SCDigest editorial staff

The News: Wall Street Journal story cites evidence Chrysler’s flexible manufacturing strategy, enabling it to produce more types of vehicles per plant, is starting to payoff.

The Impact: Chrysler is enjoying competitive advantage from the approach versus GM and Ford. Can the two larger OEMs make the move?

The Story: A couple of years after Chrysler embarked on an ambitious plan to adopt a more flexible manufacturing strategy, it is beginning to reap some substantial rewards, a story in the Wall Street Journal reported this week.

As Supply Chain Digest reported in Aug., 2005, Chrysler had announced plans to revamp its North America manufacturing strategy based creating “flexible” factories capable of making several models of cars under one roof. The plan also calls for increased use of automation (robots) to enable the strategy, and comes on top of earlier moves by the company to shift more manufacturing responsibilities back on to suppliers. (See Chrysler to Adopt “Flexible Manufacturing” Strategy)

Traditionally, U.S. car manufacturers have only produced only one or sometimes two models in a given plant. Chrysler’s strategy calls for it to be able to build three or four different models per factory. The company hoped the result would be higher plant utilization, and a significant lowering of the number of vehicles per model that must be built for a car line to be profitable. It could in fact dramatically change the entire landscape of automobile economics.

The Wall Street Journal story says there is good evidence the benefits are starting to be realized. Case in point: the company’s Belvidere, IL plant. Like most U.S. automotive factories, it was dedicated to a single model, the Neon. The plant ran “at about half-capacity last year, with its fixed costs spread out over just 126,000 Neons, a car Chrysler stopped making last fall. With the new system, the plant makes two models, the Dodge Caliber and Jeep Compass, both new. Last month Belvidere added a second production shift. A third model will join the mix later this year, and Belvidere will be on course to produce twice as many vehicles as in 2005. That will slash each one's share of fixed costs,” the Wall Street Journal reports.

The inflexible plant paradigm is a vestige of days when individual models could generate huge level of vehicle sales. Now, a combination of greater competition and more niche market vehicles means very few models fall into the mega-volume category. As a result, flexible plants become an absolute necessity, though as with most things in the auto industry the change is difficult even if everyone understands the need.

Chrysler is showing how it can be done. The ability to make multiple models in one factory not only reduces the fixed cost of the vehicle and helps to keep plants busy and competitive, in the long run it also reduces total fixed costs as much more of the machinery and “robots” are designed not for a specific vehicle but to be more general purpose.

At Chrysler, these robots are machines that use what is essentially a large mechanical arm with an attachment at the end designed to hold parts. It is easy to change the attachment to accommodate a different part, which enables it to be used for a different model.

The WSJ says these newer style robots are “a third less expensive than old-style tooling. And since they aren't designed to build a single vehicle, and discarded when it's dropped, the robots can be expected to stay in use about twice as long, perhaps 10 to 12 years.”

At Belvidere, Chrysler is using the flexible robots and related production design not only to produce different vehicles say on different shifts, but even elements of different models one after the other. Down the door assembly line comes a door for a Compass. Right behind it is a door assembly for the Caliber model.

The approach is also forcing the company to think more globally about manufacturing processes. For example, in the past, the sequence of production may have been more model and plant specific, focused on optimizing those costs within vehicle and plant constraints. Now, the company will look to develop common process steps and sequences across models and plants, enabling a given line to produce many types of vehicles, and the ability to more flexibly move vehicle product between plants to optimize utilization and production versus demand. For example, Chrysler is adopting similar capabilities at its Sterling Heights, MI, plant, and the plan is to shift volumes back and forth between that plant and Belvidere across models based on demand. This would never have been possible in the past.

The Japanese manufacturers have been much more successful at building flexible production, though their efforts in the U.S. have not been quite as aggressive as elsewhere in the world. In the U.S, even Japanese plants usually only handle 2-3 models, versus up to six in their Asian plants.

The move is critical not only to enable improved industry economics generally, but because of the market’s move away from larger, SUV type vehicles back to smaller cars. U.S. auto companies have relied on the profits from larger vehicles, and have recently made little or no profit on selling smaller models. Flexible manufacturing offers a path to change those dynamics.

The other huge benefit is that the lower fixed costs and more flexibility can enable the manufacturers to introduce more models and take more risks, as the cost of entry is lower, and missed sales expectations at a plant can likely be compensated by greater than expected sales of other models. Flexible production "gives us a wider margin of error," the WSJ quotes Chrysler chief Thomas LaSorda as saying.

Why is it so hard for U.S. automakers to make the move to more flexible production? Can the strategy help save GM and Ford? What are the keys to success in making this move? Let us know your thoughts.

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