The concept of outsourcing non-core processes is not new, but momentum and support outside the automotive sector falls short of expectations. Ongoing pressure on profits in manufacturing has placed increased pressure to reduce costs and has created the perfect storm for outsourcing none core processes.
Roland Berger a Strategy Consultant with expertise in manufacturing best practices believes that engineering services, specifically outsourcing, offer flexibility and cost-saving potential for OEMs and OESs. Roland believes that outsourcing can reduce development costs as well as increase flexibility and efficiency. Emerging market players who effectively leverage outsourcing create the perfect balance between a low-cost engineering workforce and superior low-budget vehicle design concepts. The implications of a steep learning curve on complex manufacturing protocols continue to put increased pressure on established market players to engage in low-cost engineering. Further, the automotive sector continues to be challenged by increased costs and often looks to outsourcing non-core processes to improve productivity.
Outsourcing is gaining in acceptance and is often a viable option with positive results for all manufacturers. Spencer ARL is well positioned to address this growing need. Spencer ARL is a division of Assemble-Rite Ltd, an affiliate of Butcher Engineering Enterprises Ltd, and has been offering specialized manufacturing services to the automotive industry for the past 60 years. The core capabilities of the Butcher Group include painting, packaging, warehousing, logistics and distribution of parts for the automotive sector.
As a proponent of effective outsourcing and lean manufacturing, Spencer ARL is a market leader in outsourcing services for major and minor subassemblies, that include sequencing, metering of parts and assembly and has made a significant and positive impact on the productivity of their customers. Other services include sub-assembly, sequencing as well as material and reverse logistics, sorting, containment, inspection, repair, reworks and quality management.
Last year, SpencerARL opened a new, 80,000 square foot facility in Plattsburgh, NY after successfully securing a sub-assembly and a third-party logistics contract from Nova Bus, a division of Volvo Truck & Bus. The SpencerARL facility in Plattsburgh has over 150 sub-assembly activities which include but are not limited to bus engine, transmission, axles, seats, wheel and tire, which are assembled and sequenced, complete with line side delivery on a just-in-time basis. Outsourcing to Spencer ARL has enabled Nova Bus to focus on the assembly of the bus as their core competency and results in increased production TAKT times. SpencerARL performs sequencing operations with minute-to-minute deliveries to Nova Bus thereby significantly reduce Nova Buses costs but more importantly increase their ability to handle a greater volume of buses with many different options as required by their customers.
SpencerARL hopes to cash in on its growing expertise and specialized capabilities by creating partnerships ensuring a supportive operation that is economically executed and quality driven. “There is definitely escalating competition in all areas of manufacturing and I believe that focusing on what you can do better than anyone else with the perfect balance of people process and technology has been our key differentiator. “Says Nebe Tamburro CEO Spencer ARL.
Automotive Industries spoke to Nebe Tamburro, P. Eng., CEO, SpencerARL
1. AI: At the beginning of the twenty-first century, the world’s ‘love affair’ with the automobile appears to be coming to an end do you agree with this statement?
• The impact of the car on the environment, especially in terms of its contribution to CO2 emissions and global warming;
• The anticipated growth in the world’s car population, mainly in developing countries, which has the potential to increase this impact;
• Traffic accidents, which are a major cause of death and injury, particularly among the young;
• The car’s current reliance on oil;
• The economic and social cost of road traffic congestion.
Tamburro: There has been a lot of disruption in the industry but the love affair with the automobile is far from over. We have become too dependent on the automobile from the perspective of how we live and work and in North America especially, it is a big part of who we are. I do believe that environmental concerns and escalating threats from emerging countries will force us to rethink our manufacturing processes in the name of efficiency. Also as developing countries become more affluent with respect to an emerging middle class, consumption and production will become more closely correlated. Our dependence on oil is also a concern and we have already seen the geometric growth in spending on fuel efficient technologies and the overwhelming success of Hybrids. The cost of oil and the increased cost of labor in emerging economies have the potential to negate any production advantage.
2. AI: The automotive industry has experienced the most profound and revolutionary change since the invention of the Model T Ford. What do you see in the future of the automotive industry and will this sector bounce back?
