Supply Chain Metrics That Matter – A Focus on Auto Parts Companies 19 SEP 2017

A Focus on Auto Parts Companies
A Seven-Year View of Progress on Supply Chain Excellence
9/19/2017
By Lora Cecere
Founder and CEO
Supply Chain Insights LLC
and Samuel Borthwick
Research Associate
Supply Chain Insights LLC
Supply Chain Metrics That Matter

Contents
Research
Disclosure
Executive Overview
A Closer Look at the Industry
A Closer Look at Auto Parts Manufacturers’ Growth
Value
Performance
Cash-to-Cash Cycles
Industry Focus
Recommendations
Conclusion
Appendix
Other Reports in This Series
About Supply Chain Insights LLC
About Lora Cecere
About Sam Borthwick
Endnotes
3
3
4
6
11
13
14
15
16
27
28
29
30
31
31
31
32

Research
Supply Chain Metrics That Matter is a series of reports published throughout the year by Supply
Chain Insights LLC. Each report in the series is a deep analysis of supply chain performance within
an industry. This report focuses on the Auto Parts industry for the period of 2010-2016. Here we
analyze how companies made trade-offs to balance growth, profitability, cycles and complexity.
Within the world of supply chain management, each industry is unique. We believe it is dangerous to
list all industries in a spreadsheet and declare a supply chain leader. Instead, we believe supply chain
excellence needs to be managed with a focus on a balanced portfolio of metrics, over time, by peer
group. In this series of reports, we analyze the potential of each supply chain peer group, share
insights from leaders within each industry, and give recommendations based on general market
trends.
Disclosure
Your trust is important to us. As such, we are open and transparent about our financial relationships
and our research process. This independent research is 100% funded by Supply Chain Insights.
These reports are intended for you to read, share, and use to improve your supply chain decisions.
Please share this data freely within your company and across your industry. All we ask for in return is
attribution when you use the materials in this report. We publish under the Creative Commons
License Attribution-Noncommercial-Share Alike 3.0 United States and you will find our citation policy
here.

Executive Overview
While our last report, Supply Chain Metrics That Matter – A Focus on Automotive Companies,
focused on the shifts in the auto market—electric vehicles, autonomous cars, and shared car
ownership—the challenge of the automotive parts industry is keeping up with the technological
innovation of automotive assembly brands. As new cars emerge based on artificial intelligence
technology and electric engines, the variety of auto parts is expanding and supply chain processes
are becoming more complex. Complexity and innovation challenges reliability. The past decade
experienced an exponential shift in repair and warranty issues stemming from a myriad of quality
problems
To better understand the industry in relation to supply chain management, let’s start by looking at it
within the larger context of the automotive value network. As shown in Table 1, the impact of the
recession, with an attendant decrease in consumer spending, drove growth rates of 10% in the
aftermarket parts industry. This is more than double the growth rates of the other industries included
in the table for the automotive value network.
Table 1. Industry Overview of Trends for the Period of 2010-2016

Over 4,000 suppliers are required for final car assembly. Many of the leaders in this industry, and
outlined in this report, are unknown names by the average consumer or stock trader, but their
contribution is vital to the automotive value chain. Many are 1/3 or ¼ the size of their downstream
automotive assemblers. During 2010-2016, no major automotive company initiated and executed a
value network platform. The Covisint supply chain operating network was largely a failure.
In this industry, there are more sticks than carrots. Over the course of the last decade, the sticks
became bigger and the carrots smaller. As a result, all the elements of cash-to-cash degraded and
costs and inventory increased. While data is shared freely, supplier and/or buying relationships are
largely adversarial. The automotive industry lacks supplier development programs, innovation
networks, and collaboration on shared outcomes. The traditional model with a focus on sticks and
buyer penalties is a barrier to change and driving value.
Autonomous vehicles and electric cars will drive massive change. In the past, the automotive parts
industry manufactured standard parts continuously. Parts were updated to match newer models. This
is changing. The arrival and growing popularity of electric vehicles will double the amount of batteries
sold to consumers.

A Closer Look at the Industry
When we first started the research on the Supply Chain Metrics That Matter report series, we
believed that through the combination of an investment in technology, people, and process,
companies could drive results as shown in Figure 1. As will be seen in this report, this is not the case
in the automotive industry.
Figure 1. Driving Performance Improvement
In the automotive parts industry, Autoliv Inc. (Autoliv) is the supply chain leader. In our 2017 Supply
Chains to Admire research, Autoliv drove greater metrics improvement, and higher performance in its
supply chain, than any other competitor in the auto parts industry
To understand the Supply Chains to Admire methodology, let’s take a closer look at the concept of
orbit charts. In Figure 2, the performance of Autoliv and WABCO Holdings are charted with year-over-
year performance at the intersection of inventory turns and operating margin. The patterns are used
to define supply chain excellence.
WABCO manufacturers vehicle controls, and Autoliv makes safety systems. As can be seen in Figure
2, the average operating margin for Autoliv for the period of 2010-2016 is 8%, while WABCO
Holdings is higher at 12%. Inventory turns for Autoliv are 10 versus 9.6 for WABCO Holdings.

