Posts Tagged ‘design’

Is Chrysler Destined to Repeat Errors?

November 22nd, 2010 Comments off

The Wall Street Journal today had a piece about an effort by Chrysler to market it’s new Fiat 500 model by offering so many options for customers that they may be creating excessive strategic risks as a result. 

The car, which goes on sale in January, will be available in three versions—”Lounge,” “Sport” and “Pop”—offering 14 exterior colors, 14 seat colors, six wheel styles and a range of graphical designs that can be applied to the car’s body panels, allowing customers to make their Fiat just about the only one of its kind.

All told, there will be about a half a million combinations, Chrysler says.

The title of the article includes the phrase “options overload” to describe this situation.  The decision to offer customization of the Fiat is to try to appeal to those that want a car that is an exact fit for their wants or needs.  It ignores, however, the fact that most customers want to take their new car home with them immediately.  If that were not true, car dealers would not have 500 cars each on their lots tying up capital.  It sounds like Chrysler has done a nice job redeploying an existing plant to allow for greater customization, but they will still produce cars that are not special-orders to keep the plant running and that is where the risk lies. 

Too many choices also can leave dealers holding lots of cars but not the exact one a particular customer is looking for — a recipe for losing a sale, said Mark Rikess, an auto dealer consultant based in Los Angeles. That’s because most customers don’t want to wait for the model they want to be shipped from another dealer or custom-made at the factory.

“We are an instant-gratification society,” said Mr. Rikess. “About 80% of car buyers expect to drive off the lot with their new car that day.”

For the last several years, car makers have tried hard to bundle features so they can produce a dozen or so versions of a vehicle that will satisfy most buyers. That limits the complexity on the factory floor and dealership lots.

To allow customers to order specialized models, Chrysler has retooled the plant in Mexico where the 500 is being built. Scott Garberding, Chrysler’s manufacturing chief, said the factory has been set up to move special orders to the front of the manufacturing queue.

Suppliers have be asked to keep more parts on hand so they can more quickly build a seat or interior combination and ship it to the plant within a few hours, Mr. Garberding said. The plant also will use a paint system that will allow a faster changeover in colors.

Still, some customers may have to wait 30 days or more to get their custom-ordered car.

For those who don’t want to wait, the company plans to hold a pool of the most popular versions that can be customized with features added at dealerships, such as stripes and checkerboard decals on the roof.

Read more of today’s article at:

Options Overload for Fiat’s 500 — Buyers Offered 14 Colors, Six Wheel Styles, Decals; Will It Leave Orphan Cars? Jeff Bennett. Wall Street Journal. (Eastern edition). New York, N.Y.: Nov 22, 2010. pg. B.1

Furthermore, I was reminded of a couple articles from 2007 when I read about Chrysler’s plans in today’s paper.  I managed to dig these up thanks to D2L not being purged yet from way back when.  Both of these are examples of car companies not being focused on customer wants/needs…we’ll have to see if Chrysler can execute its strategy today to avoid the errors exhibited only a few short years ago.  Read these pieces for some examples of what has happened before when car companies have tried to guess what customers wanted and “orphaned” models lingered on dealer lots as a result (to be sold only after massive discounting).

Lots of Vehicles — Big Dealer to Detroit: Fix How You Make Cars; AutoNation CEO Sees Inventories Rising Fast; The Big-Wheel Problem. Neal E. Boudette. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 9, 2007. pg. A.1

 One of the toughest problems facing the ailing U.S. car industry stems from Detroit’s century-old business model, which dates to Henry Ford’s mass production of millions of largely identical Model T’s. Rather than build cars to suit customer tastes, U.S. auto makers churn out what makes sense for their plants, and then use incentives and rebates to lure buyers.

Another piece about the auto industry not being focused on the customer.  This one is a letter to the editor that was in the Wall Street Journal in February 2007.  Same song, different day…

I Wrestle Chrysler for a Wrangler, Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 24, 2007. pg. A.5

Volkswagen to make U.S. push

October 5th, 2010 Comments off

The Wall Street Journal today has an excellent front-page article documenting some missteps made by Volkswagen in the United States market that has resulted in VW claiming a paltry 2.2% market share along with plans to turn that around in an effort to become the world’s largest automaker by the end of the decade. One of the ideas being implemented is designing, for the first time, a car to specifically meet American tastes rather than selling what works in Europe in North America in nearly identical form.  This is interesting to me because I’ve read elsewhere that Ford is taking the opposite approach trying to produce car models that are virtually identical no matter where in the world they are sold.  VW also risks, in the process, alienating the small but devoted following that it currently has.

