Essay, Pages 7 (1515 words)
INDUSTRIE PININFARINA: THE NEW CUSTOMER DECISION
Should Bertrandi accept the order from Mitsubishi? What are the challenges involved? Studying from the foresighted point of view, Bertrandi should accept the prestigious contract from Mitsubishi of producing Pajero. This would not only provide opportunities to Pininfarina (a niche manufacturer) for further modernizing the production facilities but will also provide learning in productivity improvement, increased quality, better inventory control and space utilization, reduce waste – and all in Japanese way (considered to be the best and meticulous in automobile industry).
Heavy revenues for Pininfarina were estimated to be around 900 billion/year over the life of the project. Pininfarina received a proposal from Mitsubishi in July 1995 and volume production of new model to begin by May 1999. Challenges Involved in accepting the contract: Adapting – Mitsubishi proposed that Pininfarina adapt the design and manufacture in Italy for all Europe. The major design work would be in adding a left-hand drive model and in adapting the process design to Pininfarina’s capabilities.
Pininfarina had to adapt the process to its facility (designing an appropriate flow and layout) and to adapt certain processes to a more labour – intensive system. This would be more in Weld shop (BIW) since Japanese have tendency to place robots in Weld shop. Contract details – Though the basic characteristics of proposal were clear but details were not fully specified. It was understood that decision to proceed will have to be taken with many details not completely specified or loose ends.
This also means some hidden costs or unknown terms & conditions will have to be accounted for to minimize effect of surprises at later stage.
Moreover, Bertrandi is hoping to achieve production costs below Mitsubishi’s target cost in order to earn additional profit. Heavy investment – Total investment were expected to be in the range of ? 300 billion. Capex of general purpose equipment was in the range of 10% to 15% of total investment. Risk of buying general purpose equipment and robots lies with Pininfarina. There would be an apprehension that after the expiry of contract whether these equipments would be of much use as contract duration is 5 years. Unfamiliar suppliers – Pininfarina would have to procure other parts only from Mitsubishi preferred vendors located in Europe which would pose challenge to Pininfarina, they being unfamiliar suppliers. Pininfarina was responsible for parts supply and negotiation of prices with them and moreover, volumes needed were much less which made negotiation for price and delivery difficult.
What major changes in facilities; equipment; people; systems will be required if Pininfarina accepts the order? Working Philosophy – Foremost important thing for Pininfarina to realize is that they need to change their attitude/thinking, working style, procedures according to the Japanese automobile manufacturer’s methodologies in addition to making any physical changes (people, facilities or equipment/tooling). This being Pininfarina’s first contract with any Japanese manufacturer and the operating and management styles of both are different.
Complete new production facility would be required for producing Mitsubishi Pajero – Land acquisition, Weld shop, trim facility, sufficient parking space. Design changes – for European models. Product and process design changes for manufacturing European model of Pajero. As a consequence of process change main change would be required in Weld Shop (BIW) which is addition of more robots.
Equipment/Tooling changes – Use of Japanese design and production tools – refined jigs & fixtures, tools, work methods would be in place prior to commencement of production.
Mitsubishi Pajero will be painted in the paint shop located at main production facility (Grugliasco). Many changes and new systems will have to be made as following: ) Since BIW will be transported from Pajero production facility to paint shop in main production facility (at Grugliasco) and back, additional logistics would have to be organized.
Paint shop would have to run for additional shift to cater to the demand. Presently, it is running at full capacity. Due to frequent changing of paint color, cleaning of painting system will have to be changed from solvent based to water based as there are restrictions from Italian pollution control regulations.
Two-tone painted model of Pajero will require additional space to dry and store vehicles during interval between two stages. More human resources will be required to meet the demands of new contract.
- About 150 suppliers will be added to Pininfarina’s list. More staff will be required to control new suppliers.
- Even more staff will be required to handle complex outgoing logistics.
- Estimated 600 additional direct workers and 200-240 additional indirect workers would be required for factory production.
