Alignment throughout the business is what brings results
The supplier claims their strategy is “engineered solutions,” but the brochure provides a list of their equipment. They expect their customer to know that his or her problem can be solved by a 300 ton stamping press with a 108 in. bed, for example. They expect the customer to do the work: to connect the problem with a specific manufacturing process. The brochure or web site describes the company history, equipment and quality policy, rather than describing the types of problems they are best at solving and demonstrating that capability with real examples. If the customer knew the solution was a particular stamping press, it wouldn’t be the engineering department looking for an answer to a problem, it would be the purchasing department that would be shopping for a commodity stamping.
This is one of many examples of misalignment between the documented strategy and the actual behaviors of the company, which ultimately undermines realizing the benefits a well constructed strategy can provide. Plante & Moran’s financial and operational benchmarking studies have consistently shown high profit suppliers not only have a clear focus, but also activities, processes, resources and costs aligned with that focus. The 15 percent of automotive suppliers with operating income as a percent of sales of 9 percent or greater understand what it is they must be great at to make money, and the remaining business processes are executed at threshold performance for minimal cost, or not done at all. This lean enterprise from strategic alignment is demonstrated throughout the business, originating from the strategic plan and executed through to the fulfillment of orders, as illustrated in Figure 1.
In contrast, companies that continue to engage in activities or practices not aligned with their strategy do not achieve the full potential of their strategy. They may be reactive to customer requests by providing a broader range of services to the customer that doesn’t provide value to the company or the relationship. Or, they may structure their business around the people and resources they presently have, rather than around the skills and functions they need to execute their selected strategy well. Suppliers may select one of a multitude of different business models to achieve long-term success. To illustrate the concepts of business processes aligned with strategic models, I will compare and contrast two of the more popular models: engineered solutions and low-cost producer. Figure 2 presents the relative importance of select business processes and characteristics with each model.
Engineered Solutions Model
A supplier focused on delivering engineered solutions has an aligned organizational structure with deep, cross-functional engineering resources working in close conjunction with, or as part of, sales. Prepurchase order participation by design, quality, and process engineering enables the organization to identify, evaluate and deliver feasible, manufactureable and often profitable solutions to the customer. These organizations invest heavily in people with both sales and engineering skills that can quickly recognize and begin to solve technical problems with potential for the company, while at the same time servicing the customer account. The performance metrics of the organization are centered around the quantity and quality of solutions delivered: solution revenues as a percent of sales, revenue generated from innovative products, gross margin as a percent of price, process capability and run-atrate achieved. (Design for manufacture is substantially enhanced for internally designed and engineered solutions.)
Marketing for engineered solutions companies consists of demonstrating their ability to solve problems, providing examples of problems solved previously and proactively developing and presenting prototypes that addresses known problems.
The engineered solutions company focuses on the business processes of opportunity management, and product and manufacturing process development. Because the engineering skills of the company are concentrated in prepurchase order and advanced product quality planning (APQP) activities to develop a feasible solution, they are also responsible for delivering a capable process to the manufacturing plant floor. If the product and corresponding manufacturing process developed are not capable of achieving quality or cost objectives, then sales and engineering have not really helped the organization achieve its performance objectives. Because engineering resources are limited and focused on identifying and delivering solutions, the manufacturing organization of the engineered solutions company is not equipped to develop the manufacturing process after launch. The manufacturing plant is focused on fulfilling the order according to promised quality, delivery, and quoted cost. They are not focused on optimizing the process because the life expectancy of a solution is frequently short, usually until it becomes the standard, which could be as soon as a year. Once the solution becomes the design standard, the work will eventually be captured by a low-cost producer.
The manufacturing organization pursues shop floor cost reduction and productivity improvement as much as necessary to remain competitive at a threshold level. The higher emphasis of continuous improvement relates to efforts around opportunity management and product/process development processes, driving for faster, more efficient, and more effective solution identification and delivery.
Low-Cost Producer Model
In contrast, a low-cost producer supplier organization structure focuses attention and resources on continuous improvement in production. Supply chain management and procurement, manufacturing engineering, quality assurance and customer service all report to an operations executive, whose performance metrics are focused on hard cost reductions, while maintaining competitive quality and delivery. These organizations invest in lean manufacturing experts, six-sigma black-belts and experienced manufacturing engineers who can continue to eliminate waste and improve manufacturing processes long after launch.
Low-cost producers rarely invest scarce engineering resources in activities prior to the purchase order. What product development resources they do have may provide design for manufacture support, and support for customers’ APQP processes. The product development process is lean: built only to do what it takes to get the product to the manufacturing floor. With the majority of the engineering resources dedicated to post-launch process and continuous improvement, it is on the manufacturing floor where more sophisticated and experienced process improvement can occur over the life of the part. Process capability and manufacturing rates are improved and lessons learned are incorporated into the quoting and launch processes. Without multiple engineer-to-engineer relationships, marketing and sales is focused on efficiently responding to quote opportunities. Commercial managers handle coordination and liaison activities. The low price provided by the low-cost producer enables the essential differentiation proposition.
Strategic planning as an activity does not contribute to long-term success and survival unless the plan is executed. Achieving the full potential of a strategic business model requires more than changing marketing materials, or reorganizing the manufacturing floor. The full potential is achieved when the daily decisions and behaviors within the company align with its selected business model. Every system, process, and department functions to excel at or support the key value stream delivered to the customer and that generates profit for the supplier. The company organizes the structure, selects performance metrics, hires highly capable employees, builds systems and goes to the market all in a way that aligns behaviors with the strategic business model, and does not waste time or money on those processes and activities that don’t.
Jason C. Brewer is a manager in the Automotive Supplier Consulting Services Practice of Plante & Moran, PLLC in Southfield, Michigan. Jason.Brewer@plantemoran. com
Alignment throughout the business is what brings results