Total Factor Productivity: A Two Dimensional Matrix

Total Factor Productivity is an important concept in economics. It connotes the fact that factors other than capital and labour contribute to the output of an economic system. Total Factor Productivity (TFP) is the portion of output not explained by the amounts of inputs used in production. As such, its level is determined by the amount of inputs used in production, and by how efficiently and intensely the inputs are utilized in production. TFP growth is usually measured by the Solow Residual. An equation of Cobb-Douglas form is used to explain total output as a function of total factor productivity and the capital and labour productivity. While some economists believe that TFP is a key driver of economic growth, others believe that it is subject to annual variations and suffers from imperfect measurements.

The Conference Board in its Productivity Brief 2015 suggests that TFP growth is the result of a combination of improvements in efficiency (meaning, fewer inputs are needed for a given output) as well as technology and innovation (meaning, more output is achieved from a given input). It considers financial capital in terms of machinery, equipment and structures. It considers human capital in terms of skills and management competencies. Adding technology and innovation to this capital combination, it expects increase in output per worker hour. If jobs expand together with higher productivity there would be a growth in total output. The data presented by The Conference Board present a declining or flat growth situation in TFP, across the developed markets as well as emerging markets. It concludes that unless productivity growth picks up, key indicators of economic health would not pick up, affecting societal welfare.

Macro or micro?

National economic management is in the hands of policy makers in the Governments. They typically attempt to draw up policies at macro level that stimulate and attract national and international investments and support expansion of micro-level industrial, business and economic activity. Industries and businesses do require policy stimulation and support but probably there is a lot that can happen at micro level itself through higher productivity. The trickle-down effect of policy stimulation and bottom-up impact of productivity improvement would be synergistic. In fact, without the latter (of productivity improvement) inflow of capital arising from policy stimulation would cause further exacerbation in productivity scenario. Without productivity drivers in the economy flow of capital, even if stimulated by policy framework, could eventually ebb. The linkages between macro and micro are as important as discrete macro and micro improvements. This is particularly important for India given the legacy of socialist policies, inevitability of mixed economy and importance of domestic and foreign investments.

Industry gets organized in public sector (or Government owned sector), private sector (or citizens, individually or collectively, and in joint sector (Government and people ownership). There is also the concept of public-private partnership. Although all of these are organizational entities, they are considered to vary significantly in respect of productivity practices, which are in turn linked to management approaches. The common view is that public sector is sought to be influenced by the Governments while private sector seeks to influence the Governments. The former, it is felt in some quarters, is a convenient instrument for economic stimulation and job creation while, likewise in some quarters, the latter is arraigned as an opportunistic instrument for market capitalization and rent seeking. The joint sector and public-private partnerships are stuck in the middle, often gridlocked with ownership differences. The polemical perceptions should not be allowed to influence a genuine focus on total factor productivity which is essential for any organization (and economy), regardless of organizational nature or ownership (or economic policies).

Pan-organizational

Within the limits of what is humanly possible and within the perspectives of work-life balance, the greater the output that is achieved from certain inputs, productivity movement is supported. This, in turn, helps economic growth. This is applicable for all organizations. The totality with which a policy issue is considered and the speed with which the policy thought is converted into executive action defines productivity of national governance. The comprehensiveness with all inputs are aggregated and the competitiveness with which the aggregate is converted into a product or service for the customer defines the productivity of industrial management. The productivity of governance is impacted by certain democratic structures and processes, be it in US and Japan or India and China. The productivity of industry may be impacted by policy framework but is largely within organizational control.

Unfortunately, over the last several years, productivity as a concept is overshadowed by competitiveness. Individual and system productivities are considered to be of lower significance than businesses competitiveness; and competitiveness is defined in terms of either product differentiation or cost leadership. The emergence of concepts of competitiveness is welcome but the dilution of focus on productivity is not so helpful. Productivity has a strong connotation of intrinsic efficiency improvement in an absolute sense while competitiveness has a connotation of getting better of another in a relative manner. While the concept of competitiveness may be helpful at an overall business level, organizational management has to continue to be focused on productivity. There have, of course, been criticisms of productivity that it lacks a business perspective and could lead to sub-optimization of the total system even if the sub-systems are productive. One can safely premise, however, that without productivity there cannot be competitiveness.

