2. business case for a lean enterprise

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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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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Adapted from M.E. Porter

5 ForcesIndustry Model


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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 ?

2. business case for a lean enterprise

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