- Moreover, to recruit these additional staff/workers Pininfarina would require few new members in human resource department itself.
What are the real problems encountered by Pininfarina? What are the opportunities provided by Mitsubishi order?
Additional logistics – will have to be organized for transporting BIW from Pajero production facility to paint shop in Grugliasco and back for further completion in trim facility. Above mentioned transfer also means that extreme care will have to be taken while transporting BIW as they should not get damaged (not even a scratch) while loading/unloading, transit, etc. In order to meet Italian pollution control regulations, Pininfarina is forced to use water based cleaning of painting system instead of using solvent based. Due to high volume production and frequent changes of car color, Pininfarina is crossing the acceptable limits of using solvent. Two-tone painting option of Pajero would require additional space to dry and store vehicles in between painting stages. This space would have to created. High quality standards – It was believed that Mitsubishi might demand extremely low defect level to the extent of one-fourth the level of Pininfarina’s existing customers. Extensive planning in Logistics & Inventory – required for mechanical parts supplied from Japan and other parts sourced from European countries. Long supply chain from Japan, days of inventory at port, Contingency plan in case of strike or port closure. Supply chain within Europe – most distant supplier 900kms away, many of them outside Italy and most distant being in UK. Negotiations with unfamiliar supplier (since Mitsubishi preferred) for price and delivery was Pininfarina’s responsibility. High lead time of 46 days for parts required Pininfarina to forecast sales in advance. Outgoing logistics would also be more complex than usual since Pininfarina would be shipping greater volumes to dealers in major European markets. Heavy recruitment would be required for raising workforce over a period of time.
Mitsubishi contract for Pajero production will present many learning opportunities to Pininfarina like – productivity improvement, lesser material handling, increased quality, better inventory control & logistics and space utilization, reduce/eliminate waste. It was anticipated that work methods, jigs & fixtures, tools would be refined from Japan before beginning production. The same can be implemented by Pininfarina in production of other models also. Prospect of being able to compare with world-class volume manufacturers since Japanese designs and production tools & processes will be used. Exposure to many new quality suppliers for different parts which again can be used/developed by Pininfarina for other model manufacture.
Since they are Mitsubishi approved vendors, they are expected to follow Japanese production methods and quality standards. Question 4: Comment on the fundamental & far-reaching changes adopted by Pininfarina to improve its manufacturing performance, when it faced a crisis in 1992.
IMPROVEMENTS IN 1992
Pininfarina conducted rigorous negotiations with labor union. The resulting accord was viewed as new model for Italian labor relations. It called for early retirement and ‘temporary’ layoff of some 435 blue-collar employees i. e. 50% of the total workforce. Two major changes were also introduced to improve operational ability to the levels of Japanese model while adapting to Italian conditions. 1) Pininfarina introduced a work team system modeled on the Toyota NUMMI plant including systems to track morale and elicit suggestions for improvement. 2) A training program was provided to shop-floor workers and new workers comprising of two components: a) Technical skills – Skills were built in specific operations and techniques. b) Interpersonal skills – Workers were given training in interpersonal skills to develop the capability of the workforce to work in teams. Quality initiative – Instead of addressing the quality problem on a running production line, which will lower the production, its better to place highly skilled people at the end of line for repairing. At the same time, work towards fixing the source of problems. * Vendor Development – Number of suppliers were reduced from 650 (1991) to 350 (1993) on the basis of – meeting the Pininfarina’s predetermined design specifications, more capable suppliers, concentrating volumes in fewer suppliers, with whom Pininfarina worked more closely.
Advantages of reduced suppliers:
- Increased frequency of deliveries
- Increased quality level while decreasing the total amount of combined inspection
- Improved purchase prices
Better inventory levels To take leverage of newly attained production skills/levels due to extra capacity created by productivity improvements, Pininfarina decided to add new major customer in late 1994. Pininfarina marketed itself in auto industry for new business in product design or manufacture, sometimes proposing joint development of prototype design projects.