Productivity matrix

Productivity is all about efficiency and effectiveness. The concept itself needs to be deployed efficiently and effectively for the concept to deliver results in today’s scenario. True and authentic productivity analysis becomes possible when it is viewed as a matrix of value chain management and total factor deployment. A worker being productive on a manufacturing line in terms of components produced in a given unit of time would not help in the system productivity if the product is not packaged well or is not transported safely and delivered on time. Managing the value chain on an end to end basis would be of no avail if factors of productivity in each constituent are not taken into account to develop effective input-output metrics. Some firms view this need (if at all they recognize the concept) as more relevant for integrated companies which control all activities of the value chain. Firms also consider outsourced activities to be adequately measured in terms of productivity just through their cost competitiveness.

The fact, however, is that productivity matrix is relevant for all activities and for all firms. A highly research oriented innovation-dependent firm as well as an operations oriented manufacturing-driven firm would benefit by the concept of productivity matrix. In the former, at a gross level, more inputs may seem to lead to better output because the probability of an innovative discovery would improve with more work streams. However, in each work stream experimental productivity is vital. On the other hand, in repetitive work environment smooth flow, seamless coordination and freedom from defects support productivity. Productivity does not mean error-proof activities; rather it means discovering the cause of errors and enhancing output. Measurement systems for finished products ensure product quality but they would not assure zero defects. Understanding the output profile, in terms of quality and productivity, of the material supplier would, on the other hand, ensure productivity. Quality and productivity are interrelated. High quality leads to high productivity while just a rate of production without quality assurance would lead to poor final output.

Matrix measurement

Total factor productivity would work only if inputs and outputs at each stage of the value chain are fully understood and measured. There are more inputs than labour, capital and technology as commonly understand; nor are all the inputs linear and variable. Usually the three common inputs of labour, plant & machinery and technology are expressed in common financial terms and used as denominator. It is possible to granulate the inputs into sub-classifications such as direct labour, indirect labour, permanent employees, contract employees, energy, other utilities, land, building, equipment, direct materials, indirect materials, long term capital, short term capital, investments in R&D and so on. The granulation becomes relevant to compare and contrast productivity measurements across industries, firms and time. Adjustment for parity helps managements understand true operational productivity.

There are other process related variables as well, which impact productivity. In governance, the discussion and decision making structures (for example, ministerial versus bureaucratic or individual versus committee) impact productivity. On a shop floor, the feeder systems for materials and components (centralized versus decentralized versus delivered on spot or taken from store) determine the level of productivity. In a research laboratory, the access to global intellectual property databases and the availability of patent evaluation and patenting infrastructure determine the level of productivity. With respect to human capital the processes adopted and time invested for writing down operating procedures and training people in them determine the level of productivity. While all these are doubtless captured in financials, gross indexes convey little direction for improvement.

Organizing for TFP

Most productivity departments in firms are confined to shop floor as industrial engineering or productivity improvement departments. More recently operational excellence has come up as a more contemporary nomenclature. Yet, a preoccupation with manufacturing remains the unchanged focus. As discussed in this blog post, productivity is a much more comprehensive concept covering the total value chain with multiple factors in each stage of the matrix. A total factor productivity department needs larger organizational appreciation and leadership commitment. Economists are rightly intrigued to capture what is not covered in total factor productivity; it is time that industrialists, businessmen and administrators begin to get intrigued about and interested in what is yet to be covered for measurement of total productivity.

Posted by Dr CB Rao on June 27, 2015

Supply Chain in Contemporary Organizations: Conceptually Connected but Practically Disconnected?

Unlike science and technology which keep getting enriched continuously with new developments, management of organizations, by its very nature, has little to show in terms of continuous original developments over the years. Yet, in an effort to stay relevant, management tries to reinvent itself or its functions through new nomenclature, and its processes through new jargon. At a very gross level (of course, in a subtly misused manner) management has carved out a new space of leadership. As contrasted with the earlier days when leadership is all about the one and the only one at the helm, today scores of managers are allowed to call themselves leaders. At a more detailed level, old functions are renamed; long range planning as corporate planning, business planning or strategy, time and motion study as industrial engineering, productivity management or operational excellence, and personnel as human resources management and people management, for example. Some core functions like manufacturing, quality, sales and marketing or research and development, in contrast, could see no semantic innovation, mercifully.

