ArvinMeritor, Inc. Keynote Speech for Bill
Hunt At Global Powertrain Conference 2001
TROY, Mich., June 6 ArvinMeritor, Inc. keynote
speech for Bill Hunt at Global Powertrain Conference 2001, Cobo
Conference/Exhibition Center, Detroit, Mich., June 5, 2001:
(Photo: http://www.newscom.com/cgi-bin/prnh/20010524/ARVINLOGO )
Good morning.
When I joined Arvin Industries -- the world's largest exhaust systems
supplier -- in 1976, some of my friends questioned why I would choose to be in
a business that was based on the future of the internal combustion engine,
when it was "a sure thing" that we were going to run out of oil by 1990.
While a great deal has changed since then, a great deal hasn't! Although
reports of rising gas prices and short gas supplies again led the evening news
-- the internal combustion engine is still the power plant of choice -- both
today and for the foreseeable future.
Obviously, none of us can accurately predict the future -- even about
something that looks like a "sure thing" today. We all know that dramatic
change doesn't -- and cannot -- happen overnight in an industry as huge and
capital intensive as ours. That's just as true for the petroleum distribution
industry.
Although the emergence of alternative powertrains is both inevitable and
desirable, ArvinMeritor believes that the internal combustion engine -- be it
gas or diesel -- will be the most viable and economical source of motive power
well through the 21st century. However, there remains much to be done to
improve the internal combustion engine's fuel efficiency and emissions
performance, and sustain its life even further into the future. It is an
industry imperative that we do those things necessary to extend that life.
ArvinMeritor is committed to meeting the current needs of the consumer by
continuing our efforts in combustion engine development, as well as investing
in future technologies to meet the powertrain needs of tomorrow.
To make the kinds of incremental changes necessary to improve the internal
combustion engine, and sustain and extend its life, we must develop a systems
view toward powertrain development. This kind of broad, collaborative
thinking will have a significant impact on the relationship between OEMs and
suppliers.
This morning, I'd like to explore that relationship, how it is changing,
and how systems thinking can help us meet these new realities with confidence.
Let's take a look at systems thinking in our industry -- which Peter Senge
of MIT calls the "Fifth Discipline" -- from a historical perspective.
In the 1970s, many of us who were around know that the industry was
focused on components -- manufactured to OEM specifications by suppliers who
could be easily replaced by other eager suppliers. The automotive industry
was still attractive to new supplier entrants -- not true today. It was a
traditional arrangement in which the OEM maintained total control of design
and final assembly. Suppliers concentrated their efforts on price, quality,
on-time delivery and applications engineering. Suppliers were, in essence,
contract manufacturers building to customer blueprints.
In the '90s, OEMs and suppliers started working together in systems
development, and suppliers expanded their role by assuming system design and
engineering responsibility. At that time, suppliers began developing and
pushing broader, integrated systems made up of the components they had
previously provided, as well as many components they had not traditionally
manufactured or engineered.
While the potential for systems integration and systems control has yet to
be fully realized and full implementation of systems thinking is a work in
progress, indications are that full systems thinking will dominate the
industry within 20 years. By then, OEMs will be concentrating their efforts
on defining, developing and marketing the vehicle and its final assembly,
rather than focusing on the design of vehicle systems and system assembly.
The result could be an effective, mutually beneficial partnership between OEMs
and suppliers. This partnership should ultimately benefit the consumer by
reducing total system cost and ensuring the freshest system technology.
When we take a look at the automotive industry as a whole, there are a
number of trends that affect OEMs and suppliers, and are driving the systems
approach. These trends include:
* Globalization and consolidation of OEMs and suppliers,
* Outsourcing of OEM in-house production,
* Green issues -- from fuel economy and emissions to recyclability,
* Cost and profitability pressures at all levels -- which discourage new
investment,
* Increased regulatory requirements -- safety, emissions and CAFE, and
* Reduced development time, enabling increased speed to market
While these industry trends are encouraging the move toward systems,
systems thinking is not yet a universal trend. There are significant cultural
and social -- not to mention contractual -- barriers to its full
implementation.
