Modular Manufacturing in the Automobile Industry: Dana Leads the Way
Box, Thomas M., Watts, Larry R., Journal of the International Academy for Case Studies
Dana Corporation, a worldwide manufacturer of components and subassemblies for trucks and cars, opened its 76,000 square foot Campo Largo plant in July 1998. The plant is something of a gamble, but probably a good one, based on the revolution going on in worldwide truck and car manufacturing and the explosive growth of the auto industry in Brazil since 1994. The rolling chassis concept attributes to Dana's long experience as a chassis supplier to Mack Truck and Chrysler's Extended Enterprise concept that began in the early 90s. It is the most advanced example of modular manufacturing in the automotive industry and has important implications for the entire structure of the industry in the next few years.
Modular manufacturing began, in the United States, at Kaiser Shipbuilding during World War II. Kaiser engineers and operations management personnel discovered that the production and launch of Liberty ships could be speeded up by pre-assembling "modules"--sections of the ships -and then welding them together in the final assembly phase. Kaiser engineers were very successful in this endeavor as exemplified by the lead time for final assembly of Liberty ships that got down to 4-5 days near the end of the war! Following the war, Japanese shipbuilders incorporated modular manufacturing in the construction of super tankers (for crude oil) and the cost savings allowed the Japanese to dominate this industry in a period of just a few years.
Modular manufacturing, in general, suggests that parts of the value chain may be economically "outsourced" to other firms. In many instances, the supplier firms provide prototype development, engineering, manufacturing and assembly of components and entire systems. The advantage to doing this is that the buyer is relieved of inventory management problems and costs, while the supplier firms benefit from application of their special expertise in selected parts of the value chain.
Dana is one of the world's largest independent suppliers to vehicle manufacturers and the aftermarket. Founded in 1904 and based in Toledo, Ohio, the company operates some 320 major facilities in 33 countries and employs more than 82,000 people. Dana reported sales of $13.2 billion in 1999. Operating profits were $678 million and Dana has not missed or reduced a dividend payment in 65 years and will pay its 249th consecutive dividend in March 2000 (Dana Corporation, 1999).
Much of Dana's recent success attributes to the Five-Point Plan that articulates the near term tactics necessary to achieve the strategic plan titled "Beyond 2000". The Five Point plan includes the following elements:
1. Grow while focusing on returns and maintaining financial discipline.
2. Seek strategic, "bolt-on" acquisitions at reasonable valuations.
3. Divest non-strategic and non-performing operations.
4. Repurchase stock as the company generates cash; and
5. Complete integration efforts and realize synergy savings.
Dana is organized into seven Strategic Business Units: Automotive Systems Group ($4.5 billion revenue in 1999), Heavy Truck Group ($1.9 Billion), Off-Highway Systems Group ($800 million), Automotive Aftermarket Group ($3.0 billion), Fluid Systems Group ($1.2 billion), Engine System group ($1.4 billion) and Dana Commercial Credit. The Automotive Systems Group (ASG) "houses" the Rolling Chassis plant at Campo Largo. ASG employs 26,000 people in 20 different countries. Key products, in addition to the Rolling Chassis, are axles, drive shafts, brakes, clutches steering and suspension components and systems. Their primary markets are passenger cars, light trucks, vans and SUVs. The top five customers are Daimler Chrysler, Ford, GM, Isuzu and Volkswagen.
Dana's financial performance over the last few years has been quite satisfactory; unfortunately, despite year-to-year growth in revenue and profit, the stock market has not rewarded the firm with stock price appreciation. …