Value Chain Opportunities 1. Bulls-Eye Distance Opportunities: > In-transit inventory reduction > Transportation costs > Damage during shipment 2. Shipping Mode (Truck, Rail, Boat) Opportunities: > In-transit inventory > Total cost (e.g. truck vs. ral) 3. Tier 1 Internal Sourcing Example: Tower - Rear Floor Pan Assembly: CMP Total number of ship points reduced from 10 to 8 4, Double Handling at International Border Example: Siemens VDO - Parts shipped from Guadalajara, Mexico to 3” party warehouse in Laredo, Texas. Parts trucked by Visteon to Saline warehouse prior to delivery to IP line. ‘5. Double Handling from Directed Sourcing Example: Accelerator pedals from Hella in linois to KSR in Stratford, Ontario to Dearborn, Michigan for calibration to KCAP for instalation. 6. Crose-Tiaring Example: One supplier provides all common fasteners for CMP. 7. Shipping Common Fasteners Long Distances Example: Common fasteners for CD3XX shipped from Japan. 8. FOB Supplier (Ford pays freight) Example: Delphi supplies condenser for CD3XX, and has two facillies in Mexico and Korea. Condenser internally sourced to Korea because of open capacity, but Ford incurs increased freight charges. 9. Bailment No incentive for supplier to manage and minimize inventory > Ford provides cycle checkers > Damaged parts responsibilty of Ford Example: CD3XX wheels and tires - Goodyear manages Tier 2 directed sourcing Inventory. Quality issues result from wheels stored in bullpen. 10.Schedule Stability ("Bull-Whip Effect”) > As stability of Ford's schedule decreases, instability is further magnified upstream in value chain and inventory levels increase further upstream in value chain, 11.Tier Depth (Depth of supply base beyond Tior 1) > In general, supplier mark-ups increase as tier depth increases,APPENDIX 2: COST DRIVERS > following pages describe eome of the more commonly found situations, practices, and rccosses that chive up casts throughout the Value Chain. These are known as Cost Drivere: ind are defined as anything that drives up cost without adding value to the Customer. This appens also contains Thought Starters to holp the TCM Teams address the cost impact an the categories of Commercial, Process Improvement, Policy, and Design. COMMERCIAL ‘Typically, more than 50% of a Tier 1 Supplies costs are in raw materials of components toon Sue-cuppliors. Therefore, any waste or inaficioncy that accurs upstream in the Value Chain has a significant impact on the atfordablity’competitivencss of a Ford vehicle dounstream in the marketplace. ‘To ensure the long-term viabilty of the Value Chain, the Tior 1 Supplior needs to take on a greater role in managing its supply base. Within the context of TCM, the Commercial Eategery has been developed to capture all cost reduction opportunities upstream of the Tier 4 Supplar. The category also includes any ideas related to a Tier 1 Suppiter’s management fits supply base. ‘To help the Team identity commercial cost saving opportunities, alist of Commercial Cost Driver Examples and Thought Starters are outined bolow: 1 Drivor Examples (GPrinstabi aw materi! prices Incfiefent raw material buying processes Over specication of materials Sourcing practices of Tier 1 Supplier and its supply base tack of zoureing autonomy (ej Tet 1 Supper must buy from Forc-speciied Resources) Frogmented volume Curroncy fluctuations, sourcing n high cot countries Manufacturing inefcioney upatream of Tr 1 Supplier Logistic practices between Sub-eupplers and Tor 1 Supplier Too many Sub-suppiers Isthere an opportunity for aystrn love integration? Mow unique fs each technology? Overlapping commercial and techrical responsible betw other Vaiue-Chai partners Redundant toting and! sampling [Administrative process Inefficiency (9, in ordering, dating, releasing) {ck of electronic data transfer between Sub-supplers Unetable schedules throughout upstream supply eh benefit of a 10cay rm schedule upstream?) Inefclent direct nborullzation a Sub-supplirs Excessive supervisory and management head count n Sub-suppliers and (e.g. what is the cost Sermon Sapient 01 1 2000 Fan. Corgan -Conirtal Nt Hepat oe+ Weak continuous process improvement practices throughout the upstream Value Chain + Weak benchmarking prac + Low carryover part rate 2 Inetficient utilization of capital throughout the Value Chain (land, taxes, utilities, plant, equipment) -es throughout the upstream Value Chain e Thought Starters Looking at the Vaiue Chain Flow Chart (VOFC) and Total Chain Cost Model (TCCM) ask the: question, what is driving up cost in this System? Is cost driven by raw materials? I! so, have the following been considered, + Material specification change? + Cooperative buying? * Stockpiling? > Purchasing the materiale From a lower (otal) cost source? Is cost driven by sourcing practices? 