Figure 2. Orbit Chart of Autoliv Inc and WABCO Holdings
So why, you might ask, do we believe Autoliv’s performance is better than WABCO’s, when WABCO
has a much better operating margin for the period? The patterns tell the story. It is a story of supply
chain resiliency. The tight pattern of continuous improvement makes Autoliv a winner. The wide
performance swings of WABCO Holdings show a lack of metrics control.
The Supply Chains to Admire, and the Metrics That Matter, research rewards companies that show
improvement while outperforming their peer groups. Companies with tight upward patterns at the
intersection of the metrics are highlighted as winners, while companies with wide swings and
backward progression are penalized.
Patterns of supply chain metrics come in many different forms. Note that in Figure 3, Gentex, an
electro-optical company is performing at a higher level of value, with an operating margin of 26% and
inventory turns of 95.1. However, Gentex’s performance in inventory shows a sharp downturn in

2007-2009. Gentex is less resilient than Danaher. (Danaher is a provider of tools and motion-sensing
equipment.) While Danaher is a recognized leader in Lean process management, which leads to
more reliable behavior, they are not driving the level of performance of Gentex. Danaher’s
performance is at a lower level, with greater reliability.
Across the industries, companies struggle to balance improvement with performance. The stronger
the performance of a company, the harder it is to drive improvement. An analogy is that of a lean
athlete in top performance. When individuals train, it is easier to drive lean muscle mass for the unfit.
For a top tier athlete, the rate of performance improvement is slower.
Figure 3. Orbit Chart of Gentex Corporation and Danaher
In a similar manner, note the patterns of Johnson Controls and Valeo. There is continuous
degradation in Johnson Controls’ performance, and steady improvement in Valeo’s operating

margins. While our methodology rewards improvements in a balanced portfolio of operating margin
and inventory turns, few would argue that Valeo is performing with a preferred pattern to Johnson
Controls.
Figure 4. Orbit Chart of Johnson Controls and Valeo
To help companies understand supply chain excellence through the insights of orbit chart
performance, we developed the Supply Chains to Admire analysis. An overview of the methodology is
shared in Figure 5, with a more complete discussion in the full Supply Chains to Admire 2017 report.
The only company to meet the criteria of driving improvement, and outperforming on a balanced
portfolio of metrics, while posting value higher than their peer group in the auto parts industry is
Autoliv Inc.

Figure 5. Overview of the Supply Chains to Admire Analysis
Figure 6. Winners of the 2017 Supply Chains to Admire Analysis

Note the short list of 24 companies for the 2017 Supply Chains to Admire Award winners. In the
automotive value chain, only Autoliv, Bridgestone, and Fuji Heavy Industries made the list.
A Closer Look at Auto Parts Manufacturers’ Growth
Through the Great Recession consumers slowed the rate of automotive purchases and focused on
maximizing vehicle life to preserve their investment. While we shared performance patterns in Figures
2-4 to help the reader, in Table 2 we contrast growth with improvement in the Metrics That Matter as
measured by the Supply Chain Indexi. The Supply Chain Index is a vector analysis of improvement at
the intersection of operating margin and inventory turns, and growth and Return on Invested Capital.
Table 2. Growth and the Supply Chain Index in the Automotive Parts Industry

Gentherm, LKQ Corp, and Motorcar Parts of America enjoyed the highest levels of growth. However,
there is also no correlation between growth and improvement. While most industries show greater
rates of performance improvement with higher growth rates, this is not the case in the auto parts
industry. Much of this can be attributed to the integration of new product launch, and other horizontal
processes like S&OP and supplier development. The auto parts industry is still rather immature in
supply chain practices, lagging the high-tech and electronics industries.
Post-recession growth was 50% of pre-recession sales. This is due to more and more consumers
holding onto cars longer and maximizing the value of the asset.

Value
Traditional supply chain leaders focus on costs, not on value. There is no industry-standard definition
for value. Here we share the results on two value metrics: market capitalization and Price to Tangible
Book Value. For the industry, the Price to Tangible Book Values are low. Danaher is the top
performer based on reliability.
Table 3. Company Overview of Market Capitalization and Price to Tangible Book Value

Performance
Cost improved while inventory turns steadily declined from 2004 through 2016. This is due to a
continuous focus by upstream assemblers to reduce procurement costs and push inventory back into
the supply chain.
Inventory turns were at 10.3 during the 2007-2009 period while revenue growth was at a staggering
1%. There are many factors. Auto companies pushed Just-in-Time programs and forced the suppliers
to hold more inventory, while the complexity of platforms and make/models increased the cost of
components.
Table 4. Company Overview and Performance for Automotive Parts Companies

Cash-to-Cash Cycles
Cash-to-cash is a compound metric that combines Days of Receivables, Days of Inventory, and Days
of Payables. The formula is:
𝐶𝑎𝑠ℎ − 𝑡𝑜 − 𝐶𝑎𝑠ℎ = 𝐷𝑎𝑦𝑠 𝑜𝑓 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠 + 𝐷𝑎𝑦𝑠 𝑜𝑓 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 − 𝐷𝑎𝑦𝑠 𝑜𝑓 𝑃𝑎𝑦𝑎𝑏𝑙𝑒𝑠
In Table 5 we share the impact of supply chain decisions on the components of cash-to-cash. As
receivables increased from downstream customers, the industry elongated payables, improving cash-
to-cash. The impact penalizes their suppliers.
The industry is regressing on all three factors of cash-to-cash. This is largely due to the buy/sell
relationship with the automotive brand owner. Over the decade, costs, inventory, and cash
requirements were progressively pushed backwards in the value chain. This value chain is ripe for a
redesign to improve value versus a focus on mitigating costs.
Table 5. Impact on Cash-to-Cash Elements