There has, however, been one discipline that seemed in the 1990s to revolutionize the field of operations management which comprised multiple functions such as sourcing, purchase or procurement, production, production planning and inventory control (PPIC), scheduling, warehouse management, supply, distribution, logistics and delivery under one umbrella concept called supply chain management. This has been evolutionary, in that initially purchase, PPIC, and warehousing got clubbed under materials management. Amalgamation of inward-oriented materials management with outward-oriented distribution, logistics and delivery led to a broader concept of supply chain, which promised to bring hitherto unseen connectivity and efficiency to management of firms. The concept became so fashionable, as with many a managerial nomenclature, that some companies began to include even manufacturing as a part of the supply chain organization in the 2000s. Yet, a full two decade plus later, supply chain in most organizations remains only an outbound function; ie., from one plant to the other or from a plant to the warehouse and a warehouse to the customer.

Connected disconnect

The concept of identifying and procuring the entire bill of materials of a product and manufacturing the finished product through in-house or outsourced facilities and delivering to the customer in the most efficient manner, all of it supported by optimized inventory management is clearly a well-merited concept to optimize an important part of a business’s value chain. The Japanese have recognized inventory and planning as the key drivers of such integration regardless of whether supply chain is christened as a department. Pull-type demand cum production planning and just-in-time (JIT) inventory had, for long, been, integrated in their production and sales systems. The Western management model which seeks a clear structure and process for everything, existing or new, had embraced supply chain as an integrating or connecting concept. Again, as is the wont with the Western models huge expectations preceded the evolution and institutionalization of the supply chain concept. As a result, and also due to certain specific factors discussed below, an integrated, monolithic supply chain organization continues to be more an exception than a rule in contemporary organizations.

Three factors that took shape in the 1990s and 2000s have, in fact, created some dampeners for an integrated supply chain function. The first is the rapid emergence of the globally dispersed organization with multiple sourcing, manufacturing and marketing locations across the nations with establishing local organizations becoming one of greater priority. The second is the emergence of information technology, more specifically enterprise resource planning (ERP) systems, as a connector or integrator of all functions, even globally. The third is the unpreparedness of the educational and career systems to develop competencies that integrate the specializations as varied as purchase, production, distribution, quality etc. These factors ensured that heads of operational management continued to operate with functional specializations rather than with a broader function that corresponded with a logical value chain. Given that the first two factors are now an established reality, it remains to address the competency based dampener in greater detail.

Function is business

The important aspect of supply chain management that the function as a whole (or in its competent parts) deals with external businesses on a wide range of techno-commercial parameters. Several of the functions have hues that are deeper and broader than the traditional ones. For example, sourcing is not just scanning a supplier directory and choosing someone who offers a material or component at the desired price. Sourcing is truly vendor development, which develops the material or component supplier’s capabilities in a holistic manner. Similarly, distribution is not merely choosing a delivery trucking operator for the least cost. Distribution is the science of operations research at one level and the discipline of good transportation practice at another level, both of which require enlightened business management on the part of distribution provider. Even the seemingly number oriented functions like PPIC cannot be effective unless they understand the nuances of product-market segments (and not merely the SKUs) and the subtleties of manufacturing processes (not merely processing times). While every function in an organization needs to have a business perspective, the functions in the broad group of supply chain need to have the techno-commercial perspectives of their stakeholders’ businesses as well.

The above indicated aspects of supply chain have found their early roots in the Japanese automobile industry. The practice of concurrent engineering and collaborative planning that knits together all the internal functions of automobile and ancillary companies, amongst themselves and between themselves, has been a great enabler for integrated supply chain management. Issues such as new product, material and component technologies, material substitution, tool and die development, facility upgrades, resource requirements are placed on the table to develop feasible and viable solutions. This level of enlightened collaboration becomes even more inevitable when proprietary product development is involved. This requires the vendors to appreciate that their long term business is protected not by the supply rate contract for materials or transportation but by the business success of the end-product.  Similarly the end-product company would need to appreciate that procurement economics of the materials, important as they are, need to be supplemented by the business economics of the vendors. In fact, progressive vendor development is the core of successful supply chain management.

