vehicle group scm - eatonpub/@eaton/@corp/documents/...vehicle group scm breakout session...

© 2011 Eaton Corporation. All rights reserved.

Vehicle Group SCMBreakout Session – Supplier Event March 2011

The Cleveland Marriott

22© 2011 Eaton Corporation. All rights reserved.

Agenda

• Introduction (Harrison/Houle)

• Market Ramp Up (Dickenson)

• Supplier Development (Greenwald)

• Japan Tsunami Update (Rollero)

• Open Discussion


Our vision

To be the most admired company

in our markets.

Measured by

• Customers say: “We want to do more

business with Eaton.”

• Shareholders say: “Eaton is one of my best

investments.”

• Employees say: “I am proud to be part of the

Eaton team.”

• Suppliers say: “Eaton is one of my most valued customers.”


Global• Employees - 299

• Number facilities

• Truck – 15

• Auto – 32

• Vehicle – 47

VG SCM Who we are

NAFTA• Employees - 142


• Truck – 8

• Auto – 12

• Vehicle – 20

EMEA• Employees - 61


• Truck – 2

• Auto – 10

• Vehicle – 12

Brazil• Employees - 52


• Truck – 3

• Auto – 1

• Vehicle – 4

North East Asia• Employees - 28


• Truck – 1

• Auto – 7

• Vehicle – 8

India• Employees - 16


• Truck – 1

• Auto – 2

• Vehicle – 3

Marco RolleroSteve Houle Bryan Huang

Rogerio Branco

Mark Greenwald Bill Braun Marie Wartham

Raju SB

Bill Bennett

Stuart Harrison

2010 Sales $3.5B2010 Spend $1.66BSuppliers >10k


Vehicle Group Supply Chain Management

Purpose:

• To accelerate value creation, by leveraging Eaton‟s

size, scale, resources and assets in partnership

with our business, suppliers and customers.

Role:

• Lead value creation and delivery from the supplier

base to our stakeholders/customers via:

• Strategic Sourcing

• Category & Commodity Management

• Supplier & Program Management

• Materials Management & Trade Compliance

• Supplier Quality Management


Program

Management

•New Program BOM Mgt

•Flawless Launch

•New Technology

Commercialization

•Product Aligned Cost Out

• Standard Material Processes

•SIOP, Customer Scheduling,

• Material Plan, Inventory Mgt

•Strategy Deployment

•Materials Assessment (MMA)

•Systematic Reporting (LZ)

Materials &

Logistics

•Commodity Strategy

•Supplier Strategies &

Roadmaps

•Source Selection

•Contract Management

•Total Material Cost Out

Purchasing

•Commodity & Manufacturing

Technical Competence

•Supplier Capability Assessment

•APQP & Launch Readiness

•Supply Performance Imp

•Global Reach

Supplier

Development

Ethics

Doing Business Right

VG Best Practice

Standardization – Globally / Regionally

Eaton Vehicle Group SCM FoundationEBE Processes Drive Functional Excellence

http://www.allaboutsourcing.de/eng/wp-content/uploads/continental_supplier.jpg


Why global SCM processes?

• Support cross region cooperation… speak the same SCM language

• Best cost country sourcing (20-40% of any region comes from outside region)

• Extension of increasingly global products into new markets

• Agile global supply chain with currency, demand, other fluctuations

• Harvest scale economics• Leverage with suppliers

• Process tools and training development

• IT infrastructure

• Develop world-class process capability• Global process with global input (vs multiple

regional processes)

• Supports Manufacturing Excellence (IS)

• Build organizational capacity & capability• Standard process, tools, training

• Better ability to move personal across regions

SCM

Architecture

„EPM‟

Trade

& Risk

Management

Supplier

Development

Integrated

Supply Chain

Management

Program

Management

Materials &

Logistics

Purchasing


The Journey to Becoming Your MostValued Customer…

• Introduce VG Organization Leadership to key

Suppliers

• Provide key updates for Market and performance

issues

• Create Open Dialogue with Supplier Partners on any

issues

• Secure Supplier Commitments to Join Eaton in

Proactively Meeting Challenges of the Market Place

• Strengthen Relationships & Strategic Alignment to the

Eaton Strategic Imperatives


Market Conditions

Scott Dickenson


Ramp Up Capacity Management UpdateMarch 31 , 2011


Feb 2011 PMI new orders rose to 60, output to

59.5, input price to 76.7Feb 2011 PMI new orders rose to 60, output to 59.5, input price to 76.7