Industry Focus
To get a flavor for the industry, we comb through annual reports to consolidate supply chain related
trends. This allows the reader to “hear the voice of the industry.” Significant trends for the period of
2014-2016 were a scramble for growth in the expanding Chinese market, an increase in recalls and
warranty issues, coping with globalization, increasing regulation, and the management of suppliers.
The primary focus was reducing costs.
Note that no industry player during this period made a significant improvement in building a value
network with their suppliers. Using portals, and EDI documents for data sharing, the industry is ripe
for change. Here we share relevant excerpts from annual reports:
2014
Autoliv Inc.
Starting in 2014 we put further focus on globalizing our products and processes through our “one product one
process” (1P1P) strategy. This combined with initiatives to reduce costs for components from external
suppliers, ensures that we continuously optimize our supply base footprint, consolidate purchase volumes to
fewer suppliers, improve productivity in our supply chain, standardize components and redesign our products.
In 2014-2016, raw material commodity cost was reduced by around $90 million compared to the beginning of
2014. To reduce labor costs while offsetting the price erosion on our products, we continuously implement
productivity improvement programs, expand production in Best Cost Countries [BCC] and institute restructuring
and capacity alignment activities. The productivity improvements in Autoliv’s manufacturing were
approximately 6% for every year during the last three-year period. This is well in line with our productivity
improvement target of at least 5% per year, which helps us to partly offset the price reductions to our
customers. The level of employees in the BCCs has increased to 75% in 2016 from 74% in 2014. These
changes, in combination with our restructuring activities and several other actions, were almost enough to
offset the market price erosion during the three-year period. As a result, total personnel costs in relation to
sales in 2016 were unchanged at 22.4% from 2014, despite a higher number of engineers and technicians to
support investment in R,D&E and vertical integration.
The number of vehicles recall in the automotive industry has risen sharply over the last few years, beginning in
2014, a year influenced by a massive recall of the General Motors ignition switch. In 2015 and 2016 the Takata
airbag inflators recall created further record years. Although we continue to strive for the highest quality in our
processes, it is difficult to predict future significant recalls. We expect overall recall numbers to remain high for
years to come, and it cannot be ruled out that we may be adversely impacted by a future recall. For Autoliv
quality has always been our number one priority and we continue to sharpen our focus in this area. We now
command a market share of 39%1
1
Annual Report 2014, February 19, 2015, p. 12, https://www.autoliv.com/Investors, accessed August 28, 2017

Gentex Corp.
Automotive Industry 97% of our net sales are to customers within the automotive industry. The automotive
industry has always been cyclical and highly impacted by levels of economic activity. The current economic
environment, while improving, continues to be uncertain (especially in Europe and the Japan and Korean
markets, which collectively are larger for us than North America as shipping destinations) and continues to
cause increased financial and production stresses evidenced by volatile production levels, volatility with
customer orders, supplier part shortages, automotive plant shutdowns, customer and supplier financial
issues/bankruptcies, commodity material cost increases, consumer preference shift to smaller vehicles, where
we have a lower penetration rate and lower content per vehicle, and supply chain stresses. If automotive
customers (including their Tier 1 suppliers) and suppliers experience bankruptcies, work stoppages, strikes,
part shortages, etc., it could disrupt our shipments to these customers, which could adversely affect our
business, financial condition, and/or results of operations. Automakers continue to experience volatility and
uncertainty in executing planned new programs, which result in delays or cancellations of new vehicle
platforms, package configurations, and inaccurate volume forecasts. This challenge makes it difficult for us to
forecast future sales and manage costs, inventory, capital, engineering, research and development, and
human resource investments.2
Supply Chain Disruptions Due to the just-in-time supply chains within the automotive industry, a disruption in a
supply chain caused by one or more of our suppliers and/or an unrelated tier one supplier due to part
shortages, natural disasters, work stoppages, strikes, bankruptcy, etc. could disrupt our shipments to one or
more automakers or Tier 1 customers, which could adversely affect our business, financial condition, and/or
results of operations.3
Company net sales increased by $72.3 million, or 7% compared to the prior year. Automotive net sales
increased by 6% on a 10% increase in auto-dimming mirror shipments, from 23.8 million units in 2012 to 26.2
million units, primarily reflecting increased overall penetration of auto-dimming mirrors. North American
automotive mirror unit shipments increased 6% in 2013 compared with the prior year, primarily due to
increased penetration of the Company’s exterior auto-dimming mirrors, as well as a 5% year over year
increase in North American light vehicle production. International automotive mirror unit shipments increased
13% in 2013 when compared with the prior year, primarily due to increased penetration of both interior and
exterior auto-dimming mirrors to certain European and Japanese automakers, in spite of flat vehicle production
in Europe and a 4% decline in vehicle production in the Japanese/Korean markets on a year over year basis.4
WABCO Holdings Inc.
Most of our manufacturing sites and distribution centers produce and/or house a broad range of products and
serve different types of customers. Currently, approximately 69% of our manufacturing workforce is located in
best cost countries such as China, India, Brazil and Poland up from approximately 45% in 2007. Facilities in
best cost countries have historically helped reduce costs on more labor-intensive products, while the facilities
in Western Europe are focused on producing more technologically advanced products. However, the
increasing need for more advanced products and systems in emerging markets leads us to expand local
2
Annual Report 2014 Products That Look Out For You, February 23, 2015, p. 19, ir.gentex.com/financials-and-filings/annual-reports-
and-proxy-statements, accessed August 28, 2017
3
4