Tamburro: There is a definite future for the automobile and we are already seeing cars that come off the assembly line with internet access, GPS, and can you believe alcohol monitors. There will still be a strong focus on fuel efficiency and emissions as well as going “Glocal” integrating global demand with local manufacturing. In 1996 there were 670 Million cars for approximately 5.8 billion people. The US Census Bureau estimated that there could be 3.5 Billion cars for 9 Billion people with numbers in the industrialized world expected to double. We already have evidence of major producers establishing partnerships in China and establishing factories in India who is now focused on the export market. The TATA Group is also heavily investing in concepts that are fuel efficient and affordable.
3. AI: Consumer attitudes and demographic trends suggest that environmental concerns, the cost of oil and changing consumer preferences will place increased pressure on manufacturing and efficiency. How can SpencerARL address these challenges?
Tamburro: Consumer attitudes have changed plus the aging of the population in North America and declining birth rate will definitely continue to change consumer preferences. Transportation is a major user of energy and contributes significantly to CO2 emissions. The Kyoto protocol did significantly reduce greenhouse gasses but we have a long way to go. The tightening up on emissions continues to be negatively impacted by the growing number of automobiles. We have already seen the pressure on the manufacturing sector to deliver profits with fewer resources. SpencerARL is well positioned to improve the productivity and efficiency of current performance protocols for the manufacturing sector. Increased throughputs, improved quality at reduced costs have been directly attributed to utilization of our services for our customers’ non-core activities. The more efficient the manufacturing process, the less resources are used, less waste and therefore a more positive impact on the environment.
4. AI: Also, competition in the automotive industry is expected to intensify specifically in the areas of quality control and sub assembly fueled by technical vehicle-related innovations. What do you see as the key areas of improvement?
Tamburro: The growing concern over recalls and companies cutting corners in the name of profits is no longer an option and you need to look no further than recent recalls for evidence. Integrity is a key component of the culture at Spencer ARL and we see ourselves as a true partner of innovation. Recently our facility in Plattsburgh New York in partnership with one of the three top transit bus builders in the world has resulted in our customer focusing on design, engineering, sales and ultimately final assembly. The sub assemblies, sequencing and third party logistics have been outsourced to SpencerARL resulting in lower costs, increased production flexibility, reduced production time lines, minimal impact due to engineering changes and overall quicker response to customer related issues.
5. AI: Ford made one of the first moves to scale back on the number of unique models and the migration toward standardization of parts and sub assembly. Do you think this trend will continue?
Tamburro: Yes I believe that this trend will continue in realized efficiencies from scaling back on product offerings and sub assembly of components. The proliferation of parts attributed to trying to provide the consumer with every imaginable combination of vehicle has been directly tied to increased costs. The goal for Lean & Flexible manufacturing environments is to ultimately produce as many types of vehicles/products off one assembly line at the highest quality level, for the lowest cost possible. This is what needs to happen from a manufacturing point of view and our services are part of the solution. The trend for scaling back on the number of unique models should not stop but rather it should become more focused on what the consumer really needs.
6. AI: There is a growing demand for automobiles in emerging economies. As the standard of living increases in these countries what do you see as the impact on outsourcing?
Tamburro: We all know that there is a growing demand for automobiles in emerging economies and that ultimately this demand is already shifting production to these regions thereby impacting the available capacity for outsourcing to these regions. We are already seeing an increase in the cost of labor in these regions and therefore the advantages of outsourcing; it all boils down to the laws of supply and demand. Outsourcing the production of components, while retaining final assembly remains a key trend however I believe that there will be a renewed focus on vertical integration.
7. AI: You mentioned that Spencer ARL is a strategic partner for continuous innovation what do you mean by that and what are the key benefits?
Tamburro: Manufacturers at all levels are investing in R&D which has resulted in more sophisticated vehicles and increased automation. The emergence of electronics and microelectronics has also placed increased demands on IT. We already have evidence of a shortage in blue collar workers that are skilled at leveraging technology in the production process. The growing trend towards quick response and continuous innovation puts increased pressure on the demands for highly skilled labor.
Our focus is to work with our customers on projects that will allow them to focus on their core competencies whereby they utilize their higher wage workforce on core processes and we utilize lower cost techniques for the non-core processes. For example some of the techniques which we utilize at SpencerARL specifically focus on more productionized and automated shop floor systems enabling unskilled workers to perform significant sub assembly functions ensuring higher quality standards and increased throughputs. Our customers will realize the best bang for their dollar through the utilization of our services focused on their non-core competencies.
