Global Sourcing Approach Could Save Auto Industry 20 Percent; TRW Leads Charge for U-M Study to Prove Concept
6 August 1997
Global Sourcing Approach Could Save Auto Industry 20 Percent; TRW Leads Charge for U-M Study to Prove Concept
TRAVERSE CITY, Mich., Aug. 6 -- TRW Inc. will provide $20,000
seed money, and pledged on-going support, for a landmark study of global
automotive components sourcing to be conducted by the University of Michigan's
Office for the Study of Automotive Transportation (OSAT). The announcement
was made today by TRW President & Chief Operating Officer Peter S. Hellman at
the University of Michigan Automotive Management Briefing Seminars here.
The unprecedented study will investigate the feasibility of a new global
automotive sourcing concept, which Hellman said could reduce costs by as much
as 20 percent compared to current practices.
To be funded entirely by the automotive supplier industry, the study will
be guided by an advisory council representing key global automakers and will
be conducted by the University of Michigan's OSAT research team. Hellman said
OSAT hopes to begin work immediately and have preliminary results to report at
next year's Automotive Management Briefing.
Underscoring the need for such a comprehensive, global study by an
independent body, Hellman said that the auto industry "is behind the curve as
an industry in working to link globalization and optimization." The study's
objective would be to examine the global sourcing patterns of other
industries, quantify cost savings, and examine how similar approaches could
work within the global automotive business.
Hellman said that in today's approach to globalization, auto suppliers are
expected to build plants in new markets to meet 100 percent of local peak
demand -- even though most of the time those plants will operate at only 80
percent capacity or less. This adds unnecessary cost, especially when the
suppliers have plants in other regions with additional production capacity.
Instead, Hellman suggests the industry take a "borderless" base-load
approach, in which suppliers build a local facility designed to efficiently
handle the base load (80 percent of peak) demand. Then, to meet the
occasional peak demand in that market, the supplier could source the extra 20
percent needed from plants in other regions of the world where capacity
exceeds current local demand.
This base-load supply approach would require selective standardization of
certain products and processes, Hellman said. But it would greatly reduce
costly -- and often idle -- overhead, by taking advantage of improvements in
transportation, information technology, and global trade relations to make
seamless sourcing shifts.
"Base-loaded supply facilities with well-planned backup and state-of-the-
art communications can dampen the cost of down cycles and serve the needs of
up cycles in any dimension," he said. "They bring the (entire) world to the
service of any (automaker's) assembly plant, anywhere."
Hellman called the new OSAT initiative "no talk and all action" and urged
other global suppliers to step up to support the effort. In closing, he
expressed confidence that the industry would embrace the creative changes
identified by the study: "We have the greatest motivation of all to do so ...
shareholder value."
With 137 principal facilities and operations in 26 countries, TRW
is one of the largest independent OEM automotive suppliers in the
world. In 1996, the company's automotive businesses recorded sales of $6.5
billion, over 65 percent of TRW's total $9.86 billion in sales. Based in
Cleveland, Ohio, TRW also provides advanced technology products and services
for space and defense markets worldwide.
SOURCE TRW Inc.