Vendor development

Most organizations tend to have multiple buyers but few vendor development executives; in fact, in many organizations vendor development may not exist at all. This situation is ironical because the work and challenge involved in vendor development is many times over the work involved in negotiating a rate contract. Vendor development ensures that the supplier becomes a micro-replica of the principal in terms of having good R&D, manufacturing and quality capabilities, among others. The principal by investing its own techno-commercial resources in the vendor may add to its operating costs but would ensure longer term business competitiveness. In some cases, the vendors tend to have good technical ideas but lack the managerial will or financial resources to evaluate and upscale their ideas. Under such situations, the principals could take on the role of venture capitalists to take the ideas forward. Many Japanese automobile companies take direct stakes or indirect stakes (through their trading or investment conglomerates) in their component suppliers which meets the need for such vendor support.

Vendor development, even in those organizations that house such function or in supply chain treatises, tends to be viewed as a functional activity and not as business enabler. Typically, either a buyer or a designated vendor development executive identifies potential vendors and selects the appropriate one through due diligence studies by other functions such as quality and business development. This process may identify a vendor (who will be transferred to, or assigned with, a buyer) but will not make the vendor a fully competitive and sustainable vendor. Vendor development in an organization needs to be handled by a fully institutionalized team with multiple skills resident or deputed on a continuing basis. Vendor development must cover not only suppliers of components and raw materials but also providers of distribution and logistics service providers. Proactive and objective vendor development ensures the most effective procurement relationships, logically and automatically.

Re-positioning supply chain

The foregoing discussion leads us to two important aspects of repositioning supply chain as the effective enterprise connector. The first relates to developing the required supply chain competencies through educational and career options. There is need to develop supply chain educational stream on par with other established streams such as financial management, operations management or marketing management. It should also be developed as a multi-domain skill set with blending together of technology and non-technology subjects, and quantitative and behavioural subjects. Contract management and business development should be part of the essential toolkit in the supply chain program. The second relates to providing the appropriate career options, from foundational careers to rotational careers across all the functions of supply chain such as sourcing, vendor development, purchase, production, production planning and inventory control (PPIC), scheduling, warehouse management, supply, distribution, logistics and delivery, eventually leading on to the top job as the head of supply chain, and even to higher positions thereafter.  

The re-positioned role of supply chain would be one of developing a total organizational ecosystem of all the vendors and input providers who understand and support the value chain of the organization with ownership and oneness so that the firm and its stakeholders can participate in the combined prosperity. The head of supply chain in this re-positioned supply chain function would be a strategic leader who understands the techno-commercial needs of the firm but also the various vendor firms who provide the inputs and deliver the outputs. He or she would also be a leader of balance who understands the benefits of scale economics but also recognizes the need for risk mitigation, both through demand and supply assurance to and from the vendors. Though not much known in the global strategy literature, the eco system of India’s leading commercial vehicle manufacturers, Ashok Leyland and Tata Motors, with pervasive component manufacturing and logistics groups such as TVS is a great proof of how integrated supply chain is not merely a transient conceptual vision but a durable practical accomplishment. It is time that management institutions and leading corporations appreciate the need for re-positioning supply chain as a leading new age integrative discipline.

Posted by Dr CB Rao on November 16, 2014

  

Indian Automobile Marketing: A Three Layer Demand Model

The Indian automobile market has grown to be one of the largest and fastest growing markets in the world, with an annual production of 20 million vehicles comprising domestic sales of 17 million vehicles and export sales of 3 million vehicles per year (2011-12 data). The domestic sale comprises over 13 million two-wheelers, and nearly 3 million cars and utility vehicles, with other categories of vehicles constituting the balance. The rapid growth has put an enormous pressure on the already congested and inadequate road system in India but that does not seem to deter either the customers or the manufacturers. Clearly, however, a combination of rising incomes and increasing number of players with a liberalized import system has led to the growth in the market. Compared to other developed markets, however, the scale and scope of the market has not motivated either the customers or the manufacturers to seek or introduce more relevant marketing approaches, respectively.