Fuel prices

Mar 14 diesel price increased 3 cents to $3.908 a gallon, barrel prices $99


ATA Truck Tonnage Index

Jan freight up 7.6% yoy, Manufacturing/Automotive recovery helping freight


Demand Changes

2011

January

Q1 Q2 Q3 Q4 TOTAL

Eaton

PP

47 54 59 67 227

Eaton OEM

build plan

50.8 57.4

FTR

Dec 23

46 48.3 52 54.7 201

2011

February

Q1 Q2 Q3 Q4 TOTA

L

Eaton 1/18

PMI

46.3 57.5 63.5 71.8 239

Eaton OEM

build plan

51.7 62.1 67.6 64.5 245.8

ACT

Feb 10th

52.3 60.0 63.2 68.5 244

2011

March

Q1 Q2 Q3 Q4 TOTAL

Eaton 2/18

PMI

45K 57K 65K 73K 240K

Eaton OEM

build plan

52.1K 63.5 73.4 70.6 259.6

ACT

Feb 10th

52.3K 60.0

K

63.2

K

68.5

K

244K

January 227k~244 +7%

February 239k~246k +3%

March 240k ~260k +8%

13% Aggregate Change from PP


Truck Demand Percentage Change since January 1 . . .

January February March April May June July AugustSeptemb

erOctober

November

December

January 630 652 699 727 743 717 698 737 868 947 948 949

February 629 672 713 747 742 749 834 820 881 938 951 949

March 629 656 730 788 805 869 922 937 950 965 977 988

February 0% 3% 2% 3% 0% 4% 19% 11% 1% -1% 0%

March 0% -2% 2% 3% 8% 16% 11% 14% 8% 3% 3% 4%

March (M/M) 16% 22% 27% 17% 26% 27% 16% 17% 12% 8%

0%

3%2%

3%

0%

4%

19%

11%

1%

-1%0%0%

-2%

2%3%

8%

16%

11%

14%

8%

3% 3%4%

16%

22%

27%

17%

26%27%

16%17%

12%

8%

-5%

0%

5%

10%

15%

20%

25%

30%

0

500

1000

1500

2000

January

February

March

February

March

March (M/M)


Light VehicleQuarterly Production

-3.8% 2.6% -1.4%

5.6% 1.7% -2.7%

13% 15% 6.1%

-10% 0.2% 4.7%

Q4/Q1 Q1/Q1 Q1/Q1

„10/‟11 „10/‟11 Corp PMIFORECAST

SOURCE: IHS AUTOMOTIVE

* South Asia includes India, Thailand, Australia,Malaysia and Indonesia

NAFTA Q1 production expected to be the strongest of

2011; February LV Sales up 27% with Easier credit

and lease incentives.

Europe LV up 1.7% (PMI 3.4%) with strong export


U.S. Lt Vehicle Sales TrendHistory of Monthly US Lt Vehicle Sales

Source: Wards Automotive Reports

0

200

400

600

800

1,000

1,200

1,400

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2009 2010 2011

Thousands of Units

February 2011 Sales up 27%


February U.S. Light Vehicle Sales

Feb '11 Feb '10 % Change YTD 2011 YTD 2010 % Change

Chrysler 94,412 84,201 12.1% 164,304 140,680 16.8%

Ford 153,592 135,944 13.0% 278,056 246,676 12.7%

General Motors 207,028 141,454 46.4% 385,925 287,286 34.3%

Honda 98,059 80,671 21.6% 174,328 148,150 17.7%

Nissan 92,370 70,189 31.6% 164,217 132,761 23.7%

Toyota 141,846 100,027 41.8% 257,702 198,823 29.6%

Hyundai 76,339 58,056 31.5% 141,342 110,681 27.7%

U.S. Big 3 Brands 455,032 361,599 25.8% 828,285 674,642 22.8%

Asian Brands 458,351 349,623 31.1% 828,840 668,726 23.9%

European Brands 76,419 67,208 13.7% 149,468 131,605 13.6%

Total Lt. Vehicles 989,802 778,430 27.2% 1,806,593 1,474,973 22.5%

SAAR 13.3 10.3

Source: Ward‟s Auto.com

PAST RUN RATES:

