Are Automobile companies doing enough to optimize Cost?
Automobile is a fiercely competitive industry, most companies are struggling to be in the BLACK, Ford and GM are registering losses year after year, but same time Toyota and Honda continue to register profits. What is it that they do differently? Are there things that we can learn? Yes, Toyota and Honda have managed costs better and use it to fuel growth.
Increased regulations and alternate fuel technology is going to take a lot of investment, therefore companies have to re look at their cost structures and generate enough profits for future investment.
Companies are Outsourcing, Shifting manufacturing facilities to LCC or Contract Manufacturing and benefitting from that, but what companies require is a more wholistic and integrated approach, look at impact of an activity across the value chain and lifecycle of product.
Companies have to look at every element of cost and look at reducing it, be it product development cost, material cost, inventory cost, marketing cost, employee cost or warranty Cost.
Let us take a look at the impact of a relatively low cost line item like warranty - the difference in warranty cost as a % of revenue between the best (Toyota) and worst (Daimler Chrystler) is a around 3%, Daimler spent $6.1 bn as against $2.37bn of Toyota, where as General Motors’ warranty cost was $4.46 bn and Ford $4.10 bn. Toyota clearly saved over $2 billion on warranty alone which it could invest in new product development for e.g Hybrid cars.
Daimler, Ford , GM could add 2 to 4 billion on their bottom line if they managed their warranty cost better (not by reducing warranty term but increasing Quality and Reliability) .
Image the savings that can come from big ticket item. Are companies doing enough? Are they thinking differently? Are they pushing their boundries? Are they thinking innovatively? Are they collaborating with partners?
Comments
Good article
Posted by: anil | June 24, 2008 11:14 AM