It is not an exaggeration to say that the automobile dealerships in India typically have showrooms no bigger than what white goods manufacturers have (after adjusting for the size and variety of products). It is also commonplace to have representative models on display rather than comprehensive product range. The approach of having large sales yards through which customers can have walkthroughs and have reviews of multiple models at a glance is also non-existent. Salespersons typically tell only the broadest of the features and let the customers decide on purchases on their own. Much emphasis, on the other hand, is placed on media advertisements, often with celebrities to build corporate brand equity and develop product differentiation. Typically, therefore, a pre-decided customer enters a narrowly equipped dealership to make a purchasing evaluation without much choice.

Constituents of demand

This blog post hypothesizes that most consumer goods have three layers of demand. The first is a steady state replacement cum augmentation demand which is related to economic factors of the society in terms of population growth, GDP growth, job growth, purchasing power, urbanization, rural modernization, transportation needs and infrastructure growth. This may be called the economic demand. The second layer of demand relates to the pull of new products and models whereby superior technology as expressed in a number of design and performance parameters, including the styling of the car, create additional demand, for both replacement and augmentation, over and above the economic demand. This may be called technology demand. The third layer of demand is purely seasonal related to festive seasons, New Year sales or simply discounts. This may be called promotional demand. In an ideal industrial situation, the bulk of the demand should be driven by the economic demand with technology demand and seasonal demand providing impetus to move demand to the next trajectory.

In the context of India, with a population growth rate of 1.3 percent per annum and a GDP growth rate of 5 to 8 percent, and with all other parameters following a growth trajectory, the automobile demand can comfortably cruise at a rate of 10 to 16 percent. This has, in fact, been the trend too. However, the inter se ratios of economic demand, technology demand and promotional demand are sub-optimal. The author of the blog post believes that the economic demand must be 60 percent, technology demand 30 percent and promotional demand 10 percent of the total demand in an ideal socio-industrial situation. The author hypothesizes that in India, these proportions are at 60, 10 and 30 percent respectively. In other words, there is a strong manufacturer induced push to demand, which also tends to be seasonal. While the effectiveness of the marketing departments in creating such seasonal push is commendable, it needs to be further titrated in terms of its constituent push factors

Economic demand

The economic demand for automobiles is heavily driven by two wheelers, given the nature of income patterns, road conditions and inadequacy of public transportation. Nevertheless, passenger cars have emerged as a strong growth sector aided by new models. Looking to the future, there are both gloomy and bright sides to the likely movement of economic demand. The bright side is that the huge annual sales of 17 million two wheelers presents a huge opportunity to the car makers to double their sales to 5 million annually if only they are able to offer an economically viable alternative to the two wheeler usage. In addition, the trend to possess a second farm home or opt for weekend travels boosts the demand for a second car, especially in the utility vehicle segment. The gloomy side is that with the roads highly congested and parking spaces severely restricted, potentially the limits to growth in automobile population have already been reached. From an ideal perspective, the public transport must really be boosted in terms of both quantity and quality so that excessive use of automobiles, two wheelers at least, is moderated.

Given the current restraints, the economic demand can be sustained only if a significant part of it is taken over by replacement demand rather than augmentation demand. This paradigm is also closely linked to the industrialization or professionalization of the used car market. Rising oil prices, growing environmental concerns and the stricter emission norms (BS IV) would serve to enhance the demand for new cars as replacement with better performance characteristics, especially emission, fuel economy and drive. At the same time, unless more manufacturers and dealers come into the used car market in a big way (Toyota has made a good start with the UTrust program), it would be difficult to make used car sales a meaningful demand option (rather than a customer exigency option as is currently in vogue). The shape and scale of the replacement demand can only be sparked with appropriate technology strategies of the company, which would be reflected in terms of technology demand. In an ideal scenario again, the technology demand should funnel itself equally into replacement demand and augmentation demand.