“A lot of people worry that we are going to start making VWs for the masses,” says Mark Barnes, VW’s U.S. chief operating officer. “I like to say we’re going to bring the masses to VW.”

The retooled compact sedan marks the first time VW engineers have designed a model specifically for the U.S.

Next year, a new family-size sedan is scheduled to roll off the assembly lines at a newly built $1 billion plant in Chattanooga, Tenn. It is VW’s first U.S.-made car since the 1980s. On its heels comes a revamped New Beetle.

“I am fully aware that Volkswagen was too cautious for too long in North America,” Volkswagen Chief Executive Martin Winterkorn said at a test-driving event for the new Jetta in San Francisco this summer. His remark was a nod to the car maker’s decades-long penchant for deploying cars designed for European tastes across the Atlantic. That left its U.S. operations with models too small and expensive to go head-to-head with Asian and American rivals. Now, he vowed, “we have turned that upside down.”

Adding to the challenge is the constant change at the top in VW’s American operations:

Adding to the challenge is an unanticipated switch at the helm of VW’s U.S. operations.

In June, Stefan Jacoby, a blunt-spoken German who took to wearing cowboy boots to dealer meetings and car shows, left his post as U.S. chief to become Volvo Cars’ new chief executive. His departure came just a week after he presented the new Jetta at a splashy launch party in Manhattan’s Times Square featuring pop singer Katy Perry. VW bosses scrambled much of the summer to fill the void left by a key architect of its American comeback strategy.

Mr. Jacoby’s replacement, former General Motors executive Jonathan Browning, is new to the U.S. market, having spent most of his career at GM’s European operations and managing Jaguar under Ford Motor Co.

Some U.S. dealers complain that the revolving door of U.S. chiefs—Mr. Jacoby was the third to go in five years—reflects a culture at VW’s headquarters in Wolfsburg, Germany, that views the U.S. as a career way station, or worse, graveyard.

Assuming that the leadership and design challenges can be met, there is still the issue of getting Americans to notice.  Marketing has been ramped up to target certain demographics such as Hispanics and families, but the results thus far appear to be mixed.  Before reading this article, I didn’t even know that Volkswagen offered a minivan even though my family purchased a Toyota Sienna less than a year ago. In an interesting partnership with Chrysler, VW rabadges the American van as it’s own with some minor tweaks but production had to be halted due to low sales.

After dropping plans for a modern version of its Microbus for fear it would be too niche and costly, it signed a deal with Chrysler to modify and rebrand the U.S. car maker’s Town & Country minivan under the VW Routan name. VW tightened the minivan’s suspension, gave it a sleeker front end and kept it in the same price range as the Chrysler. With an ad blitz featuring Brooke Shields, it aimed to capture 5%, or 45,000, of the 700,000 annual minivan market.

But the Routan’s launch coincided with the auto industry’s nose dive in late 2008. So many of them sat unsold on VW dealer lots last year that the auto maker asked Chrysler, which builds them at its Windsor, Ontario, plant, to temporarily halt production. While much of the rest of the minivan market has rebounded, Routan sales have slipped 0.8% to 12,539 vans so far this year, one-seventh of the number of Town & Country sales in the same period.

VW officials argue that the Routan has enabled them to sell to a key new customer segment. The company still expects the Routan’s market share to grow as more consumers become aware of it as a minivan option.

But Casey Gunther, VW’s top-selling U.S. dealer, says the Routan isn’t what people expect from VW.

“It’s like someone trying to sell you a piece of chicken and claiming it was a steak,” Mr. Gunther says.

VW, he argues, could achieve its 800,000 sales target, “but we need to elevate the brand with products that play up our heritage,” such as the Microbus concept or VW’s sporty Scirocco, which it sells only in Europe. “There are so many people out there who love the lifestyle VW represents,” Mr. Gunther says. “I’m worried we’ve turned into a follower and not the leader.”

