Issue: Jan 2006


Global Product Development - An Imperative for the Automotive Industry



by Lenny Case

Companies in the automotive industry are responding to enormous economic and political pressures in a variety of ways. The combination of these pressures and responses is transforming the industry. From economic pressures such as high-cost labor pools and increasingly expensive raw materials prices, e.g., steel and petroleum, to responses such as outsourcing, consolidation within the industry, and assembly flexibility, companies cannot afford to remain static in any of its operations.

To understand these trends, PTC and the Center for Automotive Research (CAR) have conducted a study on automotive product development that provides a snapshot of the current state of the industry and a 5-year forecast. The study reviews such varied areas as business philosophy, product design tools, communication methods and engineering efficiency. The study is available at:

http://www.ptc.com/appserver/wcms/forms/index.jsp?im_dbkey=28705&icg_dbkey=482

One clear trend identified in this study is an increase in outsourcing to global suppliers, broadly classified as Global Product Development (GPD). The objective of this article is to provide a definition of GPD, a framework to explore GPD and the capabilities required to make it successful

Simply put, Global Product Development is defined as maximizing the financial and operational productivity of the product development process by spreading product development activities across multiple regions of the world in order to better match value-add to cost. In this context, the definition of "product development" ranges from marketing activities that identify and document customer needs; to engineering activities that conceptualize, design, analyze and refine new product ideas; to activities that plan and document manufacturing, operation, and maintenance processes; to sustaining activities that make ongoing product changes and refinements.

The CAR Study shows that companies who deploy Global Product Development strategies stand to gain significant financial and operational benefits. Significant "hard dollar” savings typically in the range of 0.5% of company revenue and 10% of the product development budget may be achieved. Additional "soft dollar" operational improvements such as 24x7 engineering and reinvestment of cost savings to provide specialized skill capacity are also possible.

OEM’s such as GM have embraced this model, and have restructured their global design and engineering operations to better leverage worldwide resources, accelerate product development and, ultimately, reduce expenses. Furthermore, suppliers such as Cummins have commissioned a Regional Technical Center in Pune, India for embedded software and mechanical design to address corporate mandates to boost innovation without increasing engineering spend.

In order to proceed with the implementation of a GPD Strategy, it is necessary to analyze product development activities. To do this, a company must first segregate higher value-add activities from lower value-add activities and identify the degree to which these activities are portable. PTC has developed a framework for identifying what activities can be taken offshore based on the product lifecycle and value add. These details are available in the following white paper: http://www.intheboardroom.com/resources/docs/Journey.pdf

Companies that have identified which activities can be relocated must next decide where to relocate those activities. There are a number of criteria that affect this decision: cultural capabilities for product development, cost advantages, cultural respect for intellectual property, availability of qualified labor, language capabilities, business environment, and the existing provider base. PTC has developed a model using various ranking and weighting factors that is documented in the above white paper. Per this analysis, the top three destinations are India, Czech Republic and China.

Once a company has decided "what" and "where" to offshore, it then must make the engineering work portable. This requires both process changes and technology infrastructure.

The amount of process change required is dependent on the maturity of the company’s GPD strategy, and can vary from ‘ad-hoc’ to ‘transformation’ outsourcing. PTC has developed a maturity model that can assist in this effort

From a technology infrastructure perspective, there are nine key critical capabilities required to enable successful GPD – secure online collaboration spaces, Integral PDM and Project Collaboration, Distributed Change Control and Data Management, Part Comparison and Difference Reporting, Real-Time CAD Collaboration, Work-Offline Capability, Security, Performance Optimized Data Delivery Architecture and Content Replication and Local Upload.

Modern IT infrastructure, like PTC's integrated Product Development System (PDS), provides a digital backbone that enables manufacturers to accomplish these objectives and deploy a GPD strategy in an orderly and productive fashion. PTC's PDS marries three core capabilities into a single IT architecture: Pro/ENGINEER to "create" high fidelity digital product data; Windchill® ProjectLink to enable "collaboration" across virtual teams; and Windchill® PDMLinkTM to facilitate "control" of product development data and processes

It is important to note that there are also potential risks and challenges associated with GPD. These are broadly categorized into political, business, technical and organizational concerns and include issues such as job loss fears and IP theft. For those companies who are intrigued by the idea of GPD, but are uncertain of their ability to “go it alone”, PTC can be a true partner and trusted guide. If you are interested in how to implement a GPD strategy at your company, please contact us at gpd-assessment@ptc.com



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