supply chain capabilities to progressively cover more complex manufacturing. All facilities globally are
deploying Six Sigma Lean initiatives to continuously generate productivity and improve service levels. By
applying the Six Sigma philosophy and tools, we seek to improve quality and predictability of our processes.
Lean is geared toward eliminating waste in our supply chain, manufacturing and administrative processes.
Methodologies are customer driven and data based. In addition, our global supply chain team makes decisions
on where to manufacture which products taking into account such factors as local and export demand,
customer approvals, cost, key supplier locations and factory capabilities. Our global sourcing organization
purchases a wide variety of components—including electrical, electromechanical, cast aluminum products and
steel, as well as copper, rubber and plastic containing parts—that represent a substantial portion of
manufacturing costs. We source products on a global basis from three key regions: Western Europe, Central
and Eastern Europe, and Asia. To support WABCO’s continuing shift of manufacturing to best cost countries,
we also continue to shift more of our sourcing to best cost regions. Under the leadership of the global sourcing
organization, which is organized around commodity and product groups, we identify and develop key suppliers
and seek to integrate them as partners into our extended enterprise. Many of our Western European suppliers
are accompanying us on our move to best cost countries. Since 2007, the share of our sourcing from best cost
regions has increased from 36% to approximately 44%. We have developed a strong position in the design,
development, engineering and testing of products, components and systems. We are generally regarded within
our global industry as a systems expert, having in-depth technical knowledge and capabilities to support the
development of advanced technology applications. Key customers depend on us and will typically involve us
very early in the development process as they begin designing next generation platforms. We have
approximately 1,874 employees dedicated to developing new products, components and systems as well as
supporting and enhancing current applications and manufacturing processes. Our sales organization hosts
application engineers that are based near customers in different regions around the world and are partially
resident at some customer locations. We also have significant resources in best cost countries where we
perform functions such as drawings, testing and software component development. We operate test tracks in
Germany and India as well as in Finland for extreme weather test conditions.5
Allison Transmission
Our manufacturing strategy provides for distributed capability in manufacturing and assembly of our products
for the global commercial vehicle market. Our primary manufacturing facilities, located in Indianapolis, Indiana,
consist of approximately 2.3 million square feet of usable manufacturing space in six plants. We also have
established customization and parts distribution in the United States, The Netherlands, Brazil, China, Hungary,
India and Japan, and plants in Chennai, India and Szentgotthard, Hungary. Our high volume on-highway
products are produced in multiple global locations while off-highway, hybrid-propulsion and defense tracked
products are produced in Indianapolis.
A significant amount of the part numbers that make up our transmissions are purchased from outside
suppliers, and during 2014, we purchased approximately $750.0 million of direct materials and components
from outside suppliers. The largest elements of our direct spending are aluminum and steel castings and
forgings that are formed by our suppliers into our larger components and assemblies for use in our
transmissions. However, our spending on aluminum and steel raw materials directly and indirectly through our
purchase of these components constituted approximately 10% of our direct material and component costs in
2014. The balance of our direct and indirect materials and components costs are primarily composed of value-
added services and conversion costs. Our supply contracts, along with an intensive supplier selection and
performance monitoring process, have enabled us to establish and maintain close relationships with suppliers
5
WABCO 2014 Annual Report, February 19, 2015, p. 9, http://ir.wabco-auto.com/annuals-proxies.cfm, accessed August 28, 2017

and have contributed to our overall operating efficiency and industry-leading quality.6
In 2014, approximately 75% of our total spending on components was sourced from approximately 40
suppliers. All of the suppliers from which we purchase materials and components used in our business are fully
validated suppliers, meaning the suppliers’ manufacturing processes and inputs have been validated under a
production part approval process (“PPAP”). Furthermore, there are only a limited number of suppliers for
certain of the materials used in our business, such as corrosion-resistant steel. As a result, our business is
subject to the risk of additional price fluctuations and periodic delays in the delivery of our materials or
components if supplies from a validated supplier are interrupted and a new supplier must be validated or
materials and components must be purchased from a supplier without a completed PPAP. Any such price
fluctuations or delays, if significant, could harm our profitability or operations. In addition, the loss of a supplier
could result in significant material cost increases or reduce our production capacity. We also cannot guarantee
we will be able to maintain favorable arrangements and relationships with these suppliers. An increase in the
cost or a sustained interruption in the supply or shortage of some of these raw materials or components that
may be caused by a deterioration of our relationships with suppliers or by events such as natural disasters,
power outages, labor strikes, or the like could negatively impact our business, results of operations and
financial condition. Although we have agreements with many of our customers that we will pass such price
increases through to them, such contracts may be cancelled by our customers and/or we may not be able to
recoup the costs of such price increases. Additionally, if we are unable to continue to purchase our required
quantities of raw materials on commercially reasonable terms, or at all, if we are unable to maintain or enter
into purchasing contracts for commodities, or if delivery of materials from suppliers is delayed or non-
conforming, our operations could be disrupted or our profitability could be adversely impacted.7
2015
Autoliv Inc.
Our One Product One Process ("1P1P") strategy towards global standardization picked up momentum in 2015
with the new operating model in place. The objective is to improve management of our cost base by reducing
complexity in our products, components and manufacturing processes. Doing this, we aim to: Improve total
cost to increase profitability; apply lessons learned to increase robustness and prevent incidents; and create
increased customer satisfaction and value. With 1P1P we drive standardization and cost reduction in our core
products and customer features without sacrificing the need for customer variations in our product designs.
Day-to-day 1P1P is executed with a global mindset in the areas of product design (One Product), supplier
management (Global Sourcing) and knowledge transfer within Autoliv and our partners (Lessons Learned).
The standardization process is driven by global cross functional teams with the authority and responsibility to
manage one or several product families. This ensures that best practices, lessons learned and other product
related knowledge is properly and efficiently collected, transferred and applied into product and production for
both existing products and new customer developments throughout Autoliv and to our partners. The
standardization decision is based on the total cost of the life time business case and the reduced complexity
also allows us to optimize logistics and supply chain management. Besides translating Autoliv’s vision into
reality, 1P1P supports our annual cost efficiency targets: • Consolidate supply base through global sourcing to
optimize cost without compromising service and knowledge • Reduce direct material costs by at least 3% •
Improve labor productivity by at least 5%. BASE Through 1P1P we can more efficiently focus on global
6
Heritage of Excellence 2014 Annual Report, February 20, 2015, p. 12,
http://ir.allisontransmission.com/phoenix.zhtml?c=227924&p=irol-reportsAnnual, accessed August 28, 2017
7
Heritage of Excellence 2014 Annual Report, February 20, 2015, p. 20,
http://ir.allisontransmission.com/phoenix.zhtml?c=227924&p=irol-reportsAnnual, accessed August 28, 2017