There are countless other great examples in this article that address things we discuss in class like strategy, international competition, product design, and more.  It is not a short piece, but is well worth the read when you have 10-15 minutes.  Seeing where things are at in 2, 5, or 10 years will be even more interesting.

Volkswagen Aims At Fast Lane in U.S.. Vanessa Fuhrmans. Wall Street Journal. (Eastern edition). New York, N.Y.: Oct 5, 2010. pg. A.1

Toyota Changes How It Develops Cars

July 11th, 2010 Comments off

Here is a very timely article about how Toyota is challenging its engineers to focus on quality at the design phase to avoid issues later on.  As mentioned in class with regard to quality and costs, often the best (or only) place to make changes that have a true impact is at the design phase.

Toyota Motor Corp. is stretching out how long its new models are tested before they go into production and reducing the number of outside engineers it uses in a bid to overcome a spate of quality problems.

Randy Stephens, a senior Toyota engineer based in Ann Arbor, Mich., said company executives recognize that there were quality issues with the last generation of vehicles, which were developed while the company was in a global-growth mode. Executives began talking about making changes nearly a year ago, he said, but the recent recall problems have spurred the company to act.

Toyota is going to increase the lead time for development but also simply the number of options (on such things as engines) to make the focus of the engineers.  Interestingly enough, the article mentions that costs will increase but obviously Toyota feels that the benefits of increased quality will outweigh this cost increase.

In addition to extending product-development lead times, Mr. Uchiyamada and his engineering team have decided to cut the number of engine and other key-feature variants and options to simplify and narrow the scope of engineering work, allowing engineers to focus more on quality.

Toyota may also further reduce the use of virtual engineering and begin using more vehicle prototypes. Doing so extends development time and increases costs.

And finally, my last observation is with Toyota bringing certain work back in-house that they have been outsourcing.  Recall that when we talked about decision making and make/buy situations that quality concerns were one of the non-financial factors that companies need to consider before decided to outsource.  It seems that Toyota feels that they can do a better job themselves rather than farming out this work.

The company is also working to bring development work that had been sourced to outside engineers back inside. Some outside engineers actually work side by side with Toyota’s engineers inside Toyota research and development centers. But using contractors has led to a breakdown in communication and potential misunderstandings, Mr. Stephens said.

Toyota Alters Car Development — After Quality Problems, It Stretches Out Testing of New Models, Cuts Number of Outside Engineers. Mike Ramsey, Norihiko Shirouzu. Wall Street Journal. (Eastern edition). New York, N.Y.: Jul 6, 2010. pg. B.1

Time Bandit: Nicolas Hayek, CEO of Swatch Group

June 18th, 2010 Comments off

Periodically, the Wall Street Journal prints a glossy print magazine called WSJ. that they insert inside the newspaper on a Saturday.  I typically pitch it because it seems kind of “high-end” and I don’t find the Rolls Royce advertisements and fine wine articles to match my tastes (or, more importantly, my budget).  But I was alerted to an article from the magazine that came out last week when I stumbled upon it today.  It is an interesting profile of Nicolas Hayek, a man credited with saving the Swiss watch industry by beating Japan at the design game.

We spend some time talking about design and the fact that certain things can only be impacted at that stage to lower costs.  An example is designing a product that uses fewer parts.  This is exactly what Hayek did in the early 1980s when Swatch became a sensation:

As for the cheap Swiss watch, it already existed. Hayek discovered that two ETA engineers, Elmar Mock and Jacques Müller, had developed a quartz watch with 51 components (as opposed to 151 in the Japanese model). Using automated manufacturing techniques, the watch could be locally produced and sold for under $50. “He was not from the watch industry,” Mock says, “but he had a vision of the vast potential of the project.”

Read more at the link below:

Time Bandit: Nicolas Hayek, CEO of Swatch Group – WSJ. Magazine – WSJ.

