AutoComp Inc.: Will adoption of Industry 4.

0 Guidelines
Help Them Continue Operations and Add Flexibility?

[Pick the date]

Case Study
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AutoComp Industry 4.0 Conundrum

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Synopsis
Carl Lloyd, newly promoted as CIO, is a worried man. A career punctuated with a steady
growth has seen him grow from the boy who fixed network cables to the man at the helm of
IT at AutoComp Inc (ACI), a company often viewed as an industry bellwether. Carl has been
tasked by his manager, CFO Jeff Garner, to provide a business plan that will leverage IT to
bring cost savings around assets, production efficiency, and inventory holdings, while
increasing flexibility and throughput. ACI, an auto-component manufacturer, has had a tough
six quarters. On top of that, the pandemic has further dealt a blow, with the sharpest declines
in new orders and output in the past decade. ACI, thriving on agility and high-precision supply
chain dynamics is suddenly struck by erratic demand, complete production stoppage in some
plants, and manufactured inventory lying idle on shop floor, leaving it with a scarcity of working
capital and an uncertain future.

With the decline in net sales, ACI reduced discretionary spending on product innovation and
plant automation. Renowned for its loyalty to employees, ACI leadership is at a crossroads
between investing to fuel future growth and balancing the cost reductions to make
investments happen. Carl is wondering if digital technologies are an answer to his challenges
and if he can afford to bite the bullet to make them happen.

The Case Challenge

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Carl has asked for your help. As a consulting partner, you will help Carl find digital solutions
to address ACI’s challenges. You will need to answer following questions: (a) What are the
challenges ACI can meet with the digitization initiatives? (b) What are the value levers and
KPIs he should use to arrive at the business case? (c) What can be a potential roadmap for
the implementation in Yorkingtown and what could be the way forward to other plants across
geographies? and (d) What are the digital solutions ACI can look at implementing to meet
these challenges, especially around the following concerns? For the last question, please also
address how to (i) have remote control on operations to minimize IT workforce needs for data
analysis and enable the right people are available for the right job; (ii) transform ACI into a
data driven enterprise and provide the plant managers tools to manage process efficiency,
quality, and so on; (iii) demonstrate that ACI is digitally ensuring worker health and safety in
the face of the global pandemic; (iv) ensure business continuity and a connected supply chain
ecosystem; and (v) de-risk manufacturing process while offering flexibility and cost reduction.

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1. AutoComp Inc. – Background of company and industry

BACKGROUND

1.1 Industry background

The automotive component business is reaching an inflection point, at the start of a new
decade. After years of rush toward building smarter vehicles, with greater safety, connectivity,
autonomy, and alternative technology solutions, the slowdown of the passing decade has hit
the industry hard. To add to it, the prevailing global pandemic has slowed down sales
considerably and has left many enterprises with an uncertain future. An industry that survives
on agility and high-precision supply chain dynamics, it is suddenly hit by complete stoppage
of production and scarcity of working capital as manufactured product inventory lies idle on
shop floor. Tier 2 and Tier 3 firms are struggling to survive, and Tier 1 firms and OEMs have
an uncertain supply chain to contend with once the production resumes.

1.2 Company background

AutoComp Inc. (ACI) is a main Tier 1 player in the automobile component business, with a
revenue close to $8B USD and with a customer base that comprises 60%-70% of the top
commercial vehicle manufacturers. Boasting factories across 10 states in the United States,
they also have a strong presence in Europe, with plants in Spain, France, the Nordics, and
UK. They also have APAC presence in China, India, and Philippines. Their key product suites
for OEMs comprise brakes, axles, and gear boxes and make up about 65% of their revenue.
Their aftermarket business stands at about 30%, with a host of other products making up the
rest. ACI has traditionally grown by mergers and acquisitions across the world, which enabled
them to double their revenues in the past 10 years. They have the ambitious target of
becoming the global leaders in the segment by 2025.

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2. The case in study – Pandemic hits organization

After long, hard hours of thinking and umpteen cups of coffee and discussions with his
directors managing plant applications, enterprise applications, aftermarket sales systems,
and so on, Carl calls on his close friend Vick Richards to give him a head start. Vick is the
General Manager for the ACI brakes plant in Yorkingtown, UK, one of the most reliable brakes
manufacturing plant in Europe.