8. AI: Your ad mentions a quick response for quality control. What is unique about your offering and what does quick response really mean?
Tamburro: We are extremely agile and can scale up quickly to customize a solution for our customers. Two things; First, Quick Response as it relates to providing a solution to any of our customers’ issues is a must in our business. Recently we have opened up a turnkey, state of the art, subassembly facility with secondary sequencing and third party logistical benefits, all in the matter of a few months. With minimal involvement from our customer we were able to segregate most of the manufacturing issues specific to major subassemblies, sequencing, line-side delivery to the final assembly plant and the logistics surrounding the minute to minute metering of components into the final assembly. The final result is increased throughputs, reduced TAKT times and a substantial decrease in quality issues for our customer, first time through. Second, Quick Response as it relates to 3rd party containment/rework of any quality issues ultimately impacting the customer’s ability to produce product. We have provided same day solutions, many times, in just a few hours whereby we assist our customers ultimately in keeping their manufacturing processes moving. Although zero defects are a must at all levels of manufacturing and ultimately to the customer, mistakes from suppliers do happen! At SpencerARL we become part of the solution, assisting the customer to first contain the problem as we work hand in hand with the customer & suppler to root cause and create irreversible corrective actions to ensure that these problems are permanently eliminated.
9. AI: You mentioned that you see yourself as a strategic partner. How do your services align with your customers’ goals and objectives?
Tamburro: Before deploying a solution, we make sure that we understand how our solution impacts current processes and we pride ourselves on deploying methodologies that enhance our customers’ value proposition with state of the art technology and highly trained employees. Presently we are utilizing web based workstations for each of our operators ensuring that we get real time manufacturing information directly to the floor with the ability to monitor performance instantly. Our system ensures that engineering changes make it to the floor in the most cost effective manner. In this particular case the goal and the objective is to ensure proper assembly information, bill of materials and drawings are always presented to the operator in a real time, paperless environment with 100% traceability on the process. However, the potential of this system is far reaching including the possibility of creating a work cell based Mini-MRP system that would enable integration of complex ISO, engineering and other standards and create access for the very people who are on the front line of your manufacturing operations.
10. AI: How do you plan to diversify given current trends in the automotive sector and what incremental services or offerings do you see in your future?
Tamburro: Presently we offer the following services: sub-assembly, sequencing, distribution, logistics, and packaging, reverse logistics, quality control and traceability to our customers directly related to their specific needs. Our intention is to reconnect with the automotive industry specifically as it relates to customers looking for strategic partnership relationships. The SpencerARL team enhances the overall capability of our customers’ resources, complimenting their own internal resources with our expertise focused approach to non-core activities. As we continue to connect with our market in the public transit manufacturing world we will vertically focus on low volume custom manufacturers, such as rail, bus, aerospace, heavy duty industrial machinery, highway trucks/tractors and also specialty producers such as ambulance, police cars and fire trucks. Our capabilities and expertise have tremendous synergy in complimentary industries and we are aggressively pursuing these opportunities.
11. AI: Frank Ruff, Head of the Society and Technology Research Group at Daimler Chrysler in Germany, presents a scenario for the future of the automotive industry in 2004 based on the continuation of existing trends without any major upsets. In this trend scenario, Ruff envisages a more efficient public transport system and increasing costs for road freight. However, he does not anticipate any major change in the share of different modes of transportation in either passenger or freight transport, or the substitution of physical travel by information technology. Do you agree with his statement that there will not be a major shift in modes of transportation and the vision for a North America Rapid Transit System is merely a dream?
Tamburro: There has been an increased focus on a Rapid transit System in North America as current modes of transportation will not meet the needs for increased manufacturing and mobility. Road congestion remains a major problem and a significant cost to the manufacturing sector.
12. AI: How is SpencerARL addressing the Rapid Transit opportunity and are you increasing your focus on this mode of transportation?