Sept SAAR 11.7

Oct SAAR 12.2

Nov SAAR 12.2

Dec SAAR 12.5

Jan SAAR 12.5


0200400600800

1,0001,2001,4001,6001,800

Jan

Feb Mar

Apr

May Ju

nJu

lAug

Sep O

ctNov

Dec

Th

ou

san

ds o

f U

nit

s

2009 2010 2011

EU Pass Car Registrations TrendHistory of Monthly EU Pass Car Registrations


Change in

2011 YTD 2010 YTD Share

VW Group 22.2% 20.7% 1.5%

PSA Group 13.8% 14.4% -0.6%

Ford 7.6% 8.5% -0.9%

Volvo Car Corp. 1.9% 1.6% 0.3%

GME 8.1% 7.7% 0.5%

Renault Group 10.7% 10.8% -0.1%

FIAT Group 7.5% 9.2% -1.7%

BMW Group 5.1% 4.3% 0.7%

Toyota Group 4.5% 4.9% -0.4%

Daimler Group 4.3% 4.0% 0.3%

Other Asians* 12.3% 12.0% 0.3%

E.U. Pass Cars

* “Other Asians” includes Honda, Nissan, Hyundai-Kia, Suzuki, Mazda, & Mitsubishi

OEM Market Shares – 2011

Source: ACEA


Vehicle Supply Prime Risk Identification• Auto

• Current suppliers where there is capacity discrepancies between Eaton demand and market capacity(ie: Steel)

• Suppliers with extended

supply chain or protracted

production cycles (ie:

steel, gears, import parts)

• Small suppliers with low

purchasing power

• Components with

extended validation

cycles

• Truck

• Suppliers with extended supply chain or protracted production cycles (ie: steel, gears, import parts)

• Current suppliers where there is capacity discrepancies between Eaton demand and market capacity(ie: Steel)

• Small suppliers with low purchasing power

• Components with extended validation cycles

Primary risk areas are different between auto & truck and risk

management approach need to recognize uniqueness of major risk

areas


Managing Strategic Global Commodities (Valve Steel). . .


Global Valve Steel SIOP Planning

January 20, 2011


EMS 1, 6.5mm

Steel grade Q1 Material shortages in EMEA (kgs)

EMS1 6.5 mm 67,000

EMS1 16.5 mm GR 2,000

EMS1 16.5 mm HR 8,000

EMS1 19.0 mm GR 9,000

EMS1 19.0 mm HR 10,000

Total Q1 2011 Shortages 96,000

•EMS 1, 6.5mm – 30 tons

(in addition to 4 tons previously obtained for Europe)

•Original roll date from Villares was 2/14, ship date late February.

•We have worked with Villares to move up the roll date to 1/24, ship date mid-February.

•Remaining 30 tons to still be negotiated.

•Europe current usage is 32 tons per week, BGH only able to supply 25 tons per week


Next steps for WW team

• Each region to identify representative to support process

• Obtain WW requirement information from each of the

regions for 2011.

• Obtain capacity information for each of the suppliers.

• Build working PPC documents by supplier.

• Evaluate capacity vs. demand by month for each supplier.

• Identify short & long term issues.

• Consolidate & publish information to WW team.

• Set up monthly meetings with each region to review PPC

& demand or capacity changes.


Key Risk Hedge Action Eaton VG has taken…

ACTIONAUTO

(Focus Materials)

TRUCK

(Focus Materials)

Eaton controlled/targeted inventory ramp

-Steel

-Imported material

-Imported material

-Steel

Supplier additional

controlled/targeted

inventory

-Imported material -Imported material

Introduction/approvals of

additional suppliers-Steel

-Steel

-Gears

-Forgings


Key Challenges on the horizon. . .

• Velocity of the supply value chain (all elements

keeping pace)

• Staying ahead of the market (not only now but

2012!)

