Case studies
Automotive complexity reduction
After a decade of outsourcing and product proliferation, a North American automotive O.E.M. faced many challenges - significant operating losses, rising warranty costs, and uncontrolled complexity driven across the five product development centers. Commercial strategies were limited in scope and scale due to the proliferation of designs. For example, there were 38 different alternators in use across all product lines.
While much of their past success was built on bold and unique products, the company recognized the need to instill discipline in their product development process to combat rising warranty and complexity costs.
Challenge
A.T. Kearney was engaged to conduct a warranty and complexity reduction project across the company’s product portfolio. The project had three primary objectives:
- Rationalize complexity across the major product lines and commodities
- Reduce product costs, including purchased components, assembly costs, service and warranty costs
- Train the organization to successfully manage and implement the process going forward
Approach
A.T. Kearney addressed product complexity at multiple levels: sub-system / component complexity, assembly process complexity, and build combinations.
The project team, including O.E.M. experts and A.T. Kearney consultants, followed a structured approach to deliver robust results:
- Sub-systems were prioritized based on current level of complexity and savings potential
- Variant trees were developed for both product and process complexity drivers
- Zero-based and incremental approaches were analyzed in parallel to establish the "Maximum Deproliferation" scenario
- For each of the variants in the tree, detailed performance data was used to determine "which is the best and why"
- A key element of the process involved benchmarking world class competitors for design and assembly best practices and complexity reduction insights
- Savings were identified for all major cost elements: piece cost, tooling, assembly/manufacturing, distribution, marketing/sales, and service/warranty
Results
The teams completed complexity reduction projects for over 100 sub-systems / components and 19 assembly processes. Tangible results included significant savings:
- Over $150 million in annual warranty cost savings
- Over $700 million in annual piece cost savings
- Double digit reductions in complexity – the company is on track to match benchmark commonality levels by 2009
In addition, the teams developed seven specific modules to address the entire product development process and drive sustained implementation and support the company’s complexity management strategy.
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