Cut Costs Without Cutting Meaning

February 17th, 2010 Comments off

Some great thoughts in this short piece from Harvard Business Review on topics that we discuss in several points during the semester. From cost analysis and cost cutting to product design and emotional impacts of products and marketing, many factors are impacted (even though they aren’t always considered) when decisions are made.  Recently many companies have been creating stripped down products with a “value” focus to appeal to recession-weary consumers.  A good example of this was detailed in a post I made last August about Tide Basic.  For some companies, this might be a great plan in the short-term, but it potentially carries great risk in the long-term.

Cost cutting needs to be done surgically and with great care.  The bigger the brand-name the more care that is required or there is great risk that the brand will be damaged.  During hard economic times some companies are cutting costs wildly just to maintain sales volume, but the true test may be when recovery begins and consumers once again have more freedom to choose products on the basis of how they are made to feel rather than on cost alone.

In reaction to the Great Recession and the forecasts that consumer demand in the US, Europe, and Japan will remain anemic for the foreseeable future, many companies are focusing on stripped-down “value” products. In doing so, they risk making a big mistake: Assuming that consumers in hard times care more about utility and low price and less about the emotional and social dimensions of products.

While people, of course, do care about price, they care even more about how products give meaning to their lives. Even when they are pressed financially, they do not want to feel poor. So the challenge for companies is to cut costs without cutting meaning.

Cut Costs Without Cutting Meaning – The Conversation – Harvard Business Review.

HP Simplifies Designs & Leverages Their Value Chain

September 24th, 2009 Comments off

HP_logoThe second section of today’s Wall Street Journal had a piece about the efforts of HP the past few years to develop a cut-rate laptop computer that sells for $298 at Walmart.  Clearly pulling this off required substantial thought and careful analysis of costs to make sure that such a product didn’t lose money.  A couple things in the article, in particular, caught my eye as being strongly related to the concepts we discuss in class.

First, at several points in the HDFRI textbook, we discuss the idea that there are costs that are “designed-in” or “locked-in” during the design stage.  Decisions about how many parts there are, how those parts get assembled, the materials that are required, any special tools that are needed, etc. all are made very early in the process and once those costs are “baked-in” they can not be eliminated/reduced.  In HDFRI Chapter 12, specifically, we talk about the fact that very often the design of a product needs to be entirely retooled to effectively reduce costs to any great degree.

In the Value Chain module, we discuss the cooperation between value chain members and the advantages such cooperation can have for multiple parties — an advantage that could not be leveraged by one one firm acting alone.

H-P laid the groundwork for its move into the low-end of the PC market two years ago, said people familiar with the matter. At the time, H-P changed how it ordered PC parts and how it ships PCs to sellers, among other things, these people said.One change was to reduce the designs used for the skeletons of notebook PCs, said these people. “Simplifying the specifications of the product” saves money by allowing contract manufacturers to make large numbers of the same product, said Lorcan Sheehan, a consultant with ModusLink, which advises H-P and other PC makers.

Another change H-P made was to work more closely with retailers like Wal-Mart to forecast PC demand. By getting orders in earlier, H-P could save on component and manufacturing costs, which are cheaper if they’re ordered far in advance.

Another aspect of the article is that Walmart wanted to sell computers at very low prices, but rather than just accepting whatever the PC manufacturers offered at those prices, they took the time to learn the features that customers valued and those that they didn’t and they made trade-offs of eliminating some features in order to meet their price targets.  There are elements here of Target Costing, which we also discuss in Chapter 12.

Wal-Mart specifically wanted to sell a full-size PC for back-to-school-season at around the price of a netbook, which are sub-$500 mini-laptops, said Wal-Mart’s Mr. Nzigamasabo.

Wal-Mart surveyed customers to see what kinds of tradeoffs in performance they were willing to make for a discount machine, said Mr. Nzigamasabo. For example, he said, students were willing to give up battery life, but not a CD drive.

Wal-Mart passed on its findings to PC companies and later reached deals with Dell for a sub-$400 laptop, and Toshiba Corp. and Acer for sub-$350 laptops. H-P beat those vendors with its $298 machine.

Once again, often times looking at “real life” scenarios makes the concepts that we discuss in class and through the textbook easier to understand.  I think this article does that for several things that we will cover this semester.

H-P Wields Its Clout to Undercut PC Rivals. Justin Scheck. Wall Street Journal. (Eastern edition). New York, N.Y.: Sep 24, 2009. pg. B.1