• Quality and delivery performance (contribution

to premium freight)

• Constrained commodities

• Unknown risk (Japan, increasing commodity

costs)


Supplier Development

Mark Greenwald – Director of Supplier Development

Dan Thelen – Manager, Supplier Development, North America

Gregorz Jozwiak – Manager, Supplier Development, Europe


Vehicle Group – Supplier Development Organization

Who Are We?

Supplier Performance – Main Themes

Systemic Quality Issues

Supplier Governance – Key Policies Impacting You!

Supplier Qualification

DMR Fee Administration

TS16949 3rd Party Certification

CQI-9, 11 and 12

Supplier Excellence Manual

Rebuilding Organizational Capability

‟09-‟10 Lag

Key Takeaways

Global Supplier Quality – Agenda Topics


Global Supplier Development

3030© 2011 Eaton Corporation. All rights reserved.30

Who Are We?

Structure

Located In 5 Regions

Regionally Based & Deployed

Support All Vehicle Group Businesses

Governance

Centralized Policy and Procedure Deployment

Drive Common Global Systems

Metrics Based

Approach

Non-Generalist Approach

Deploy Commodity/Process Expertise

3131© 2011 Eaton Corporation. All rights reserved.31

SDE Work Streams

Supplier Assessments

Quality Systems and EHS

Manufacturing and Technical

Capacity Verification

Flawless Launch

Advanced Quality Planning

PPAP Support

Development

Variability Reduction

Quality Systems

Process & Tooling

Issues Resolution


Supplier Performance – Main Themes


QMS – Global Systemic Themes

Manage The Change Ineffective communication to Eaton – nature and timing

Lack understanding of change process/requirements

Poor planning – driving compressed timing

Problem Solving Ineffective problem solving – repeat issues

Poor communication & reaction to issues

Failure to address the systemic root cause

Sub-supplier Management Lack system of governance

Failure to clearly communicate expectations

Lack technical expertise and support structure


Supplier Governance

Key Policy Changes Impacting

You!


Supplier Assessment & Qualification

Change!

Migration of existing EHS Quality Systems

Assessment (QSA) questions to a formal

EMS based set of questions

• Aligns to Eaton‟s environmental policy

• Meets external stakeholder expectations regarding

“Greening” of Eaton‟s supply chain

• Minimizes business continuity risks within the supply

chain


Supplier Assessment & Qualification

Impact!

All Quality Systems Assessments (QSA) will

include EMS based assessment questions

• Will have own separate score (i.e. no longer a part of the

total QSA score)

• Questions focus on evidence of management systems

rather than qualitative assessment of compliance

• Influencing factor in new business awards


DMR Fee Administration

Update!

Application of $250 fee when issuing a DMR

• Administrative fee for costs associated with corrective

action review and closure

• Policy definition found in Eaton‟s Supplier Excellence

Manual under “Cost of Poor Quality”

Impact!

Consistent application of $250 DMR

administrative fee across Vehicle Group


ISO/TS 16949

Change!

Supply base migration to ISO/TS 16949 3rd

party certification

• QMS which defines requirements for design, development

and production of products

• Aligns to Eaton customer specific requirements

Impact!

Major consideration when awarding new or

replacement business


Special Processes CQI-9, 11, 12

Change!

Compliance to AIAG Special Process Heat

Treat CQI-9, Plating CQI-11 & Coating CQI-12

• Customer specific requirements ISO/TS 16949

• Provides for continual improvement, emphasizing defect

prevention and the reduction of variation

Impact!

Annual self assessment requirement

• Applicable to operations “in house” or outsourced to

service provider

• Close monitoring of suppliers with HT processes (in-house

& outsourced)


Supplier Code of ConductCompliance Monitoring

Application to Sub-Contractors

Supplier ExpectationsChange In Manufacturing Processes

Lot Traceability

Supplier QualificationInitial Supplier Assessment

On-site Assessment

Approving Parts For ProductionAdvanced Quality Planning

Production Part Approval

Supplier DevelopmentImproving Quality Systems

Improving Process Control

SEM Major Components


Supplier Excellence Manual Location

Link: Doing Business

Link: Selling To Us


Rebuilding Quality Competency

2009 & 2010 were challenging business

environments - driving a reduction in continuous

improvement activities and taking a huge toll on

our Human Capital.