Because of this fluid state, there is no uniformity of deliverables
required of the supplier across the industry and around the world. Moreover,
the evolution to logical systems definition is currently challenged by the
organizational structure of the OEMs, their existing infrastructure and the
aforementioned contractual barriers.
OEMs continue to depend on components or subsystems in most applications,
and the move toward full systems varies not only from one OEM to another, but
from one vehicle system to another. Older, less flexible manufacturing and
engineering operations present geographic and legacy obstacles at most OEMs.
Just where OEMs are on the broad continuum between components and full systems
implementation also varies depending on the technology, time and freedom
available to develop those systems.
We at ArvinMeritor understand this internal complexity and accept the
challenge of working with each OEM -- at their pace -- to build integrated
systems and modules that add value.
Adding maximum value is key to all of us. The more value we add, the
greater the psychological and financial satisfaction across the board. We
must move toward systems development as quickly as possible, because our old
ways are killing value-creation opportunities.
Developing systems -- rather than engineering individual components --
reduces the time and cost of the development process, a primary focus for
every OEM and supplier. Duplication of effort is virtually eliminated.
System integration issues are dealt with during the design process rather than
later in the development cycle. Working together in this way, we can reduce
overall costs and improve quality and performance.
Simply stated, systems thinking reduces complexity and simplifies the
development process, thereby reducing costs, improving quality and increasing
speed to market.
For example, not too long ago, we evaluated an OEM project and discovered
that they were using 11 different Tier One or designated Tier 2 suppliers to
provide components for a complete exhaust system on a particular vehicle!
Development time -- numerous iterations and lengthy communication between the
OEM and these various suppliers (including ArvinMeritor) -- was long and
costly.
You can imagine -- or give personal testimony -- as to how difficult it is
to manage these complex interfaces!
As you can see from this visual example, combining air intake and exhaust,
and using one supplier to develop one expanded system cut the development time
in half.
Now, let's get into specifics and examine how systems thinking can have an
impact on the entire industry. We'll use powertrain as an example, not only
because it is the focus of this conference, but also because the powertrain
concept illustrates how a number of subsystems work together.
The modern powertrain is a family of systems that involves the
interrelationship and control of a number of interfacing subsystems.
Addressed with systems thinking, customer performance demands, as well as
emissions and fuel efficiency regulations can be better met.
Let's consider some of the trends that are being seen in a number of
powertrain subsystems, such as those dealing with:
* Motive power,
* Emissions,
* Transmission,
* Braking,
* Suspension and
* Electrical power
As I have said before, ARM believes that customers will continue to want
the ICE as a source of motive power well into the 21st century. As stated in
a recent report by MIT, ICE will be a "moving (improving) target" to which all
other alternatives are compared. There will be further and significant
improvements to today's baseline ICE technology. Some of these technologies
-- such as variable valve timing, independent valve and cylinder operation and
control, and improved combustion and emissions after-treatment processes,
using direct injection and turbocharging -- are already either commercialized
or on the verge of commercialization.
These technologies can significantly improve ICE performance, emissions
and efficiency when properly interfaced and controlled. The opportunity is
great, but we must pursue it together to satisfy our consumers.
We believe that hybrid technology will offer a sensible and feasible
motive power option. Its penetration will be driven by regulation, as well as
by consumer preference.
Elements of a conventional drivetrain, augmented by electric motors and
batteries, offer improved fuel economy and lower emissions through reduction
of the internal combustion engine size and recovery of available energy. We
do foresee further and continuous improvements in energy recovery, power
control and battery technologies to improve the performance and affordability
of hybrids and to enhance its market penetration.
Fuel cells have received considerable attention from transportation and
distributed power industries within the last few years. A number of OEMs are
working with both traditional automotive suppliers and formerly non-automotive
suppliers to commercialize this technology. Although significant hurdles
exist in the transportation market, fuel cells also offer promise for the long
term.
ARM foresees significant advances (and opportunities) in emissions
technology, in the near future. There is important ongoing research to clean
up the spark-ignition and diesel engine emissions, utilizing pretreatment and
improved after-treatment devices. These devices, coupled with the
advancements in the combustion process will form the basis for the "next-
generation baseline" internal combustion engine. Systems suppliers, like ARM,
are looking forward to integrating these technologies into their systems,
while minimizing the impact on powertrain performance and overall system cost.