On hearing from Carl, Vick immediately brings up his favourite topic—Industry 4.0
implementation. Vick has often pushed Carl on digital transformation in his factory and
strongly believes that measures toward achieving Industry 4.0 standards are the way forward
to answering the CFO’s expectation. The Yorkingtown plant has been hit hard by the global
pandemic, from any perspective. Raw material supplies from East and South Asian countries
have been erratic, to say the least, causing severe production stoppages. Yorkingtown is one
of the hardest hit towns in the UK by the pandemic, causing partial plant lockdown and high
absenteeism. The fledgling staff is struggling to manage the minimum output and is further
hampered by unexpected machine failures because there isn’t enough supervision. To add
to Vick’s troubles, his biggest customers are ACI’s own axle plants in Spain and France, which
have come to a complete halt because of the pandemic and forced government lockdown.
His aftermarket customers in Nordics are continuing their business, but many of his OEM
customers across Europe have also severely slashed demand. Vick is at a complete loss
about how to keep lights on in his plant and hope to meet at least a part of his KPIs for the
year 2020-21.

Carl is apprehensive about whether he can afford to invest in implementing some of the digital
solutions Vick has in mind in the current situation, but he decides to form a senior-level task
force comprising Andy Marshall (Head IT, Yorkingtown) and Patricia Walsh (Sr. Director, Plant
Applications, ACI) from his team to join him and Vick to identify problem areas where they
can explore digital solutions and lay out a potential roadmap to achieve them. They do a few
online video conferences. They arrive at the following areas in which they want to evaluate
how Industry 4.0 measures can help them.

2.1 Remote Operations—Borderless workforce, remote maintenance

Andy Marshall himself has been a great proponent of digital solutions. He has seen first-hand
great outcomes of digital solution pilot implementations, albeit in a very small way, in his
previous role before joining ACI. In that role, he set up a remote operations center in a
Southeast Asian IT hub for a company similar to ACI. This led to a reduction in total cost of
ownership (TCO) of their operations. ACI can also boast large amount of data generation
across the manufacturing value chain. This data comes from various applications deployed
across manufacturing processes in different formats. However, because these applications
operate in silos and are spread across multiple plants and geographies, the use of the data

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generated from machines and process is very low and does not have any material impact on
productivity and other areas. One of Vick’s biggest challenges these days, with a lean
workforce and very irregular physical health checks for machines, is to prevent breakdowns.
Breakdowns are a problem, of course; they cause precious loss in workforce utilization,
complicating the overhead of finding the right people and spares to fix the issues.

Both Vick and Andy believe that remote operations setup is the need of the hour. Centralized
remote operations will not only provide a cost advantage to ACI but will also help them make
better decisions by effectively visualizing and analysing the data from various plants on a real-
time, or near-real-time, basis. This will also enable them to focus on core production
challenges and expansion and/or augmentation plans based on need. With this plan, they will
not have to worry about IT workforce requirement for the variety of skills needed, they will just
need to get insights on day-to-day operations, providing cost and safety benefits.

2.2 Autonomous manufacturing – low-touch or no-touch assembly lines,

machine shops
The assembly lines consist of a series of workstations and in-process test stations for press
monitoring, ring gauging, thread verification, torque and angle run-downs, balancing stations,
leak tests, brake force test stations, and more. These stations are equipped with electrical
and electronic testing equipment. In-process testing is performed at each step of the assembly
and packaging process. The scrapped parts are collected in bins, which are either sent for
recycling or discarded after recording the waste quantity manually. The operators have job
instruction books with the sequence of operations to be performed. They also have
handbooks of various part failures, detailed during the assembly process to identify good or
bad job. Each SKU requires assembly workstations and in-process test stations to be
prepared for the job and checklists help operators to do the same. Operators also keep a
count of the number of parts they have assembled.
One of Vick’s key concerns is that Paul Allot, his production planner, still must fetch data from
multiple systems and do manual scheduling. Despite his experience, a minor oversight can
lead to missed delivery schedules. Vick knows that his workforce is not optimally loaded.
Roger Davies, his quality manager, is not reporting his numbers entirely accurately. Vick feels
the entire assembly process can be made a lot more efficient by data-driven decisions for
quality, performance, and workforce productivity with digital transformation.