Question…what have you done to assess the

impact on your quality organization’s Human

Capital losses and Continuous Improvement

Efforts?


What Has Your Organization Done To…

People Quality

Evaluate impact of lost specialized skills

Reinstate training and skills development

Evaluate talent gap - upgrade talent

Process Quality

Reinstate Kaizen/Lean events

Speed-up process capability improvements

Improve data management and communication networks

Perception Quality

Assess customer‟s perception of quality performance

Assess organization‟s perception of quality


Key Takeaways


Key Takeaways

Supplier Development

Regionally deployed – Globally aligned

Driving common global standards

Supplier Performance

Three global themes

Manage Change

Problem Solving

Sub-supplier Management

Governance – Key Policy Changes

Systems assessment now includes EMS

DMR administration fee of $250

Migration to ISO/TS 16949 3rd party certification

Special Processes audit CQI-9,11,12


Key Takeaways Cont.


People Quality

• Evaluate resources and skills component

Process Quality

• Reinstate continuous improvement plans/projects

Perception Quality

• Organizational and customer perception


Final Thought


Winston Churchill (1874-1965)

“It is no use saying 'we are doing our

best.' You have got to succeed in doing

what is necessary!”


Japan Tsunami

Steve Houle

Marco Rollero


Restricting Factors to Light Vehicle Production in Japan and GloballyLight Vehicle Production in Japan restricted by the following factors:•Condition of the facility and availability of workers

•Issues with the condition of the communication, road, rail and port infrastructure as well as the availability of various fuels

•The ability to secure an ample and stable power supply as well as other necessities such as running water and sewage/waste water treatment

• Additional restrictions on suppliers inside “protection radius” from Fukushima Power plant

•A stable supply of components/systems to ensure output of components and systems

Analysts say it is just a matter of time before more supply-chain disruptions

develop for manufacturers globally- visibility on Tier 2-3-4 not completely clear as

for now

Source: IHS Global Insight, 21 March 2011


Automotive Component Industry in JapanSubstantive Near-term Bottlenecks to Overcome

• According to Nissan Motor Co. CEO Carlos Ghosn, about 40 component suppliers in Japan remain in difficulty after the earthquake

• Electronic components, plastics and rubber are in short supply and will affect Japanese automakers and rivals outside the country

• Japan accounts for a sizeable chunk of the technology in cars, including 20% of worldwide semiconductor production, according to iSuppli

• Through the Tier-2 and -3 supply chain, the majority of OEMs utilize electronic components from Japan

• The downstream effects are beginning to impact volume outside of Japan. Several variables will influence how quickly these issues take effect and how quickly the OEMs can overcome supply disruptions

• Impact varies from immediate to 4-6 weeks downstream (many suppliers managing long supply chain with additional inventory bank)

• Even if you or Eaton are not directly affected, Customer call-offs could be impacted dramatically as the OEM misses other parts to complete the Vehicles

Source: IHS Global Insight, 21 March 2011; Automotive News Europe 23 March 2011


Source: Supplier websites

Automotive Component Suppliers in Japan (non-conclusive list of suppliers- public information)

Supplier Name

Manufacturing components

Status

Denso Corp

Thermal system components, Powertrain control.

Planning to start production from 21st March 2011.

Bridgestone

tire segment, auto-related parts,

Production stopped till further notice.

Johnson Controls

Automotive interiors, batteries for automobiles & hybrid electric vehicles

5 production plants closed till further notice.

Aisin Seiki Ltds

Drivetrian, Brake & Chassis, Engine related products, Body related products.

11 plants closed till 22nd March 2011.

BorgWarner Inc

Emissions Systems , Thermal systems, Turbocharges, Drivetrian systems.

Production ongoing.

TRW Automotive Inc Integrated vehicle control, braking system, suspension system, engine components, steering system

Production ongoing.

NSK

Bearings

Production stoppage in 1 plant & 2 partial production stoppages.

Autoliv Inc

Electronics, Airbags, Inflators, Crash testing.

Production ongoing.