Technology demand

Technology driven demand is what keeps the economic demand buoyant. While economic demand grows on sheer socio-economic factors (cars were indeed sold in India even technologically the models were outdated), it is the technological profile of the automobile that determines the level of technology demand. The smaller size (sub-four metre length) and fuel economy of the cars are often incentivized h through excise duty concessions by the government. This, often, presents a skew in the development of cars with relatively price-inelastic larger models being largely imported (as completely built units or kits) and only the lower end, mass produced cars being indigenously manufactured from the component stage. While at first glance this may seem appropriate for India’s economic and road conditions, lack of a manufacturing scale across the models does deter the Indian automotive industry from becoming globally competitive in future.

The Indian car industry is driven completely by global names. The good thing about this is the ready access of models and manufacturing plant. The challenging thing about this is the lack of indigenous R&D to the extent desirable. There is evidence from the track record of Tata Motors and M&M that investments in indigenous research and development do contribute to product development. Toyota Etios and Maruti Suzuki Ertiga are pointers to what customization to a market can accomplish in terms of product portfolio. If the parent corporations and the Indian subsidiaries arrive at a paradigm by which annual product updates and refreshes are developed locally and new model introductions are done globally, there could be benefit to local and global corporations as well as local and global consumers. The Indian industry should view local development as a clear strategy to achieve a larger technology induced demand, enhance replacement demand and finally keep integrating the technology demand into economic demand.

Promotional demand

Promotional demand to stimulate sales or clear stocks, or even pave the way for model upgrades is not unique to India. Even the most developed markets deploy the tactics most vigorously. The sharp drop in prices of Apple iPhone 4 and 4S ahead of the launch of iPhone 5 or the lowered pricing of the vintage BMW 3 series car in the wake of the new replacement are clear examples of firms realizing that customers are alive to new technologies taking shape. That said, long festive season promotion is an approach which is probably unique to India. The months of October to January typically emerge as the manufacturers’ sweet spot in terms of promoting higher demand on the plank of celebrations and auspicious occasions. When the seasonal promotion is combined with new product introductions, the marketplace can, in fact, turn lively. This festive season alone the Indian car manufacturers have begun the introduction of over 20 new models, some of them brand new introductions. Intensity of competition and increase of demand, coupled with lower prices could boost a seasonal increase in demand.

The manufacturers, however, have to seriously consider if the Indian automotive dealer infrastructure is geared to do justice to the promotion of multiple products. As mentioned earlier most Indian dealerships have little or no display yards as the dealerships in the West have, or the way even a space starved country like Japan has. The dealer showrooms can hardly display four or five models as compared to ten or fifteen which most manufacturers would have (ignoring the variants). The approach of salesperson explaining the full features on a dedicated basis is also, by and large, absent. Most dealerships do not also have customized sales and service solutions which recognize that a substantial proportion of cars in India is driver driven. This emerges as a blind spot given the increasing sophistication of the new breed of cars that are being introduced in India. Most promotion is done by manufacturers that too through newspapers and television advertisements, oftentimes with movie celebrities as brand ambassadors. The manufacturers would need to relook at dealer economics and enable a more holistic marketing, sales and service paradigm to integrate dealer point selling into the economic demand and technology demand processes.     

The three layer demand model

Automobile marketing is a complex amalgam of socio-economic factors, technological factors and consumer need factors. While the sheer power of economic development provides the motive force for the expansion of the Indian automobile industry, understanding the demand paradigm in terms of economic demand, technology demand and promotional demand as proposed in this blog post would help the automobile manufacturers, global and Indian, to come with proactive and responsive strategies that optimize the long term demand-production models. There is considerable talent in the country, economic, engineering and marketing, to sub-model each of the demand layers and come up with firm-specific strategies which could collectively foster healthy competition in the Indian automobile market, and also enable the Indian automobile industry achieve global competitiveness.    

Posted by Dr CB Rao on October 20, 2012

    

 

Process as a Determinant of Product: The Case of the Automobile Industry

There are certain industries where the fundamental configuration of the product is extremely difficult to change. Ever since the first true automobile was invented by Karl Benz in Germany in 1985/86 and the first mass scale production of the automobile was undertaken by Henry Ford in USA in 1910, the automobile technology has steadily reached new frontiers but the fundamental product characteristics of the automobile, from the shell and power train to the exteriors and interiors, remained the same. Somewhat wrongly, some technical experts attribute this to the conservative nature of the automobile designers, citing the developments such as supersonic aircraft and bullet trains in the adjacent segments of transportation, or the various other electronic products like smart phones and tablets that changed the lifestyles. That indeed is an uncharitable view.