1 so, have the following been considered: + Reducing the number of Sub-suppliars per pat? Shifting the volume to lower cost manufacturing locations * = Increasing the efficieney and effectiveness of Suo-suppliers with process improvement training, regular operational reviews, andior improvement incentive programs? + Do Commodity Strategies exist for sub-suppliers? Ara there alternate Sub-supoliers on each component? {Are there Sub-cuppliors with overlapping capabilites? @ 2 Are there opportunitias to make better use of Sub- Sub-ascembly sourcing - ullizing market testing where appropriate? + Packaging changes? (@.9. nesting paris, shilting lo retunable containers, ete) Shipment practice improvements? ‘Are there components that can be pre-assembled in one location? ‘Are there any part that can appoar “customized” by part numbering? ‘What is the lead-time of each part? Ita single Sub -oupplier is not necescarly in a single location for all intermediate stops, what isthe implication for lead time ifthe Sub-supplier experiences a problom? «+ Are there physical characteristics of any part that makes it ficult to expedite? + How are Sub-suppliers prepared to mest shipping problems? 12 of the Sub-suppliers? Have the following bon Pe ee ee eels cost driven by manufacturing, product development, or quality overheads? cessive overhead costs often result from poor coerdination throughout tie supply base, ‘ad hoc rather than standard processes, Have the following been considered + Are manufacturing overhead costs high because cchodulas are unctable? If Fore ‘wore fo implement the 10-day firm schedule i is currently plating, what savings: ‘would eau in the supply base? + Are manufacturing overhead costs high because the number and cost of indirect labor resources are extensive? + Are product development costs high because of low carryover paits? Weak project ‘management coordination? Sequential rather than simuitaneous enginwering? + Are quality overhead costs high because quality has been tested:in rather than designedsin? PROCESS IMPROVEMENT ‘This category addresses al! Cost Drivers that will be addressed via the implementation of Lean Manufacturing practices (or may be impacted by other process improvement methods) at the Tior 1 Suppler, a a Ford manufacturing eto, or any inforlace botweon the fo, Note: This section is equally applicable to Process improvement ideas that occur on the shop floor of Sub-cuppliers: however, do note that such waste elimination actions, when implemented, are captured in the Commercial eategory. Cost Driver Examples \Under-utilized machine capacity ‘Slow changeover times + Undor-utilized manpower * Uneven of incomplete implomentation of process improvements + Inefficient administrative processes driving up overhead costs + Wasted movement (ie. people and/or product) + Inefficient logistics practices between Tier 1 Supplier anc Fore Inefficient manufacturing process at Tier 1 Supplier or Ford ‘Quality assurance via inspection rather than prevention Inefficiant use of flaor space Overhead Thought Starters Cost savings opportunities span across tho entire Value Chain atfecting overhead and Corporate costs as well as matenal and cirect labor. Look at the Overhead Gost Element Worksheet to identity inefficiencies and waste associated with a cost smponente of overhead Drona Company Contents On et Reprnn PRPlantiStrategie Questions + What method of everheau allocation is being used (Direct Labor, ActvityBased Costing, ete)? What is the plant's operating pattem (hours per shit, shift per day, days per week)? What is the plant's capacity utilization as a percentage of capacity installed? Is the plant operating above or below its breakeven point? What is the trond of inventory turns atthe plant? What overhead variances will be caused by balance-outs or new business? What Bueinoss Plan stratagios are in place to improve overhead iesuec? Quality ‘+ What is the PPM trend for the studied System and overall plant operations? “+ What isthe trend of Customer rejects forthe studiod System and overall plant ‘operations? “+ What is the trend of in-house rework operations? Has rework become a standard operation? “+ What isthe frequency of inspection during manufacturing? How much floor space is occupied by parts waiting to be inepected (and gauges used during inspection)? ‘© What scrap percentage is used during quoting procedures? Indirectitaintenance Material + Is there a robust process in place to control the use of inglrect material? o + How much inventory is kept in Genaral Storas? How is ordering done? + Are the major materials re-quoted for competitive bids? Serap + What ie tho eorap rate trond? «Is scrap being reclaimed, raground, et.? + Can in-procose scrap bo used or sold as good material? MRO Labor Do all plants have an ongoing Preventative Maintenance program? Have MRO procedures been standarcizod? ‘What are the major causes of machine downtime? Is the equipment clean and in good repair? Are thare opportunities to improve cost for MRO Support Services (ie. waste emoval, storage procedures, ete.)