sourcing to gain leverage and optimize our supplier footprint in order to improve quality, and reduce risk and
cost. In 2015, we reduced number of suppliers by 10% (see graph). We targeted to reduce the number of
supplier groups to 1,000 by the end of 2016 from the peak of 1,600. Approximately half of our revenues are
spent on direct materials (DM) from external suppliers. The raw material content in these components costs
currently represents 50% of the direct material cost, while the other 50% represents the value added by our
supply base (for more details, see "Component Costs" on page 55). Our strategy to mitigate higher commodity
prices is to develop more cost-efficient designs, for example by replacing steel with reinforced plastics. This
often reduces weight, an important added advantage in the continuing pursuit for more fuel efficient vehicles.
By standardizing components we reduce complexity and gain cost advantages. By doing this we have met our
direct material cost reduction target of at least 3% every year, except in 2011 when steel prices increased
significantly. In 2015, the estimated net savings for direct materials were 4.4%.8
2014 and 2015 saw significant changes in Autoliv’s competitive landscape. TRW, a key competitor in passive
safety, was acquired by German group ZF Friedrichafen during 2015. The new company is the third largest
automotive supplier globally. The other main competitor in passive safety, Takata, experienced severe issues
and subsequent recalls, particularly in the United Sates, related to malfunctioning airbag inflators which has led
to significant costs for them. The third largest competitor in passive safety, Key Safety Systems, announced in
February 2016 that it had agreed to be acquired by Ningbo Joyson Electronic Corp. In the Electronics market
our competitors includes Continental, Bosch, Denso, TRW, Delphi, Mobis and Hella of which we believe
Continental and Bosch have strong positions.9
Changes in component costs and raw material prices could have a major impact on margins, since the cost of
direct materials is approximately 54.3% of sales. Autoliv does not generally buy raw materials, but rather
purchases manufactured components (such as stamped steel parts and sewn airbag cushions). In spite of this,
raw material price changes in Autoliv’s supply chain could have a major impact on its profitability since
approximately 50% of the Company’s component costs (corresponding to 27% of net sales) are comprised of
raw materials. The remaining 50% are value added by the supply chain.10
Gentex Corp.
Pricing Pressures. We continue to experience on-going pricing pressures from our automotive customers and
competitors, which have affected, and which will continue to affect our profit margins to the extent that we are
unable to offset the price reductions with engineering and purchasing cost reductions, productivity
improvements, increases in unit shipments of mirrors and electronics with advanced features, each of which
pose an ongoing challenge, which could adversely impact our business, financial condition, and/or results of
operations.11
Company net sales increased by $168.1 million, or 12% compared to the prior year. Automotive net sales
increased due to a 14% increase in automatic-dimming mirror shipments, from 29.0 million units in 2014 to
33.0 million units in 2015, primarily reflecting increased overall penetration of automatic-dimming mirrors. North
American automotive mirror unit shipments increased 13% in 2015 compared with the prior year, primarily due
to a 37% increase in shipments of the Company’s exterior automatic-dimming mirrors and a 5% increase in
shipments of interior automatic-dimming mirrors, each on a year over year basis. International automotive
8
9
10
11
Annual Report 2015, February 23, 2016, p. 25, ir.gentex.com/financials-and-filings/annual-reports-and-proxy-statements, accessed
August 28, 2017

mirror unit shipments increased 14% in 2015 when compared with the prior year, primarily due to increased
penetration of both interior and exterior automatic-dimming mirrors to certain European and Japanese
automakers. Other net sales increased 4% to $36.7 million compared to the prior year, as dimmable aircraft
window sales increased 6% year over year and fire protection sales increased 2% year over year.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold increased from 60.8% in 2014 to 60.9%
in 2015, primarily due to annual customer price reductions and foreign currency fluctuations, which were
essentially offset by purchasing cost reductions and product mix. Purchasing cost reductions impacted cost of
goods sold as a percentage of net sales by approximately 100 – 125 basis points. All of the remaining factors
is estimated to have impacted cost of goods sold independently as a percentage of net sales by approximately
50 basis points.12
WABCO Holdings Inc.
WABCO’s early globalization has enabled outstanding customer connectivity. It fuels growth as we continue to
partner with every leading maker of trucks, buses and trailers in every region of the world. By anticipating our
industry’s globalization, WABCO can now firmly furnish OEMs with strategies for global platforms and
modularity.13
All facilities worldwide are deploying Six Sigma Lean initiatives and global standards to continuously generate
productivity and improve service levels. By applying Six Sigma policy, methodologies and tools, we seek to
improve quality and predictability of our processes on a continual basis. Lean is geared toward eliminating
waste in our supply chain, manufacturing and administrative processes. Methodologies are customer driven
and data based. In addition, our global supply chain team is tightly connected throughout regions and at each
site. They make decisions on where to manufacture which products taking into account such factors as local
and export demand, customer approvals, cost, key supplier locations and factory capabilities. WABCO’s global
manufacturing and logistics also support our customers in the aftermarket as we continue to perform at
industry-leading levels for ontime delivery and inventory fulfillment, among other drivers of customer
satisfaction.14
In the third quarter of 2015, we announced proposals to cease manufacturing operations at two production
facilities in Western Europe to preserve the our global competitiveness for certain mechanical products.
Pending the timing of the outcome of the formal processes, production could cease at our Meppel, Netherlands
facility by the second half of 2016, and at our Claye-Souilly, France plant in the second half of 2017, with
production being transferred to other facilities within WABCO’s globally integrated supply chain. In 2015,
WABCO officially opened a new production facility in Wroclaw, Poland to support our supply chain initiative to
provide additional capacity in best cost countries. In addition to manufacturing capability, this new facility also
includes administrative offices for the newly created WABCO General Accounting Team, a centralized service
center for some of WABCO’s administrative functions.15
In 2015, we introduced several new bus and coach transmission models which feature industry-leading product
enhancements and our newest fuel efficient technology—collectively they are marketed as the xFE™
12
August 28, 2017
13
14
15

