ITT Automotive | Y Visweswara Reddy (1311208)

ITT Automotive: Global Manufacturing Strategy (1994)

ITT Automotive is in the process of developing a new-generation antilock brake system (ABS),
designated the MK-20. The case focuses on the level of automation to be used in the production
of MK20, and whether plants across locations should use the same processes and technology.
Intensified cost pressure and rapidly increasing demand for low cost ABS have resulted in
strong favour to use a standardized automated production process in the four plants scheduled
to produce MK20 (located in the United stated, Germany and Belgium). Managers at the
company's two plants in the United States (Morganton and Asheville plants) favour using lesser
automation in order to allow greater flexibility for improving process technology over time on
the lines of Kaizen philosophy.
1) What are your recommendations regarding the issue of standardizing process
technology across all plants? Are there motives behind this proposal, other than those
stated in the case?

Right now, the ABS manufacturing industry have reached a mature stage: the market
shares of the manufacturers are not changing rapidly. Further, the industry is at a
disadvantage when it comes to the bargaining power of its customers (OEMs). Lastly,
the margins in ABS systems are low: to the tune of 10-15%. Hence, to improve the
bottom-line, both top line and middle line need to be focused.

Top-line (Price x Volume): As the price of ABS has not increased much during 1985-
92 (11% increase), top-line growth can only happen by increasing volume. For this, the
economies of scale (standardization) is the way.

Middle-line (Cost): Prior to MK20, ITT manufactured MK4 with a cost of 2Y in 25

versions. In contrast, MK20 was planned for manufacture at a cost of Y and in 6
versions.

Thus, standardizing process technology seamlessly fit with the strategy of driving
bottom-line growth in the long run.

However, as stated in the case, the customer behaviour across both continents is
different. Further, raw material variation from suppliers is high in North America. In
such a situation, a continent wise process (and if possible, product wise) standardization
is more suitable.

Instead of implementing a global strategy, a mix strategy wherein the MK20 version E
is developed and manufactured for the European market and MK20 version A is
adapted from the MK20 version E and developed and manufactured for the North
American market. In this case, taking a twin version strategy would also not harm the
cost reduction strategy. The North American version market could offer higher product
variation but same cost as the European version due to lower labour cost in North
America.

2) In general, when should `copy exactly’ be used?

 ITT Automotive | Y Visweswara Reddy (1311208)

Shrinking product lifecycles and increasingly complex production technologies pose

major issues in most of high-tech industries. The window for selling many products has
shrunk to less than a year in industries such as semiconductors, disk-drives and
telecommunications. Companies often find themselves in tricky situation because of
the “premature” transition of the product from the R&D labs into commercial
production. Nevertheless there are industries wherein new process flow and products
can be introduced to production in minimum time with equivalent yields and without
the introduction of product-quality issues. Both manufacturer and customers can reduce
their time to market. Copy exactly approach could be employed in industries where the
technology is complex and has many interacting variables affecting the end result.

Further, the ‘copy exactly (Intel)’ appears to come in stark contrast with kaizen
(Toyota). Given the success story of Intel in ‘copy exactly,’ it seems that copy exactly
philosophy seems to work when product improvement holds a higher priority over
process improvement. This means that that ‘copy exactly’ seems favourable in
industries where technology change is rapid and the time used for process improvement
is limited. Also, the ‘copy exactly’ seems favourable for companies manufacturing
global products (such as coke, Nike) where the manufacturing can be outsourced to
relatively low-skilled labour countries.

3) As Juergen Geissinger, how would you go about implementing your recommendation?

How would you overcome resistance from the plants? As Steve Dickerson, the plant
manager at Asheville, North Carolina, what line of reasoning would you use to convince
senior management that full automation is the less desirable alternative?

Juergen Geissinger: As suggested above, as Juergen, I would opt for adapting the twin
version strategy for the MK20. This would mitigate and address some of the issues
raised by the plant managers. My logic for implementing the twin version strategy
would derive from the fact that sudden changes in large organizations (ITT is a 1bn$
turnover organization) can act as a shock. Hence, gradual changes are required. Further,
specific to plant managers’ concerns regarding the employment of their staff, I would
suggest the plant managers to encourage their staff for skill development in contrast to
layoffs.

Steve Dickerson: As Steve Dickerson, I would argue that a full automation only offers
a cost reduction of only 5% in comparison to the mixed manual/automated process. If
full automation is implemented, the 5% cost reduction could result in loss of sales on
account of loss of customers seeking greater customization, thereby nullifying the
effects of cost-reduction. Further, new product development with advancement of
technology will make automated systems obsolete. Lastly, US plants employ Kaizen to
continuously improve their existing process. With automation, Kaizen philosophy
cannot be applied, there by hindering process improvements.

4) As Klaus Lederer, what option would you like to see pursued? How do various options
fit into the broader corporate strategy of ITT Automotive?
 ITT Automotive | Y Visweswara Reddy (1311208)

My reasoning to Klaus would also hinge on the same line of thought as providing a
twin version strategy for two main reasons:

 From a broader strategic perspective, the adaption of the MK20 to suit American
markets would allow for testing the scalability of the MK20 Platform.
 From an organizational perspective, the twin version strategy would allow for a
gradual organizational processes change as compared to the single version
strategy.

Further, the twin version strategy allows for both top-line and middle-line improvement
for bottom-line improvement while at the same time, not alleviating attrition, which is
a challenge in industries relying on skilled labour.