The reason is that the automobile has to reckon in its design with a fundamental and immutable enabler as well as a constraint called road. The challenge and opportunity of an automobile is the existence of the road or the highway in which the automobile has to transport its passengers or cargo (notwithstanding the limited need for off-road transportation, which also only the basic design of automobile must satisfy). One may hypothesize a flying automobile but with automobiles being required in millions it simply is not an option. The automobile industry, willy-nilly, is the prototype of an industry where continuous improvements in product and process technologies rather than breakthrough transformations in product configuration set the tone for industrial progress. That said, continuous enhancements from the materials to product value chain, and transformational developments in other industries do offer synergistic opportunities for innovative product development in the automobile industry.

Product development

The passenger car has seen many product developments such as more powerful, fuel-efficient engines (from popular in-line to V engines, and relatively unsuccessful rotary engines), more seamless gear systems (from constant-mesh to synchromesh to automatic and continuously variable transmissions), more comfortable ride systems (from coil springs to parabolic springs to hydraulic and independent McPherson systems), less resistant drive systems (from manual to power steering), more safe and secure passenger environment (from seat belts to multiple airbags), more sturdy chassis (from welded constructions to pressed or hydro-formed monocoque construction) and so on. The engines have become versatile to accept virtually every kind of fuel (be it petrol, diesel, CNG or bio-fuel) or tandem with electric or hydrogen engines.

Simultaneously, significant changes have occurred in styling, from aerodynamic shapes to fluidic designs and from protective grills and bumpers to signature frontages and rear protectors. Optimized spatial designs, ergonomic seats, elegant trim, navigation systems, sensing systems, entertainment systems and connectivity options are seen as differentiators providing diverse value statements. As a result of all of the above, some of them driven by advances in electronics and telecommunication systems, cars began to be developed from sub-compact to super sedan as well as on-road and off-road as well as crossover options, with differentiated features. The world has today at least 40 major global manufacturers with a combined output of around 80 million vehicles. The population of vehicles on road is estimated to be around 1.1 billion.

Visible manufacturing processes

The process development paradigm in the automobile industry has both visible and invisible components. What is visible is the magnificent scale of changes in the shop floor technologies. The epoch making conveyor belt assembly of Henry Ford now looks basic compared to the impressive developments in flexible machining centers, robotic welding, mammoth presses, multi-level, synchronized sub-assemblies and assemblies, all in the umbrella of the famed Toyota Production System for reduced takt time, enhanced quality and optimized inventory. The design philosophy optimized manufacturing in terms of ladders of platforms that could support multiple overlapping models. It also epitomized a global manufacturing philosophy of multiple counties supporting globally unified products customized for diverse markets through innovative internal components.

As a result of such above approaches, the global automobile industry has become the text book of contemporary manufacturing management and a showcase of operational excellence practices. Manufacture of automobiles is seen as the seamless integration of planning, execution and delivery, across the entire value chain, from local to global centers of development and manufacture. This unique paradigm coupled with practices such as concurrent engineering which are uniquely developed and refined by the automobile industry to manage multi-year product development programs gave rise to the view that manufacturing efficiency is the essence of process development in the automobile industry. This visible part of process development is supported by a completely invisible component of technological process development that has changed the way components, aggregates and systems of an automobile are made. Automobile as a contemporary product is a resultant of the invisible process refinements, across the entire industrial value chain.

Invisible technological processes

While the manufacture of automobiles has many visible features as above, there exist several more invisible process innovations that are triggering product development in the automobile industry. For example, the process of combustion of fuel, be it petrol or diesel, in the internal combustion engine is at the heart of enhancing fuel efficiency and reducing environmental pollution. Fuel injection, sparking and combustion systems are continuously being developed to achieve the objectives. Complete heat recovery from the engines further optimizes energy consumption and usage. This paradigm is further supplemented by design of key components such as piston, crankshaft, camshaft and connecting rod to achieve lower weights, better balance and reduce frictional losses. In addition, the engine block itself provides, through superior boring and honing as well as liner technologies, potential to eliminate frictional losses, and also extend the life of components in the high temperature environments.