Leveraging Meritor's leading heavy truck position with Arvin diesel
exhaust technology is a key focus for ArvinMeritor. The graph you are seeing
demonstrates the heavy-duty diesel engine emissions reduction strategy
designed to meet future U.S. and European regulations. The chart is fairly
complicated, but the main point here is that we must reduce each variable (NOx
on the X axis and particulate emissions on the Y axis) by an order of
magnitude. And both variables must be reduced simultaneously!
Obviously, this presents an extraordinary challenge. However,
ArvinMeritor's light vehicle diesel emissions technology -- which we developed
and delivered in Europe -- provides us with a distinct competitive advantage.
Advances in automated transmission technology -- including ZF Meritor's
FreedomLine transmission -- provide significant opportunities to integrate
motive power, braking, traction, suspension and engine control. The result is
optimal vehicle stability, fuel efficiency, performance and emissions
reduction.
The industry continues to make progress in improving braking systems. It
is critical, however, that suppliers understand the complete functionality of
this system and the relationship to the powertrain in order to effectively
impact stopping distances. This is the key focus in our truck braking systems
business.
Active and semi-active control of suspension and damping functions affect
pitch, roll and yaw -- and their rates -- as well as ride height control. In
addition, improved suspension technology promises to enhance vehicle
stability, speed and efficiency. ArvinMeritor's light and commercial vehicle
suspension groups are leaders in this area.
Finally -- and probably the most important powertrain element -- we turn
to the electrical system, which ties all the other elements together and
provides control over:
* The engine,
* Transmission -- automatics, manuals and CVT,
* Torque distribution to wheels,
* Braking and traction, and
* Steering stability control
In addition, advances in motor/generator set performance and the
development of the 42-volt system provide significant opportunities for
performance and control of powertrain elements. These developments are driven
by the increasing power demand of "green" and convenience features.
So, what does all this mean to suppliers?
How has the price of entry changed?
Suppliers who intend to survive in the coming economy must be ready to
address these trends, including the issue of globalization and the importance
of developing and leveraging global resources. Suppliers must also address
"green" issues in a timely, competitive fashion, as well as develop the
technological expertise -- or partner with others -- to yield the integrated
systems demanded by the OEMs.
As for the differences in how business gets done from one geographical
location to another, a number of factors come into play. Those factors
include differences in the markets themselves, each with different needs and
tastes, including driving preferences and road conditions from country to
country, as well as rules, regulations, and taxes, which vary considerably
across the globe.
Cultural differences must be taken into account, as well, and varying
levels of sophistication play into a company's success in meeting
international consumer tastes.
Add differences in product quality, due in part to differences in the
levels of technical sophistication from place to place, and the complexity of
doing business on a global scale becomes quite a challenge.
As president of ArvinMeritor, I'm often asked, "Just what does it mean to
be a 'global' automotive supplier today?"
Obviously the answer isn't simple, but I usually share an example that
illustrates the complexity of a global operation in today's constantly
changing business environment. First, we must be able to meet the needs of
the consumer in each region of the world. At the same time, we must leverage
geographic capabilities.
For example, at ArvinMeritor, we manufacture a manifold for the VW Beetle
that was conceived in Warton, U.K., developed and produced as components in
Finnentrop, Germany. Key components are shipped, assembled and incorporated
into production in our exhaust plant in Mexico. The Beetle is then sold to
customers in the U.S. and Canada, and, finally, to customers back in Germany.
Managing that kind of complexity is what global automotive suppliers must be
prepared to do every day.
As we've said, suppliers are also being asked to rise to the challenge of
being systems thinkers. That means enhancing supplier expertise in
understanding systems architecture, as well as in the design, development and
testing of integrated systems.
"Green" issues once were limited solely to environmental concerns. Now
"green" concerns impact all aspects of vehicle design and production.
Suppliers must now manage a number of additional attributes, including
recyclability, efficiency and emissions. In addition, green now has universal
implications, requiring a detailed life cycle analysis.
