by Abraham Pannikottu and Dr. Jon Gerhardt
American Engineering Group, Akron, OH
Global competition, fuel efficiency, warranty issues, federal safety & emission
requirements, and U.S. customer vehicle preferences have deeply influenced the market
trends in U.S. automotive industry. These business issues brought more vehicle models
to the market. Proliferation of vehicle models has reduced the average sales per vehicle
with important consequences on the OEM manufacturing sector. OEM’s have responded
by adopting “modular” and “flexible” production technology in the assembly plants.
OEM have also increased the outsourcing of components, even sharing the burden of
research and development with preferred suppliers.
The major emphasis of this review paper is on the trends of automotive components in
the U.S. markets – OEM and aftermarket. However, since much of the business is now
global, world-wide automotive component market trends are also discussed.
The U.S. automotive market size is growing at a rate of 1.5% with U.S. passenger vehicle
(light truck and passenger car) production at 12 million in 2007. Currently, the U.S. has
185 million passenger vehicles on U.S. roads. Automotive component outsourcing needs
in the USA is growing at a faster pace due to both OEM and aftermarket demands.
U.S. automotive OEM and major suppliers (Tier 1) business trends are towards forming
alliances and joint ventures. This is mainly due to the modular production approach.
Suppliers are now an important part of the vehicle development and manufacturing
process, rather than being a standard supplier to OEM specification. US Auto Alliance
urges the suppliers to invest in following areas to be competitive in global economy:
• Field testing,
• Mechanical engineering analysis,
• product safety testing,
• new product testing
• new product development,
• rapid product development,
• product design and manufacturing,
• specialty product manufacturing,
• product failure analysis,
• failure mode and effect analysis
• failure mode analysis,
• rapid prototyping,
• product development consulting firm,
• product development firm,
The impact on the component industry will be the continued emphasis on improved
durability, performance, quality, value, and innovation.
The primary impact explored in components will be in five areas: 1) Performance; 2)
Durability; 3) Quality; 4) Value; and 5) Innovation.
U.S. automotive companies want outsourcing manufacturing partners to introduce
innovation into their process, help manage cost and service, and use relevant and
emerging technology. U.S. companies also demand the outsourcing supplier companies
understand their specific requirements and business.
Lean manufacturing, Just-in-time(JIT), Zero Defects, Six Sigma, Continuous
Improvement, and Computer Aided Design/Engineering/Manufacturing
(CAD/CAE/CAM) have revolutionized entire U.S. automotive industries and
dramatically reduce operating costs while improving quality, competitiveness, and
productivity. Now, these same principles are also being translated to the development and
marketing of new products.
Computer-Aided Design, Engineering and Manufacturing (CAD/CAE/CAM) are tools
that help reduce costs and shorten the design, prototype and production cycle. These
computer-aided tools can also help to incorporate Six Sigma, Lean manufacturing and
Just-In-Time (JIT) in the supplier processes bringing credibility to new design concepts.
Supplier should utilize these tools to provide a manufacturing solution by bringing new
automotive components to the marketplace in the shortest possible time, with the lowest
cost, and highest quality.
CAD/CAE/CAM are becoming more popular as a standard analysis tools in the
automotive industry for design, failure and manufacturing process analyses. Another
notable reason for this popularity is the recent changes in automotive specification
requirement for parts comprised of new materials or designs. The automotive industry is
trying to make components that could withstand 300,000 miles (10 years) of minimum
The automotive OEM companies have been changing their way of doing business.
Traditionally the automotive companies would design and develop a product, perform
comprehensive testing, send prints and specifications to suppliers for quotes. The most
cost competitive supplier got the business. To remain competitive on a global basis, the
automotive companies now are relying on their suppliers to provide product design,
analysis, testing and manufacturing. This is an evolution of the old supply and demand
chains into new one-to-one supplier relationship. In the past, it may have been enough to
have the lowest cost. Now, a supplier must have world class quality, excellent service,
low cost, be globally competitive and deliver just in time. In order to obtain these goals, it
is essential that manufacturers reduce their product development design cycle time. They
should shorten the time necessary to introduce a product to the market. CAD/CAE/CAM
is tremendous productivity tools for the suppliers to create, test, modify and manufacture
Automotive suppliers could arrive at the manufacturing costs of the part by considering
the following items:
• PART #: The part number being quoted.
• PART NAME: The name of part being quoted.
• DWG LEVEL: The change level of the drawing provided by the customer for quoting.
• RFQ #: Request for Quotation.
• SUPPLIER NAME: Name of the company quoting the part.
• PLANT LOCATION: The location where the supplier intends to manufacture the part.
• CURRENCY: The local currency of the manufacturing facility.
• EXCHANGE RATE: The exchange rate upon which the quote is based.
• VOLUME QUOTED: The anticipated yearly volume of the part for production.
• TOOLING CAPACITY: The number of parts that can be produced from the tooling
• @ HRS/DAY: the number of hours per day that the tools will be running to reach the
tooling capacity stated above.
• @ DAYS/WEEK: The number of days per week that tools will be running to reach
capacity stated above.
• PREPARED BY: The name of the individual who completed the piece price breakdown
• ITEM DESCRIPTION: Identify the material and type of that material and / or identify the
name of the purchased component that will be used in manufacturing of the part being
• GROSS WEIGHT PER PART: Identify the unit of measure and how much of that unit it
takes for one part ( I.e., kg/pc ; lbs/pc ; components/pc)
• UNIT PRICE: Identify the cost per unit of each material / component. ( $ / kg ; $ / lb ; $ /
• SCRAP WEIGHT PER PART: Gross weight minus net weight is scrap weight.
• SCRAP PRICE: Identify the cost per unit.
• SCRAP RATE: Percentage of scrap for each material.
• OPERATION / DISCRIPTION: List each operation required to manufacture the part being
• LABOR RATE: Identify the base direct labor rate for each operation. Note if fringes are
included in the labor rate or in the burden detail.
• STANDARD MIN: Identify the time it takes for one part to be processed; this can be
show as standard minutes or by the hourly production rate.
• LABOR COST: Multiply the LABOR RATE / 60 by the STD MIN or LABOR RATE divided
by the hourly production rate
• VARIABLE COST: Identify the portion of burden cost per hour which varies directly with
activity level (I.e.:indirect material,power,supplies,freight,etc.)
• FIXED COST: Identify the portion of burden cost per hour which remains constant
regardless of change in activity level (i.e.:depreciation, supervisory
• PROFIT: Percentage
• PACKING AND FREIGHT COSTS
This will enable every auto OEM manufacturer to break down the final cost very clearly
and will also make the quoting process more transparent. This will also provide an easy
medium for every supplier all around the world to follow.
American demand for vehicle is increasing and changing with increasing strength of the
end consumer. In the past 10 years, the US vehicle industry has switched from a seller’s
market to a buyer’s market, leaving many US automotive component suppliers caught
with unsustainable business needs and requirements from the OEM. This major transition
between old and new supply-demand business models brought new challenges for
automotive component outsourcing from India and China.
It is an accepted fact that Computer-Aided Design, Engineering and Manufacturing
(CAD/CAE/CAM) has an important role to play in the industry as a tool for design
analysis and manufacturing process simulation. CAD/CAE/CAM can be used as a
powerful tool for design of products and manufacturing equipment. CAD/CAE/CAM
provides a detailed analysis of proposed design before making the final prototype which
will improve the chances of getting it right the first time in a cost effective manner.