Matching innovations in manufacturing processes help optimize the rest of the aggregates too. Aluminum is now an integral part of chassis and body design and is helping reduce weight and enhance agility of an automobile. Gears and axles come with stronger basic materials and superior finishing and hardening processes to ensure smoother drives and longer lives under multiple conditions. Nanotechnology has been finding enhanced applications in a number of components and systems such as fuel cell catalysts, fuel cells, batteries, catalytic converters, polymer nanocomposites, electroceramics, nanoparticled tyres and other materials. Nanotechnology is also enhancing the life and elegance of bodyworks through better coatings, glazings, shields and in the overall, corrosion protective nanotechnology processes. More extensive use of nanoparticles and manufacture of nanomaterials and nanocomponents faces another process challenge; the extent to which nanoparticles can be contained in manufacture and the exposure limits to humans would determine the extent to which nanotechnology can be deployed.

From telematics to robotics

Processes of operating and benefitting from an automobile have seen, and will continue to see the integration of technological advances in electronics and telecommunications. In-vehicle telematics provides drivers with instant safety, security and communications services. Practical applications include global navigation systems, voice assisted driving directions, parking, acceleration and vehicle failure detection. Telematics-driven infotainment services include Bluetooth wireless and satellite radio. Future applications will include vehicle-to-vehicle communications to ensure vehicles keep a safe distance from each other to avoid and perhaps eliminate collisions. Automakers will be pressured to develop a global platform upon which vehicles are designed, engineered and produced, to leverage the most capital-intensive equipment and resources initially, and then customize and accessorize later for regional preferences. Perhaps most critically, car manufacturers and suppliers will need to embrace a long-term consumer vision to succeed, in the same way in which Apple has done with its iPod, iPhone and iPad products.

The future promises to be even more exciting. The car as known today and driven by a human being would be supplemented by video cameras, radar sensors, laser range finders, program logic controlled and software integrated driving systems to become a robotic car requiring no human intervention. Apart from enhancing seating capacity, robotic car technology when perfected would bring orderliness to roads and highways, enable productivity while on drive and eventually enhance safety by reducing accidents dramatically. Self-driving robotic cars will save time, fuel, cut traffic jams and prevent some of the estimated 1.2 million deaths that occur globally every year due to car accidents. “Safety is definitely the number one benefit,” says Sven Beiker, the executive director of the Center for Automotive Research at Stanford University. “ In 95% of accidents, human error is at least a contributing factor.” A self-driving car on the other hand cannot become distracted, take a phone call, fall asleep, or drive under the influence of alcohol.

Synthesis: process over product

Automobile as a product may not have changed so far, and may not be changing in future too in terms of a basic product structure. However, as a human-driven automobile has revolutionized transportation by substituting animal driven carriage, the existing human-driven automobile would in future be substituted by a self-driven robotic car. Such a car may include additional enhancements such as hybrid (oil-electric) engines, solar powered heating and cooling systems, and lighter but stronger materials. At the core of the product transformation is not a new product per se but a host of visible and invisible process innovations that change the specifications and operability of each component, aggregate and system of an automobile. Process innovations dictate the emergence of new materials even as new manufacturing processes enable the use of new materials on the shop floor.

The automobile industry has several interesting lessons for product designers, who have passion for new products and newer market ecosystems. When limitations on fundamental product transformation exist (as in the case of automobile) designers would do well to extend themselves as backward as possible to integrate process improvements. The smallest of the components can be redesigned to use newer materials, and render them stronger but smaller. The most complex of the systems can be reengineered to use electronics and telecommunications, and render them more efficient and seamless. Process improvements, integrating technologies from other domains could dramatically improve the product usage functionality and redefine the consumer ecosystem. Research and Development establishments must have exceptional process depth, for in several cases process could be a determinant of product!

Posted by Dr CB Rao on August 19, 2012