? Vali Chain Worshoy PO Pome 36 oreo Setamber 2001 18 2000 Fors star Company - Coane Do Het Rapart eee eeIF TIIIIIITIIIIIIT=“ 9999 ’ veeeerrrevesessy utilities «= Does the Supplier have an energy conservation pian in place? are lights turned off when offcesimeeting rooms are vacant? 2 Have interruptibie power, automatic sensors been investigated? Depreciation ‘+ How is equipment being depreciated? 2 Atinhat point in time wil the affected equipment be fully doprociatnd? * Is all equipment in the process on the same depreciation schedule? Floor space = How is floor space allocated to Ford? {+ How is officolwarshouse space allocated? 1 Is the floor space allocation revised when processestlayouts change? Are work cells got up for maximum efficioncy? {+ Ate material handing procedures set up for maximum efficiency? Insurance & Interest ‘+ Has the insurance coverage been re-qucted recently for competiive bids? 2 Can outstanding debt be renegotiated to a lower interest rate? @es220 ond corporate vere Other + Can audiaivideo contoronces be utlized instead of travel? + Which mestings does Ford call the Supplier to unnecessarily? * Is there duplication of offorts batwoon Ford and Suoplior? ‘= Does the Supplier receive multipiarequests for infarmation from Ford? {+ How could the Ford/Tier 1 Supplorintetaces be improved? + Are the elements of Corporate Overhead (i.e. tall advertising) appropriate for this industry? ‘+ What actions are underway to reduce’eliminate excess machine and plant capacity? + Gould scheduling and shipping changes loner inventory costs and reduce ‘osolascence? + What is being dono to limit RMANIPIEG inventories and increase inventory turns? «+ Isthe Tier 1 Supplier plant shipping and receiving JIT?POLICY ' Certain Ford policies may be driving up costs forthe Tier 1 Supplier and other Value Chain partners. In examining cost management opportunities, question any Ford policy. Five policy cost drivers are listed bolow. ' Cost Driver Examples Prototype policy Testing policy Administrative Quoting/Cost Eetimating procedures leasing policy ine feature/content policy ‘Thought Starters Can prototype costs be reduced by ‘+ Adopting limited purpose prototypes? + Agreaing targeviormuia prices to reduce administrative costs? + Reducing inspection points? + Reducing Stwuctural Prototypes? + Increasing computer aided engineering (CAE) where appropriate? + Adopting robust change control? + Managing prototype tooling costs (generic tooling, production pullahead tooling ote) Can testing costs be reduced by '* Eliminating duplicate or shadow testing between the Tier 1 Supplier 8 Ford? ‘© Decreasing the amount of Tier 1 Supplier testing? + Challenging the Ford testing specifications? {Eliminating all non-assontial tosting Can administrative costs be reduced by + Challenging unnecessary paperwork? + Challenging procedures which waste time and do not add value? Can quoting/cost estimating costs be reduced by * Simplifying procedures for quoting/cost estimating? » Reduce time spent quoting costs for Protolype and Job 1 phases? + Rosolving iesues during change control rather than reconciling costs with multiple Ford activities? Can design releasing costs be reduced by ‘Bundling Engineering changes to decrease the number of releases? ‘Establishing freeze dates for the design? + By eliminating duplication of design effort betweon Ford and Tier 1 Full Service Suppliers? Chan Wornop PO Page 98 Veet Speomoee 2003 122000 Ford Motor Company - Conte! Do Nat ReptCan complexity costs be reduced by + Bommoniing eub-eyeom component aero veh tno? 5 faroning Ford incoming inapection ertera, consistent across all Ford plans and in @ © Beroment ith Cote titel denteation and Mastering System (ONAINIS)? Can feature/content costs be reduced by = mplementing a cross-catline strategy for this commodity? DESIGN The Design category captures all System cost improvement ideas that require a Ford specication change and include: design, material, or other Forcl-nitated releases, Competitive Benchmarking data, Le, taardown analysis and competitive pars, are beneficial input to the design thoughi starter dacussion. In particular comparisons of featur, content, material and performance specications should be discussed prior to Brainstorming. The GRID (Cost Reduction Ideas Database) is ancther useful resource to review previously developed ideas. Cost Driver Examples + Over-specified design + Design comploxity 2 Non-standardization + Materials jought Starters sider the following ‘Can design costs be reduced by Ne ee ee ee Sorta Deca td cep S Eecla iosite tieyonrpete ie eae Yas tenes ee ‘Ya Cain Warne PS Pago 8 Vern’ Soper 2001 {©2000 Fst Misr Company Cont Do Not Repent‘© Decreasing of eliminating the need for a high maintenance item? + Applying & new technology to the process or material? + Replacing the current Ford part witha higher quality and/or lower cost product? + Modifying the currant production tool or process to optimize cycles or yiold? «+ Revising vehicle epecifc featurelcontent to be more consistent cross-vehicle? Veen? September 203 (©2000 Fas Motor Company -Coneml 00 Not Rept >