Labor Cost, OEM Complexities Pressure Suppliers

According to manufacturing expert Laurie Harbour, escalating business costs and the industry’s electrification shift are tightening the vise on auto suppliers.

Even with EVs such as the GMC Hummer built on modular platforms in dedicated plants, such consolidation may not ease the industry’s expanding manufacturing complexity. (GM)

Fast-food restaurants are paying hourly wages similar to starting rates at automotive assembly plants, and the accelerating shift to electric vehicles (EVs) promises a wholesale restructuring of automotive manufacturing. These and other trends are affecting every level of the supply chain, says Laurie Harbour, president of manufacturing consultants Harbour Results Inc. SAE Mobility Media editorial director Bill Visnic spoke with Harbour at the Center for Automotive Research (CAR) 2021 Management Briefing Seminars about the pressures she’s projecting for the manufacturing sector.

Assembly robots installed at GM’s Hamtramck, Mich. Factory Zero assembly plant dedicated to EV production starting in late 2021. (GM)

There’s intense competition for workers. What’s the outlook for what are perceived to be more physically demanding jobs in manufacturing operations?

If I'm paying $15 per hour at GM, what am I paying at the Tier 1? In Southeast Michigan, I have Tier 1 clients paying $19-20 an hour starting wage. It’s absolutely going to be a long-term issue. People got comfortable being home. They've left the workplace and said, ‘You know what? It’s not worth it. We learned how to live on the different lifestyle.’ Labor is going to be a long-term issue, which means automation and technology are going to be huge. We're already seeing significant investments made by companies to bring in not only full-scale robotic cells for assembly, but hand automation – the whole gamut of automation – to eliminate labor.

There's no doubt wage increases are going up across the board with the suppliers. All that means to me is that your price [to the customer] is not getting better. Which means you had better get better! Figure out how to be more efficient, do more with the same amount of people. Figure out how to be flexible and drive more production out of your processes; make an investment in a certain level of automation.

I’m not on the bandwagon of eliminating people but grow your business and don't hire more. Some shops won't do that. So, picture not the Tier 1s – but the Tier 2s and Tier 3s. The privately held companies who make those Tier 2s successful. These owners are committed to not laying off people, not getting rid of people. So, by nature some companies are going to go away.

Recent market trends are conspiring against efficiency, too?

That’s the other piece of this. The business of automotive and anything – appliances, RVs, boats – we're becoming a very high-mix, low-volume market. So, plants are now starting to figure out that they've got to be efficient. The data we have show that in this 11-year expansion from '09 to 2020, we lost tremendous efficiency and profitability. Although we were growing, we’d gotten wasteful.

We added people. We kept people. We got inefficient because we had profit. We're becoming inefficient again, because somebody's giving us a [purchase order] to make 10,000 a year, or to make 5,000 a year. Now, all those things we got fat on – poor changeovers in the plant, poor scheduling, poor planning, poor inventory levels – they're all going the wrong direction. We’re teaching companies, but nobody's mastered it. If you watched the Olympic swimming, they put all the fast swimmers in the middle and they put the slower swimmers on the end.

The fast swimmers are advantaged from the start...

Laurie Harbour, president and CEO, Harbour Results. (Harbour Results)

It’s the same idea if you're in a molding shop or stamping plant. Schedule your presses full, with all those high [-volume] runners and run nonstop. Then pick a handful of machines that I have to get really good at changeover. I have to teach my people to be really flexible. Then I can drive what we call ‘swim lanes’: two business models under one roof. The company that can master that will be wildly profitable. We've seen some start to get there, but everybody has been turning down low-volume work.

The problem is the math. This is where I'm going to fight with finance people. So, the finance person is going to say, ‘Wait a minute, I make 40% profit margin on that. And we're saying, ‘No, you don’t. Because when you quoted that thing, you didn't factor in changeover time. You didn't factor in your inventory costs. You did an A-B-C costing method, that said on a job it's profitable. But the reality is, now I have a thousand of those parts and my waste in the system isn't in your quote. Operations has to figure out how to get efficient with that, because they're not going to quote any higher.

Is this similar to previous cycles when big inefficiencies were attacked?

Yes, except there was a low number of models and very high volume; 500,000 a year of [Ford] Taurus and Sable, 300,000 [Chevrolet] Malibus. Those sedans sold 200,000 or 300,000 units. Now, we have [just] 10 models that sell better than 100,000 units; Ford F-150, the T1XX [GM full-size pickups].

This mix/volume relationship has fundamentally rearranged how the rest of the supply chain has to react?

Exactly. We have, what, 550 models in play by 2025? It was 300 models ten years ago. Great for people who make injection molds and stamping dies, because the complexity is huge, but horrible for the [company] trying to run all those things.

Let me counter that with many companies’ sweeping efforts to reduce the number of vehicle platforms – “We’re going from 20 platforms to five” kind of thing. Doesn’t that fix some of the complexity issue?

Well, first of all, we're not there: they don't have five platforms. I've been in this business for 35 years. Do you know how many articles I can pull right now from Ford and GM about how they were doing consolidation? It's what they’ve told us for 20 years.

Here's what's happening on the platforms: I have a [Ford] Ranger spin-off of F-150. I have a Bronco spin-off of F-150. Great. I love that. So structurally, foundationally, underbody, I am reducing the number of dies. Not quite 60% [bill-of-material reduction]; it’s probably closer to 40%. But even still, the major design and engineering of the platform: gone. I don't have that cost. That's perfect.

But then, the F-150’s got 20 trim levels. And I'm creating Broncos that have seven trim levels. On an F-150, if you want to have 22, I don't care – because I make so damn-much money over that. There is fat, but it's okay if I'm making money.

The bigger issue now is, as I go to battery-electric vehicles, I can't put that same level of trim, because I'm not selling as many of those. It's a good/bad scenario. Again, I'm creating high mix/ low volume. A toolmaker doesn’t’ care because he doesn't care what the volume is – he makes tools.

But we are just creating more proliferation for the plants to deal with. At a GM level, for example, if I go into Hamtramck [assembly plant], where they're going to build all of this same-platform EV, there’s much less complexity in the plant. A Hummer, or a [Cadillac] Lyric or the other vehicles on that platform. It's easier for them – but we've never really gotten out of the level of complexity and proliferation, we've just moved it to different avenues.

Is over-stimulation with trim proliferations uniquely an American-automaker thing?

No, Toyota actually has gotten bad with some lines. They've commonized platforms, but they've gotten bad with trim. Nissan's horrible. And the Germans are even worse – you can go to Germany and put your grandmother’s drapes on your seats, if that’s what you want. The industry's been caught up in it because of the shift of generation. Our children want customization; they don't want their car like the next person’s.