the bargaining power of its customers (OEMs). Lastly, the margins in ABS systems are low: to the tune of 10-15%. Thus, to improve the bottomline, both top line and middle line need to be addressed. Top-line (Price x Volume): It is stated that the price of the ABS has not increased much during 1985-92 (11% increase). Therefore, top-line growth can only be achieved by increasing volume. For this, the economies of scale (standardization) is needed. Middle-line (Cost): Prior to MK20, ITT manufactured MK4 with a cost of 2Y in 25 versions. In contrast, MK20 was planned for manufacture at a cost of Y and in 6 versions. On the cost-flexibility graph, the strategy could be drawn as:

Thus, it seems that standardizing process technology seems to be in-line with a greater motive of driving bottom-line growth in the long run. However, I do not agree with complete process standardization across all plants. As stated in the case, the customer behaviour across both continents is different. Further,

ITT Automotive | Y Visweswara Reddy (1311208) raw material variation from suppliers is high in North America. In such a situation, I recommend a continent –wise process (and if possible, product wise) standardization. Instead of going with a global strategy, I suggest a glocal strategy wherein the MK20 version E is developed and manufactured for the European market and MK20 version A is adapted from the MK20 version E and developed and manufactured for the North American market. In this regard, taking a twin version strategy would also not hamper the cost reduction strategy. The North American version market could offer higher product variation but same cost as the European version due to lower labour cost in North America. 2) In general, when should `copy exactly‟ be used? Shrinking product lifecycles and increasingly complex production technologies pose major issues in most of high-tech industries. The window for selling many products has shrunk to less than a year in industries such as semiconductors, disk-drives and telecommunications. Companies often find themselves in tricky situation because of the “premature” transition of the product from the R&D labs into commercial production. Nevertheless there are industries wherein new process flow and products can be introduced to production in minimum time with equivalent yields and without the introduction of product-quality issues. Both manufacturer and customers can reduce their time to market. Copy exactly approach could be employed in industries where the technology is complex and has many interacting variables affecting the end result. Further, the „copy exactly (Intel)‟ appears to come in stark contrast with kaizen (Toyota). Given the success story of Intel in „copy exactly,‟ it seems that copy exactly philosophy seems to work when product improvement holds a higher priority over process improvement. This means that that „copy exactly‟ seems favourable in industries where technology change is rapid and the time used for process improvement is limited. Also, the „copy exactly‟ seems favourable for companies manufacturing global products (such as coke, Nike) where the manufacturing can be outsourced to relatively low-skilled labour countries.

3) 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, North Carolina, what line of reasoning would you use to convince senior management that full automation is the less desirable alternative? Juergen Geissinger: As suggested above, as Juergen, I would opt for adapting the twin version strategy for the MK20. This would mitigate and address some of the issues raised by the plant managers. My logic for implementing the twin version strategy would derive from the fact that sudden changes in large organizations (ITT is a 1bn$ turnover organization) can act as a shock. Hence, gradual changes are required. Further, specific to plant managers‟ concerns regarding the employment of their staff, I would suggest the plant managers to encourage their staff for skill development in contrast to layoffs.

ITT Automotive | Y Visweswara Reddy (1311208)

Steve Dickerson: As Steve Dickerson, I would argue that a full automation only offers a cost reduction of only 5% in comparison to the mixed manual/automated process. If full automation is implemented, the 5% cost reduction could result in loss of sales on account of loss of customers seeking greater customization, thereby nullifying the effects of cost-reduction. Further, new product development with advancement of technology will make automated systems obsolete. Lastly, US plants employ Kaizen to continuously improve their existing process. With automation, Kaizen philosophy cannot be applied, there by hindering process improvements.

4) As Klaus Lederer, what option would you like to see pursued? How do various options fit into the broader corporate strategy of ITT Automotive? My reasoning to Klaus would also hinge on the same line of thought as providing a twin version strategy for two main reasons:  

From a broader strategic perspective, the adaption of the MK20 to suit American markets would allow for testing the scalability of the MK20 Platform. From an organizational perspective, the twin version strategy would allow for a gradual organizational processes change as compared to the single version strategy.

Further, the twin version strategy allows for both top-line and middle-line improvement for bottom-line improvement while at the same time, not alleviating attrition, which is a challenge in industries relying on skilled labour.