Takata Corp

Seat belts, Airbags, steering wheels

Production ongoing.

http://www.ihsglobalinsight.com/

http://www.ihsglobalinsight.com/


Eaton Approach and communications

• Team is meeting twice a week to review approach and

status• Daily e-mail updates provided to plant managers and executive team

• Direct suppliers have been contacted to

• Identify affected (potentially) parts

• Mitigation plans starting week of 21-March

• Remaining sensitive to the lives lost and concern for

the people there.

• Addressing two fold problem:

• Supplier end (potential lack of material)

• Customer end (potential reduction of sales volume)


Overall Response Status by DivisionJapanese Earthquake ResponseDivison Target Date Comment

Auto

1st Tier Suppliers Identified 18-Mar

2nd Tier Suppliers Indentified 25-Mar SCM to Canvas Supplier base

Mitigation Plans Created

Customer Advice Developed 25-Mar Reviewed by Legal, distributed to Sales on 21-Mar

Long Term Monitoring in-place

Clutch 14-Sep

1st Tier Suppliers Identified 18-Mar Spring Suppliers, Bearings

2nd Tier Suppliers Indentified 26-Mar Steel suppliers are running. SCM to Canvas supply base

Mitigation Plans Created 26-Mar Contacting Corp for intel on long term impacts



Transmission

1st Tier Suppliers Identified 18-Mar Bearing Suppliers, Board Manufacturers for ECU

2nd Tier Suppliers Indentified 26-Mar Need to confirm electrical component suppliers




Hybrid

1st Tier Suppliers Identified 18-Mar Hitachi as primary supplier of main components.

2nd Tier Suppliers Indentified 25-Mar Tracking Sigma for housing, Hitachi to confirm




Complete

Complete


Impact on Light Vehicle Production in Europe

• Audi, VW, Fiat announcing no immediate disruption but anticipating May issues

• Daimler and BMW announcing no disruption

• Toyota and Honda overtime in EU has been cancelled

• Staged downtime at GM facilities in Europe (Zaragoza and Eisenach building the

current Corsa), loss of ~1300 units per day

• Volvo output in Europe may only have until early April until component supply is

starved- Genk plant already announced 2 weeks shutdown

• PSA‟s production of diesel engines will be hit from 23 March as a result of

electronic components made in the area affected by the natural disaster (althoug

latest news seem to remove the holdback)

“If you can‟t get that core part, it doesn‟t matter if you get 50% of

your components from Japan or just half of 1%,” said IHS

Automotive analyst Michael Robinet. “Welcome to the global

automotive industry.”


• Chrysler Group LLC

• Restricted dealers from ordering vehicles in 10 paint colors produced at factory

in Japan.

• Ford Motor Co.

• Restricted dealer orders for "tuxedo black" and three red paint shades; affects F-

150 and Super Duty pickups, Explorer, Expedition, Focus, Taurus, Lincoln MKS

and Navigator.

• Fuji Heavy Industries (Subaru)

• Canceled overtime shifts at Subaru of Indiana (Legacy, Outback, Tribeca and

Toyota Camry) until April 1; no parts shortages reported

• General Motors

• Resuming Chevrolet Colorado and GMC Canyon production at Shreveport, La.

plant; shortage of undisclosed parts from Japan halted production week of March

21. Alleged shortage of electronic parts could hit as early as 3 weeks from now

Impact on Light Vehicle Production in USA


Toyota Motor Corp.

• Informed dealers March 25 that they face a shortage of 233 parts numbers for at least

30 days; Toyota Motor Sales will not fill any orders of short-inventory parts to replenish

dealer stock

• North American vehicle and engine plants (13) running; overtime curtailed

• Sent memo to workers in U.S. and Canada March 23, warning thinning supplies will

cause some interruptions in production; no definite time frame for stoppages

• Prius availability in the U.S. could be affected by damage to a hybrid battery plant;

RAV4 crossover also affected

Japan:

• Extended production suspension through March 31; facing rolling blackouts and supply

shortages affecting all of OEMs

Impact on Light Vehicle Production in USA- continued -

Japan


Summarizing- 2011 SCM imperatives

• Supplier razionalization

• Improved Material Management

• Demand management

• Supplier integration

• Advanced Quality Planning

• New Product introduction

• Build regional capabilities

……

• By being competitive you keep us competitive

assuring continuous mutual growth


Round Table

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