Select Committee on Trade and Industry Appendices to the Minutes of Evidence

Annex 1

Observations by Professor Denis R Towill, FREng


  These notes are based on extensive site research conducted by the Cardiff Logistics Systems Dynamics Group on the performance of European automotive values streams based on the problems experienced by first tier suppliers. We reach the conclusion that there is much good practice within the UK. As reported by Richard Schonberger, some first tier suppliers already outperform the OEM's on such important performance metrics as annual stockturns. The spread of excellence is hampered by the continuing existence of an "us-and-them" culture, especially across the OEM first tiers supplier interface. This is extremely wasteful of resources, particularly capacity. As well as an attitudinal barrier to the transfer of best practice throughout the industry, there is a critical shortage of high quality business systems engineers. These professionals are required to design, implement and update automotive value streams to match best international practice. They need to ensure the proper engineering of the "how" of supply chain operations: the "what" is already well documented.

1.1  Cardiff LSDG Audit of Automotive Value Streams

  We have recently completed our audit of 20 automotive value streams centred on UK first tier suppliers operating within European supply chains. The value streams supply a representative range of mechanical, electronic and electrical systems to UK, European and Japanese transplant OEMs. There are obvious dangers in extrapolating audit results from such a sample in order to generalise across a whole market sector. However, the comprehensiveness of the audit in terms of site visits, data analysis and process mapping does suggest the conclusions should be of considerable value to the automotive sector. In particular the audit establishes current performance as measured by the level of uncertainty induced within the business due to supply chain interactions.

1.2  An Established Route for performance Improvement

  The audit has also established the best route for performance enhancement as demonstrated by the exemplar value streams. As first tier supply level this must start with the engineering of internal production processes to a high and consistent level of productivity. This experience and knowledge can then be exploited in the better management of materials and sub-assembly vendors so that a uniformly high performance is achieved in both upstream and internal pipelines. The final step in reducing uncertainty is then to work with the OEM to enable streamlined information, material, capacity and cash-flow. In parallel with the better engineering of the internal, upstream and downstream processes is the need to develop simple, robust, Decision Support Systems. This in turn requires the immediate availability of operating information throughout the value stream. EDI is therefore essential, with all operating systems compatible and able to share this information.

I.3  The OEM-First Tier Supplier Interface

  The audit sample established that two "exemplar" value streams had exceptional performance along all four dimensions (internal processes; supply side; demand side; and system controls). These exemplars can be confidently recommended as demonstrating best practice. However, six other value streams provide considerable evidence of good practice. Indeed they have achieved all the engineering benefits available within both the internal production and upstream supply processes. What is holding them back is the nature of their relationship with the particular OEM. This results in information being late; sometimes being withheld and all too often changed at the last moment. What the OEM causes herein is the inevitable added cost to the supplier of heeding responsive manufacture when the marketplace needs are met via level scheduling.

  There is a cultural problem still to be overcome at the first tier supplier-OEM interface. It is wasteful to expect delivery of the right product, just-in-time, at lowest cost, when the masking of downstream demand makes capacity planning for the first tier supplier unnecessarily complex and highly variable. True partnerships across this interface would help solve this problem. There would also be a better chance of the associated cultural change working its way upstream so that a genuine extended enterprise would be in place. Since in the year 2000 it is value streams, not individual business which compete, this can only help UK plc.

I.4  Individual Businesses within the Value Stream

  There is a downside to the Cardiff LSDG audit results. Four businesses were found to have minimal control of their internal production processes this means it is very difficult for such companies to adhere to delivery schedules, a performance metric which lies at the heart of best practice. Amongst the reasons for poor process control are the low (or inappropriate) investment in equipment, and the low investment in production engineering personnel. Hence instead of the desired continuing increase in performance, resources are wasted in fire-fighting to fulfil an overdue order.

  Thus despite the wide publicity advocating lean production ("lean" means "without fat" and hence the elimination of all waste), our automotive sector audit shows that it is still far from a universally applied paradigm. This is strange considering that Spitfire production in the UK during the Second World War was essentially enabled via lean production. So the "comfort factor" or just-in-case inventories, back-orders and visible queues still inhibits progress in some parts of the automotive sector. There is thus a need for a sustained cultural change which must not be reversed at the first hurdle.

I.5  Need for a "Total Systems" Approach to Value Stream Design

  It is evident from the audit that the successful value streams have been holistically designed. In contrast many of the less successful value streams have "grown like Topsy" without adequate thought being given either to their architecture or their infrastructure support. A suitable design methodology exists known as Business Systems Engineering (BSE), which specifies and integrates all the business processes linking customer need to customer need being satisfied. The methodology is an extension of traditional industrial engineering to consider end-to-end material, information, capacity and cash flow together with the use of appropriate technologies (especially IT) as an integral part of each process.

  The UK automotive sector helped pioneer the methodology in the early 1980s with considerable success at the first tier supplier level as readily identified via annual stock turn improvements. Since then the movement has lost its impetus, to the detriment of value stream performance. The mistake has been made in thinking that Value Stream Design is a one-off exercise. It is not: periodic review is required as frequently as industrial engineering checks were historically conducted on individual operatives. In turn this much needed industrial engineering resurgence will necessitate recruiting and professionally encouraging high quality business systems engineers to design and implement the next generation of value streams.

I.6  Conclusions

  It may well be that at the UK OEM level some contraction is inevitable due to global over-capacity. This global situation is partially the result of increased efficiency in the industry. At the same time the performance improvement has been very patchy. Hence the problems encountered at BMW-Rover. However, there is no reason why UK automotive suppliers cannot respond to the global challenge. Our research shows that many companies are starting to compete. What is needed is to rapidly bring the industry up to the standard of the present best practice. To achieve this goal requires attitudinal change allied to recruitment of high quality business systems engineers capable of designing, implementing and updating the next generation of value streams to deliver top value to both customers and to businesses throughout the supply chain.

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Prepared 8 February 2001