transmissions. This patented Allison technology has demonstrated fuel economy improvements of up to 7
percent in city bus duty cycles. As an added benefit for original equipment manufacturers (OEMs), the space
required to install these new transmissions is the same as our current B 400R and T 310R bus transmission
models which allows for seamless vehicle integration. These new models are upgrades of existing reliable
products using many of the same components. The Ann Arbor Area Transportation Authority in Michigan
received the first xFE equipped bus during a ceremony at their facility this past year, and we are excited about
the interest this new product is generating. The xFE transmissions and the Allison H 40/50 EP™ hybrid
propulsion systems offer transit fleet operators the ability to decide which mode of technology best fits their
business. Even with global off-highway end market condition challenges, we continue to upgrade existing
products for the global hydraulic fracturing and pressure pumping market through innovative and cost effective
development initiatives. One of the outcomes of this strategy has been our new 3,200 horsepower pressure
pumping transmission, known as the 9832 Oil Field Series™ (OFS), which began field testing in 2015 and has
joined our existing OFS product line. Pressure pumping operators who desire higher horsepower will
appreciate the smooth and precise shifting ability and gear ratios that this new transmission provides. The
launch of the 9832 OFS transmission provides a higher power-toweight ratio and substantiates our belief that
next generation products can be built upon well-proven product architectures.16
We compete on the basis of product performance, quality, price, distribution capability and service in addition
to other factors. We face competition from numerous manufacturers of various types of transmissions for
commercial vehicles. We also face competition from manufacturers in our international operations and from
international manufacturers entering our domestic market. Furthermore, some of our customers are OEMs that
manufacture transmissions for their own products. Despite their transmission manufacturing abilities, our
existing OEM customers have chosen to purchase certain transmissions from us due to the quality, reliability
and strong brand of our transmissions and in order to limit fixed costs, minimize production risks and maintain
company focus on commercial vehicle design, production and marketing.17
2016
Autoliv Inc.
To reduce labor costs while offsetting the price erosion on our products, we continuously implement
productivity improvement programs, expand production in Best Cost Countries [BCC] and institute restructuring
and capacity alignment activities. The productivity improvements in Autoliv’s manufacturing were
approximately 6% for every year during the last three-year period. This is well in line with our productivity
improvement target of at least 5% per year, which helps us to partly offset the price reductions to our
customers. The level of employees in the BCCs has increased to 75% in 2016 from 74% in 2014. These
changes, in combination with our restructuring activities and several other actions, were almost enough to
offset the market price erosion during the three year period. As a result, total personnel costs in relation to
sales in 2016 were unchanged at 22.4% from 2014, despite a higher number of engineers and technicians to
support investment in R,D&E and vertical integration.18
At each stage of production, relies on internal or external suppliers in order to meet its delivery commitments.
In some cases, customers require that the suppliers are qualified and approved by them. Autoliv’s supplier
16
2015 Annual Report, February 19, 2016, p. 1, http://ir.allisontransmission.com/phoenix.zhtml?c=227924&p=irol-reportsAnnual,
accessed August 28, 2017
17
18

consolidation program seeks to reduce costs but increases our dependence on the remaining suppliers. As a
result, the Company is dependent, in several instances, on a single supplier for a specific component.
However, this dependence is mitigated by the fact that we seldom are applying a specific manufacturing
technology. Consequently, we can often change suppliers, albeit with some costs and time for validation and
customer approval. Consequently, there is a risk that disruptions in the supply chain could lead to the
Company not being able to meet its delivery commitments and, as a consequence, to extra costs. This risk
increases as suppliers are being squeezed between higher raw material prices and the continuous pricing
pressure in the automotive industry. This risk also increases when our internal and external suppliers are to a
higher degree located in countries which have a higher political risk. The Company’s strategy is to reduce
these supplier risks by seeking to maintain an optimal number of suppliers in all significant component
technologies, by standardization and by developing alternative suppliers around the world. However, for
various reasons including costs involved in maintaining alternative suppliers, this is not always possible. As a
result, difficulties with a single supplier could impact more than one customer and product, and thus materially
impact our earnings.19
Gentex Corp
The Company utilizes the light vehicle production forecasting services of IHS Worldwide, and IHS current
forecasts for light vehicle production for calendar year 2017 are approximately 17.6 million units for North
America, 21.8 million for Europe and 13.2 million for Japan and Korea. The Company currently estimates that
top line revenue for calendar year 2017 will be between $1.78 and $1.85 billion. All estimates are based on
light vehicle production forecasts in the primary regions to which the Company ships product, as well as the
estimated option rates for its mirrors on prospective vehicle models and anticipated product mix. The Company
continues to see order rates and booked business that allow for these estimates despite modest vehicle
production increases in our primary markets. Continuing uncertainties, including: light vehicle production levels;
supplier part or material shortages; automotive plant shutdowns; sales rates in Europe, Asia and North
America; challenging macroeconomic and geopolitical environments; OEM strategies and cost pressures;
customer inventory management and the impact of potential automotive customer (including their Tier 1
suppliers) and supplier bankruptcies; work stoppages, strikes, etc., which could disrupt shipments to these
customers, make forecasting difficult. The Company is estimating that the gross profit margin will be between
39.0% and 40.0% for calendar year 2017. Historically, annual customer price reductions place significant
pressure on gross margin on an annual basis. However, given the current sales forecast and projected product
mix for 2017, the Company continues to believe it may be able to offset the majority of those annual customer
price reductions with purchasing cost reductions, operational efficiencies, and by leveraging fixed overhead.
The Company also currently estimates that its operating expenses, which include engineering, research and
development expenses and selling, general and administrative expenses are expected to be between $165
and $172 million for calendar year 2017, with the increase primarily due to staffing and benefit costs which
continue to support growth and the development of new business. The Company also plans to continue to
invest in selling and marketing efforts at a rate of growth that approximates the rate of sales growth for the
Company.20
19
20
August 28, 2017