We are particularly proud of ArvinMeritor's recent breakthrough designs
for the first mass-produced titanium exhaust system for the Corvette Z06.
Besides significantly reducing weight without sacrificing performance, the
titanium exhaust system is 100 percent recyclable.
Finally, a supplier's technological competencies are put to the test in a
global business environment. Critical mass and system depth are critical to
defining and understanding interface opportunities in today's environment.
That critical mass includes software and hardware tools, as well as complete
systems testing capabilities.
In developing the integrated corner module, for example, ArvinMeritor also
developed technical capabilities for vehicle dynamic stability and control;
active and passive systems; and algorithm development.
It must be said, however, that the most important factor in successful
technological partnering is the integrity of early communications between OEM
and supplier. There must be no "distortion" between "transmitter" and
"receiver," with each party providing open, complete information.
Few organizations possess all the knowledge, capabilities and resources to
do business on a global scale. That's why there is a widespread industry
trend toward alliances, joint ventures, acquisitions and consolidations. When
successful, these agreements not only add an important global presence to an
organization, but also provide additional resources that expand a company's
technology, market access and product line.
ArvinMeritor has a strong track record for establishing and maintaining
successful joint ventures and alliances. We also work closely with a number
of technical institutes and universities around the world. As a result,
ArvinMeritor is stronger technically and has significantly greater market
penetration than if we had not entered into these agreements.
We also know that being a global organization with deep bench strength
provides us with the flexibility to be more responsive to customers' needs --
wherever they do business.
Here are some examples of how ArvinMeritor combines its strength with
other strong companies to provide superior products and customer service.
* Volvo (heavy duty axles)
* ZF Meritor (transmissions)
* Temic (electronics)
* PSI (tire inflation system)
* Meritor WABCO (brakes)
* Arvin Sango (exhaust)
* Sommer Allibert (interior trim)
* Zeuna Starker (exhaust)
* Arvin Kayaba (suspension)
So what does all this mean to the powertrain industry? It means that OEMS
and suppliers must understand that we all have a great deal at stake. In an
increasingly complex, competitive business environment, the implication of the
OEM-supplier relationship has direct bearing on our reputation with our
ultimate customer: the vehicle buyer.
This relationship touches every aspect of vehicle safety, design,
performance, control, emissions, operation and durability. Warranty costs
affect all of us at the bottom line -- especially in decreased customer
loyalty and satisfaction.
Systems thinking fosters solid working partnerships. I am confident that
by adopting a systems approach to the design and manufacture of motor
vehicles, we can enhance our ability to build the kinds of products that
customers will buy -- and buy again.
What must we do to make systems thinking a reality?
First, we must ensure that we, the suppliers, have fully demonstrated the
capabilities necessary to do the job. The supplier must be credible.
Consistent, credible performance builds trust, which we all know is uneven
in many OEM-supplier relationships. The supplier community realizes that we
need to meet the quality and timing targets of the OEMs to gain trust. Of
course, we would also welcome opportunities to communicate more openly with
the OEMs with respect to pricing, and the protection of our intellectual
property. We would like to see a more intimate relationship between the OEM
engineering and purchasing communities, focused on total cost and total value.
Together, we can change. As trust in suppliers grows, OEMs must respond
with openness and complete information, letting us become involved earlier in
the design and manufacturing process. This kind of systems thinking and
cooperation can affect the lifeblood of OEMs and suppliers: the customer.
I challenge the powertrain industry to learn to work differently. To re-
examine priorities and resolve conflicts that become stumbling blocks to
staying competitive.
We need to have purchasing and engineering teams working together to
achieve the ultimate goal of improving the product and reducing cost.
Let's break the cycle of distrust and turf wars, and build strong, effective
partnerships that will benefit us all.
If OEMs and suppliers learn to work differently -- together -- to serve
our ultimate customer, we all win.
And that's as close to "a sure thing" as you can get these days.
In closing, I'd like to share this video we produced recently for an on-
site customer technology fair. It sums up what I've been saying about the
virtually limitless potential of systems thinking, and also gives you a little
insight into ArvinMeritor's commitment to rising to the challenge of providing
well-engineered, integrated systems to our customers.
Thank you.
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