Tamburro: The North American focus on an efficient Rapid Transit System is expected to continue as demands for efficient transportation has out paced current infrastructure. North America lags European and Asian modes of transportation with an acute dependence on Truck and Rail. The recession also played a role in putting increased demand for an efficient Rapid Transit system as many individuals impacted by the recession looked to urban areas for employment and manufacturers looked to more cost efficient locations for production creating an increased demand for rail. The noted lack of an efficient rail system that connects Ports of entry to manufacturing concerns is still noticeably absent and we are closely monitoring recent developments. Specifically the United States government recent announcement to develop a world-class, high speed rail system that meets the growing transportation needs of the country whereby the Federal Rail Association (FRA) is tasked with facilitating the development of a capable, safe, efficient, and integrated network of intercity passenger rail service, including high speed rail service, as described in the Vision for High Speed Rail in America, announced by President Obama in 2009. It is my understanding that the FRA’s Office of Research and Development will lead the effort to develop the advanced technologies that will bring this vision to reality.
At SpencerARL we have made a concerted effort to become part of the rapid transit opportunity and we believe that our expertise in providing outsourced services relating to non-core manufacturing activities for example sub assemblies and the minute to minute metering of parts/components into complex assembly plants will be a cost benefit and should ultimately become a more significant part of the rapid transit manufacturing process.
13. AI: How do current trends in the automotive sector impact your current business model and are you looking towards strategic alliances to strengthen your value proposition?
Tamburro: We are always looking to compliment our offerings. Current trends have resulted in the need for continued innovation for manufacturing in North America resulting in cost reductions, which by the way is not only about cheap labor. We have partnered with a company called Nessis who offers visual work instructions which takes the complexity, and minimizes the potential for errors, out of the manufacturing process and RT Systems for ensuring that the most effective IT systems, tools, equipment, and technology are being utilized as part of our service proposition. Our “IT” partners work closely with operational personnel to deliver systems that eliminate waste and unnecessary paperwork. Data and visual work instructions are delivered to the point of use in a real time environment, ensuring the latest requirements are presented to the assemblers and material handlers.
14. AI: What are you doing to diversify from the automotive industry into complimentary segments?
Tamburro: In order to demonstrate our capabilities, we recently opened a showcase facility conducting major sub assembly, sequencing, kitting, and 3PL operations directly related to public transport. This facility has enabled our customer significant opportunity for increased capacity at reduced costs with improved quality. In this showcase facility we are handling over 4,000 SKU’s, and we sub-assemble approximately 220 minor subassemblies which ultimately end up in 150 major sub-assemblies. These Major Sub-Assemblies are sequenced complete with line side delivery to the final assembly plant. Our intention is to showcase this facility and to use it as a stepping stone for vertical integration in similar mass transit manufacturing environments. We have included a promotional video on our website for this showcase facility which uses a state of the art paperless web based operator description process for document control and BOM’s.
The manufacturing system showcased can be used for any type of industry; therefore we will also showcase this system to other potential customers in non-related industries.
15. AI: Do you define yourself as a logistics provider or a solutions provider and why?
Tamburro: We are essentially both as we offer our expertise in logistics to create a customized solution. History and heritage combined with passion and innovation really define who we are and what we stand for. We position ourselves as your strategic partner because we create the perfect balance between technology and process. We offer a high level of service and are often referred to as “The Quick Response to Quality Control.” Whether you’re a global automotive manufacturer or a local parts supplier we have the capability to design a solution to exceed expectations.
16. AI: How do you envision the current trend of scale back on models as evidenced by Ford impacting your business and do you see the shift towards compact cars continuing?
Tamburro: The current trend to scale back on models is inevitable as North American manufacturers especially try to improve the cost of manufacturing by reducing the number of available platforms. At the same time the increased focus on fuel consumption and emissions has forced manufacturers to reduce the weight of the cars as a lighter car consumes less fuel. It appears to be an ongoing battle between safety and fuel efficiency. The North American consumer maintains an appetite for larger vehicles, however the transition towards compact, more fuel efficient cars is expected to continue as oil prices continue to escalate, An emerging trend with North American manufactures is larger vehicles built on lighter platforms, with smaller, fuel efficient engines assisted with turbo boost technology to provide additional power output on demand, when required, thereby meeting the needs of the North American consumer and maintaining EPA requirements for fuel consumption.
17. AI: What key trends are you seeing both domestically and globally that create opportunities for your company?
Tamburro: There are two clear trends currently that can create opportunities for our company. The increased costs of outsourcing to Mexico, China and other Asian countries including the ongoing challenges with quality control protocols create a unique niche for our core capabilities.