WABCO Holdings Inc.
WABCO grew sales to $2.8 billion, up 8.7% in local currencies from a year ago, outperforming global truck and
bus production, which increased by 6% in 2016. WABCO’s Operating System, our globally standardized
management environment, responded with agility to rapidly changing and contrasting swings in regional
market demand. Moreover, it generated $83 million of supply chain productivity, an increase of 14.5% from a
year ago. At the same time, it delivered a record 7% conversion productivity in our factories. Our relentless
drive for lean operations delivered over $15 million cost savings in operating expenses in the past year.21
A fundamental driver of demand for our products is commercial truck and bus production. The number of new
commercial vehicles built fluctuates from year to year in different regions of the world. Nonetheless, over the
last five years, we have demonstrated our ability to outperform the market by increasing the amount of
WABCO content on each vehicle. During the five year period through 2016, WABCO’s European sales to truck
and bus (T&B) OEM customers, excluding the impact of foreign currency exchange rates, outperformed the
rate of European T&B production by an average of 4% per year.22
In 2016, we began selling our industry leading air disc brakes, vacuum pumps and telematics product in India,
seeding other new sources of additional sales. In South Carolina, U.S.A., our new stateof-the-art factory began
local delivery of MAXX air disc brake products to meet growing demand from customers based in North
America. This geographical expansion is compelling evidence of the successful globalization of WABCO’s
industry-leading air-disc brake technology. In 2016, we also transferred an additional 51 production lines into
existing factories in best cost countries, propelling sharp gains in productivity within our globally integrated
supply chain. Also in 2016, we further globalized our logistics network by opening a new distribution center in
Singapore to better serve Australia and 25 countries and territories in the Oceania region. We continued
investing in our Global Business Services, operating from Poland and India. A growing team of over 200
professionals drives productivity gains throughout WABCO’s operations worldwide by delivering continuous
process optimization for corporate functions.23
Executive Overview
In 2016, WABCO continued to strongly outperform the global market. During this year, global production of
trucks and buses greater than six tons increased by an estimated 6% globally, primarily driven by a 27%
increase in China where, unfortunately, the available content-per-vehicle for our products is still the lowest
across all regions. WABCO’s sales during the full year 2016 increased by 6.9% (8.7% excluding foreign
currency translation effects) compared with 2015, of which 1.9% was contributed by our acquisitions both on a
reported basis and excluding foreign currency translation effects. Our global aftermarket sales increased by
4.9% (6.3% excluding foreign currency translation effects) over this same period. WABCO is the first supplier
of advanced emergency braking systems (AEBS) homologated in Europe in accordance with European Union
regulations. WABCO’s OnGuardACTIVE™ AEBS for trucks and buses complies with European Union
regulations that went into effect in 2016. It detects moving, stopping and stationary vehicles ahead. It alerts the
driver via acoustic, visual and haptic signals. OnGuardACTIVE autonomously applies the brakes and can bring
the vehicle to a complete stop, helping to prevent or mitigate rear-end collisions.24
21
22
23
24

Suppliers and Raw Materials
A significant amount of the part numbers that make up our transmissions are purchased from outside
suppliers, and during 2016, we purchased approximately $600.0 million of direct materials and components
from outside suppliers. The largest elements of our direct spending are aluminum and steel castings and
forgings that are formed by our suppliers into our larger components and assemblies for use in our
transmissions. However, our spending on aluminum and steel raw materials directly and indirectly through our
purchase of these components constituted approximately 19% of our direct material and component costs in
2016. The balance of our direct and indirect materials and components costs are primarily composed of value-
added services and conversion costs. Our supply contracts, along with an intensive supplier selection and
performance monitoring process, have enabled us to establish and maintain close relationships with suppliers
and have contributed to our overall operating efficiency and industry-leading quality.25
Continued volatility in and disruption to the global economic environment could adversely affect the ability of
customers and suppliers to obtain credit and may have a material adverse effect on our business, results of
operations and financial condition. The commercial vehicle industry as a whole has been more adversely
affected by volatile economic conditions than many other industries, as the purchase or replacement of
commercial vehicles, which are durable items, can be deferred for many reasons, including reduced spending
by end users. Future changes in the regulatory and business environments in which we operate may adversely
affect our ability to sell our products or source materials needed to manufacture our products. Furthermore,
financial instability or bankruptcy at any of our suppliers or customers could disrupt our ability to manufacture
our products and impair our ability to collect receivables, any or all of which may have a material adverse effect
on our business, results of operations and financial condition. In addition, some of our customers and suppliers
may experience serious cash flow problems and, thus, may find it difficult to obtain financing, if financing is
available at all. As a result, our customers’ need for and ability to purchase our products or services may
decrease, and our suppliers may increase their prices, reduce their output or change their terms of sale. Any
inability of customers to pay us for our products and services, or any demands by suppliers for different
payment terms, may materially and adversely affect our results of operations and financial condition.
Furthermore, our suppliers may not be successful in generating sufficient sales or securing alternate financing
arrangements, and therefore may no longer be able to supply goods and services to us. In that event, we
would need to find alternate sources for these goods and services, and there is no assurance we 16 would be
able to find such alternate sources on favorable terms, if at all. Any such disruption in our supply chain could
adversely affect our ability to manufacture and deliver our products on a timely basis, and thereby affect our
results of operations.26
Labor unrest could have a material adverse effect on our business, results of operations and financial
condition. As of December 31, 2016, approximately 58% of our U.S. employees, representing over 50% of our
total employees, were represented by the UAW and are subject to a collective bargaining agreement. This
agreement expires in November 2017. While we intend to negotiate in good faith with the UAW, we cannot
guarantee we will be able to renew a collective bargaining agreement on similar or more favorable terms than
those that presently exist. We may incur increased labor costs as a result of any of these renegotiations. In
addition to our unionized work force, many of our direct and indirect customers and vendors have unionized
25
26

work forces. Strikes, work stoppages or slowdowns experienced by these customers or vendors or their other
suppliers could result in slowdowns or closings of assembly plants that use our products or supply materials for
use in the production of our products. Organizations responsible for shipping our products may also be
impacted by strikes. Any interruption in the delivery of our products could reduce demand for our products and
could have a material adverse effect on us. In general, we consider our labor relations with all of our
employees to be good. However, in the future we may be subject to labor unrest. The inability to reach a new
agreement could delay or disrupt our operations in the affected regions, including the acquisition of raw
materials and components, the manufacture, sales and distribution of products and the provision of services. If
strikes, work stoppages or lock-outs at our facilities or at the facilities of our vendors or customers occur or
continue for a long period of time, our business, results of operations and financial condition may be materially
adversely affected.27
27