2.3 Worker Safety Enhancement in compliance with Health, Safety, and

Environment (HSE) policy
Michael Robertson is the Health and Safety Manager for ACI brakes plant in Yorkingtown and
has a reputation of being a people-oriented and caring manager. He has 25+ years of
experience handling different HSE roles. ACI is only the second company he has worked at,
after spending initial 15 years in a process industry. In the past 10+ years in ACI, Michael has

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built on his rich personal and professional experience of unexpected situations and economic
fluctuations. His has a challenging role: While his KPI is to show reduction in safety incidents
and accidents by working closely with different stakeholders (from contract workers to plant
office staff and customers visiting the facility for quality checks and plant inspections), the
management team always expects a reduction from him in CAPEX and OPEX for HSE
initiatives. He trusts his instincts and experience rather than technology. He typically thinks
that Industry 4.0 and such buzzwords are only good for marketing and does not trust its actual
usefulness and ROI. However, with change in global conditions and overall guidelines to be
ready for the new normal way of working, Michael is in a dilemma when Vick reached out to
him this time. He is not sure how new Safety 4.0 can be adapted without any, or without much,
additional investment and whether the technology can help him achieve regulatory
requirements as well as keep track of below points:
 Compliance with OHSAS 18001 / ISO 14001 and other local needs, while ensuring
compliance to global standards and adherence to the global safety policy.
 Training different stakeholders and keep records of those trainings
 Track and trace physical safety material like safety shoes, helmets, and so on
 Ready representation of number of incidents, accidents, physical injuries, and so on
 Optimize insurance costs
 Create a knowledge base and leverage best practices from his earlier experiences
 Minimize manual handovers of material, paper documentation, and so on.

2.4 Supply Chain Re-engineering—Business Continuity, Optimization

In the task meetings chaired by Carl, Patricia talked extensively about the already existing
integrated supply chains and quality systems and showed apprehensions on making further
investments in connecting the ecosystem as part of Industry 4.0 as a way to grow revenue.
Vick and Andy stressed that Industry 4.0 is based on Internet of Things (IOT) and is nothing
but a process of connecting machines and business process to create a complete ecosystem.
Vick says that digitization and more automation will help ACI in bringing agility and efficient
operations. After all, supply chain is nothing but an ecosystem of product development,
manufacturing, and distribution networks, Vick argues. He says that they can reap benefits
by bringing the complete value chain online in a fully automated and integrated way. Vick
knows that transitioning to a digitized, automated, and fully interconnected supply chain
requires significant efforts and long-term investments, but he believes the pay-offs are huge.
Bringing supply chains online can help enterprises reach the next level of operational
effectiveness and realize significant cost reductions. He is especially worried about ensuring
business continuity and feels he needs to have a better way to control his supply chain rather
than surrender to the uncertainties of nature.

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The taskforce appreciates Vick’s points but is still not convinced. It suggests that a detailed
cost-benefit analysis should be done against highlighted benefits like greater transparency
and accuracy, data-backed decision making, connectedness, and agility.

2.5 Flexible Line Manufacturing

The closure of ACI axle plants has hit Yorkingtown hard; Vick is running a high finished goods
inventory. He has 4 lines running brakes for the axle plants, 2 lines for other OEMs, and 2
lines dedicated for aftermarket (one for near obsolete parts). However, the throughput is very
slow. Although the lines are optimal to meet the current aftermarket demand, Vick needs to
run the plant 24x7 and thereby incur higher energy and overhead costs. However, he does
not want to rework all lines to enable these aftermarket products to run on the main lines as
he expects demand to pick up toward the latter half of the next quarter. Vick would love to
have some method to have flexibility in which he can have a digital way to switch some of the
specialty stations to enable him to run some of the aftermarket specifics on these lines.

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APPENDIX-A
Net Sales (FY 2019): $ 7,924 MUSD
Y-o-Y Sales growth: (3.5%)
Cost of Sales (FY 2019): 7,496 MUSD. Breakdown of costs:
 Material cost: 94%
 Tooling cost: 2.5%
 Resource cost: 3.5%
Net Income (FY2019) – ($505) MUSD
Regional Revenue Split:
 USA: 46.5%
 Rest of North America: 3.3%
 Europe: 37.9%
 Asia: 10.6%
 Rest of World: 1.7%
Yorkingtown plant:
Average Overall Equipment Effectiveness (OEE): 57% (in the last 3 months)
Shifts: 3 (1 over weekend of 8 hours)
Return orders: 0.5%
Quality returns within shop floor: 1.2%
Inventory turnover ratio: ~14%
Machine downtime: 8% of total run time. Key causes:
 Machine failure: 55%
 Material Stock out:30%
 Resource shortage: 15%
Safety incidents per 100 employees: less than 1 (per month)

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