The federal interest in improving domestic mass transit in America also creates a niche that SpencerARL have the capabilities to take advantage of.
Manufacturing in North America will not go away! The key to success in North America is to develop the best value equation for manufacturing solutions with zero defects. We can provide alternative solutions for our customers.
Our Quick response approach alongside our innovative technology for non core activities enable our customers to focus on what they do best.
As North American customers start to recognize that the value equation for outsourcing in North America outweighs the outsourcing opportunity offshore they will inevitably seek sources in North America thereby reducing transport costs and improving quality. Our challenge is to help our potential customers understand the value equation
18. AI: Increased competition is expected to lead to increased consolidation within the industry, and demand is expected to shift to developing countries where future production and demand will be based. The car is believed to be here to stay with technology, manufacturing and design of cars representing the greatest innovations – Do you agree with this trend?
Tamburro: The baseline scenario assumes the continuation of current trends in demand, prices, and fuel economy, and foresees no major policy changes. In such circumstances, the gradual development of hybrid vehicles, the improvement of conventional technologies and the removal of older cars from the fleet are expected to lead to a slight increase of 3% in CO2 emissions in 2010 but a reduction of 13% by 2020. By then, fuel cells are expected to become available.
• The trend towards higher oil prices would definitely slow the growth in the demand for transportation and a shift to alternative technologies in the longer term. In the near term it could reinforce the shift from gasoline to diesel, as fuel economy becomes a decisive factor.
• There has been a lot of discussion around a zero emissions policy banning conventionally powered vehicles in urban areas. This would boost hybrid-powered vehicles in the medium term and all alternative technologies in the long term
• Subsidies for electric, hybrid and fuel cell propulsion would encourage their development and both hybrid and fuel cell powered vehicles would become even more important by 2020. Fuel cell technology is poised to play a role especially when fuel cell pricing becomes competitive.
19. AI: Presently basic technological trends in information technology (IT) networking, the integration of electromechnical devices (so called ‘mechatronic’ integration) manufacturing and innovations in jet propulsion are expected to impact how we manufacture cars today:
• Alternative forms of propulsion and energy will gain momentum
• Trends in technology for route guidance, vehicle location and online information services will improve and facilitate mobility;
• Continued focus on the telematic horizon beyond vehicle location and route guidance will allow relevant traffic information to be recorded, thus ensuring reliable route management that meets the needs of users;
• Assistance systems will prove particularly helpful in increasing active safety and journey convenience such as pre-crash sensor technology, stop-and-go automation, cameras for object recognition and for improving night-time vision
AI: How is Spencer ARL ramping up to deal with these innovations?
Tamburro: SpencerARL is a passionate forward thinking company dedicated to monitoring industry trends and opportunities and developing solutions tailored to meet the evolving needs of our customers. All of the technical innovations discussed here are the core products developed by those companies who are dedicated to the research, engineering & design of those products. Those companies will likely want to continue in their core business of research, engineering & design. Where Spencer ARL fits this equation is in supporting the manufacturing, or none-core role, of the company owning the technology therefore providing a value equation to the customer.
We have retrenched in our approach to doing business with a focus on strategic partnerships for continuous innovation for our customers. We have realigned ourselves with strategic partners for quick response and expertise that otherwise is too costly to have directly on our own staff.
20. Ai World markets
• Major growth of personal car use specifically compact cars will dominate growth;
• Cars are predominantly based on the internal combustion engine, fuelled by petroleum products;
• In major metropolitan areas, battery, hybrid and fuel cell vehicles are expected to grow;
• Rapid market penetration of low emissions hybrid and fuel cell passenger vehicles;
• Heavy investment in public and mass transit systems such as Rapid Transit is expected to increase
• Transport telematics poised to influence mobility
• Road traffic growth continues but is much slower than in the past.
Ai: What are your thoughts on these projections?
Developments in the automotive sector will not continue along the same paths given the massive disruption in this segment but I do believe that the sector will emerge stronger but the old ways of doing business and corresponding inefficiency will not return. The industry will continue to invest in technology for improving productivity, safety while addressing environmental concerns. On an ongoing basis, the technology and design of cars will improve, and vehicles will become more controlled. At the same time, the car will still be the main means of personal transport used by the majority of people. On the other hand, a number of forces such as rapid global warming and road traffic congestion could conspire to set this ‘cozy’ future off track