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7/31/2019 2. Business Case for a Lean Enterprise
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The Business Case for a Lean Enterprise
With acknowledgement to Dr Pete Wells, Centre for Automotive Industry Research,Cardiff Business School
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Agenda
Status of the Automotive Industry
Business Reasons for Change
Customer Expectations Competitor Activity and Restructuring
Stakeholder Expectations
Delivering our 2005 Plan
Conclusion & Discussion
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Automotive Industry:
. a good place to be?
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Automotive Industry:
. a good place to be?
Most non-premium Auto Makers are barely profitable or
have low levels of profitability (below cost of capital)
Consumer Markets are weak or stagnant in North America
and Europe. Growth in Asia
European Market is heavily subsidised by OEM variablemarketing funds
OE price pressures translating to tier 1 price pressure
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Automotive Industry:
. a good place to be?
Adapted from M.E. Porter
5 ForcesIndustry Model
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Automotive Industry:
. a good place to be?
Adapted from M.E. Porter 5 ForcesIndustry Model - 1980
Amended Bradeburger / Nalebuff Value-net framework mid 1990
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Business Reasons for Change:
Products being commoditised (buy one, get one free)! Market Prices moving constantly down
Competition is fierce and intensifying
Visteon will focus on differentiation first, then cost as its
USP, but many products cannot be differentiated quickly
Focus on cost in factories and staffs hence lean
Supported by European Plan for Growth initiative and
the need to improve flexibility
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Customer Expectations:
Customers Reducing Costs (50+% of vehicle cost ispurchased material)
Improving supplier efficiency (TVM, VA/VE etc) Lean tools e.g. Value Stream Analysis are a given
Improving flexibility to supply part complexity at
short notice Customers expect year on year efficiency
Leverage on volume efficiency
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Customer Procurement:
OE Purchasing Costs (estimated, 2002):
Ford Global $110.0 billion
Ford of Europe $10.0 billion
Volvo $7.0 billion
Renault $23.5 billion
Nissan $18.0 billion
Nissan UK $2.2 billion
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Customer Consolidation:
Claimed Cost savings from OE consolidations:
$1.4 billion Renault Nissan by 2005
Volvo, at least 10% ($500m)
GM and Fiat $1 billion by 2005
DCX $1.4 billion in 1999, mostly purchasing
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Competitors:
Restructuring driven by:
The need for scale to amortise rising R&D costs
The need to acquire new areas of competence
The need to create new focused-factories alongside
vehicle manufacturers assembly operations
Continuous reinvestment in process technologies
Divestment of non-core assets
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Competitor Activity:
Siemens merger with VDO
JCI acquired Sagem interior electronics
Bosch rationalises product line
Calsonic Kansei announce European development
centre
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Competitors:
Pressures will get passed down the supply chain
But also passed up from materials suppliers
There will be more victims: Allied Signal (traditional sector decline)
Breed / Key Safety Systems Inc. (technology growth
limits)
Firestone (liability)
Many tier 2s and tier 3s (who by the way, have not
implemented lean practices)
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Stakeholder Expectations:
Stakeholders include many different groups withinVisteon (shareholders, investors, employees, managers,BoD etc)
Expectation is that Visteon will move away from being abreak-even company (4 years of restructuring)
All stakeholders want Visteon to be successful!
Visteons problem is cost and the break-even point beingtoo high
Lean practices are critical to lower the break-even pointin our business
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12/31/03Market
Value
(Bil.)
2003
P/E
JCI 10.5$ 14.1
Magna Intl. 7.6 12.8
Delphi 5.7 16.8Lear 4.2 11.1
Dana 2.7 15.2
Borg Warner 2.3 13.4
American Axle 2.1 11.1
ArvinMeritor 1.7 10.2
Visteon 1.4 loss
Memo:
GM 29.9$ 9.9
Ford 28.2 8.2
Investors View of Visteon -- Auto
Suppliers by Market Value(at 31-Dec-03)
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Delivering our 2005
Plan:Making ourCommitments
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Historically, Visteon has not delivered
performance to shareholders:
Visteon Stock Price Trend(Adjusted for dividends and stock splits)
Source: Bloomberg
0
5
10
15
20
25
6/29/00 10/29/00 2/28/01 6/29/01 10/29/01 2/28/02 6/29/02 10/29/02 2/28/03 6/29/03 10/29/03
$/Share
Ford agreement announced
9/11
Visteon planned
layoffs
Visteon deniesintent to buy
Magneti Marelli
Ford production
cut, Visteon
releases
unexpected,
unfavorable news
Ford cuts 2Q
production by
120,000 units
Height of
economic
downturn; Visteon
tracks down with
Ford & GM as
weak second half
is forecast
Market basket
pricing issue with
Ford announced
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Latest Share Price Performance
Announce
$800M
Write down
Announce2004 Full year
results
Announce
Ford Financial
Settlement
Announce
2005 Q1
results
Ford MOU
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Directionally, what impacts our stock
price the most?
~ $10 $15
Visteons current returns are below its cost of capital
Revenue growth at this level of performance destroys value
Margin improvement is the key to driving
shareholder value
1% point revenue growth
Reduction in invested capital at constant earnings
improves ROIC
However impact on the stock price is small unless capitalreductions are large enough to significantly improve ROIC
Small, absolute improvements to PBT
translate into big percentage gains
1% reduction in
invested capital
1% point higher PBT
margin
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Key Factors for Achieving our
Objectives:
Reduction of Cost Base through 2005 Initiatives whichincludes Plan for Growth, Lean etc.
High cost of factories - Make our assets sweat
Turn more of our fixed cost into variable
Sell excess capacity sell unused assets
Flexibility to adapt and deliver perfect launches
Flexibility to meet product complexity off restrictedproduction facilities
Need to optimise the value stream from supplier tocustomer and reduce overall investment
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Conclusion & Discussion:Conclusions:
The need for more rapid lean implementation is driven by:
Cost, Quality, Speed & Flexibility
These factors are being driven by our Customers,Competitors, our Stakeholders and therefore by the
Marketplace and Industry
Lean may take a different form in different factories (e.g.Enfield vs. Basildon)
Not implementing Lean rapidly is not an option for our
business in the short term or long term
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Conclusion & Discussion:
Discussion Points: Were you aware of the external factors impacting our
business ?
What do you think about these factors ?
What do you think about the Visteon 2005 Plan ?
Can you think of any other opportunities or threats ?
What is the impact at a factory level ?
How do these factors affect your own work plans & focus ?