Recommendations
In evaluating supply chain performance, it is important to look at trends within a peer group over time.
Here we look critically at the auto parts industry for the period of 2010-2016. A focus on procurement,
cost containment and continuous improvement drove the industry. Few companies delivered on a
balanced scorecard. As a result, the industry is stuck, and even going backwards, in important
metrics like growth, and inventory. As companies study supply chain excellence and corporate
performance, we recommend that supply chain leaders:
1) Build a Guiding Coalition to Drive Improvement Based on Industry-Specific Data.
Organizations should benchmark companies within an industry. Each industry has unique rhythms
and cycles. As a result, supply chain excellence analysis needs to be within an industry.
2) Understand Supply Chain Potential and Orchestrate Trade-offs on the Effective Frontier. The
supply chain is a complex system, with interrelated metrics, with nonlinear relationships. Supply
chain leadership teams should analyze the total portfolio of metrics and study progress at the
intersections of the Effective Frontier. Growth has the highest correlation to market capitalization.
Companies with higher performance are using more advanced analytics to plan outcomes and
design the supply chain.
Figure 7. The Supply Chain Effective Frontier
3) Apply Systems Theory. Teams should evaluate performance over time to understand
improvement, while realizing they are managing a complex system. The functions should be
aligned to a balanced portfolio of metrics representing the Effective Frontier, while functional
metrics should be focused on improving reliability (e.g., first-pass yield, hands-free orders, and
supplier quality, etc.).
4) Focus on Building Value Networks. While many of these companies could be a powerbroker in
the industry to redefine outside-in processes, all companies are accepting the limitations of the

inside-out supply chain. They operate functional silos with a traditional supply paradigm. The
traditional focus of Lean is not sufficient. This is an opportunity for the industry.
5) Learn from Other Industries. Use a Steady Hand/Focused Leadership to Drive Improvement.
To make the necessary improvements, companies today must move past an “ERP-centric view”
and build outside-in processes with a focus on value-based outcomes. Network design, supply
chain planning, and revenue management are opportunities for process excellence. The
automotive industry should turn to the high-tech industry to benchmark and drive innovation.
Conclusion
Post-recession, the auto parts industry made the most progress of any manufacturing sector; and
while automotive aftermarket companies experienced growth and were able to improve costs, the
elements of cash-to-cash degraded. Most companies in this sector struggle with volatility and
delivering results that are reliable and resilient. With more sticks than carrots, the auto parts industry
is the whipping boy of the automotive value chain struggling to survive. Few have been equal to the
challenge.

Appendix
The Supply Chain Index is a measurement of supply chain improvement. We find that supply chain
leaders are usually above their peer group in performance, in the upper 2/3 of the Supply Chain
Index. Companies with low Supply Chain Index scores are usually driving improvement, but are new
at the journey; as a result, the rate of change on Supply Chain Improvement is quicker than that of a
more mature company.
Table A. Performance Factor Analysis on the Supply Chain Index

Other Reports in This Series:
Supply Chain Metrics That Matter – A Focus on Automotive Companies 2017
Published by Supply Chain Insights in August 2017
Supply Chain Metrics That Matter: A Focus on the Automotive Industry
Published by Supply Chain Insights in November 2012
Supply Chain Metrics That Matter: A Closer Look at Automotive Companies
Published by Supply Chain Insights in May 2014
Supply Chain Metrics That Matter – A Focus on Automotive Companies – 2015
Supply Chain Metrics That Matter: A Focus on Consumer Products – 2015
Published by Supply Chain Insights in August 2015
Supply Chain Metrics That Matter: A Focus on the High-Tech Industry – 2015
Published by Supply Chain Insights in January 2016
Supply Chain Metrics That Matter: A Focus on Pharmaceutical Companies – 2016
Supply Chain Metrics That Matter: A Focus on Medical Device Companies – 2016
Supply Chain Metrics That Matter: A Focus on Food and Beverage Companies-2016
Published by Supply Chain Insights in June 2016
Supply Chain Metrics That Matter – A Focus on Chemical Companies
Published by Supply Chain Insights in July 2017
Supply Chains to Admire 2014
Published by Supply Chain Insights in September 2014
Published by Supply Chain Insights in September 2015
Published by Supply Chain Insights in July 2016
Published by Supply Chain Insights in June 2017
These reports, and additional information on the Supply Chain Metrics That Matter methodology, are
available at our Supply Chain Insights website and in the Beet Fusion community.

About Supply Chain Insights LLC
Founded in February 2012 by Lora Cecere, Supply Chain Insights LLC is in its sixth year of operation.
The Company’s mission is to deliver independent, actionable, and objective advice for supply
chain leaders. If you need to know which practices and technologies make the biggest difference to
corporate performance, we want you to turn to us. We are a company dedicated to this research. Our
goal is to help leaders understand supply chain trends, evolving technologies and which metrics
matter.
About Lora Cecere
Lora Cecere (twitter ID @lcecere) is the Founder of Supply Chain Insights LLC and
the author of popular enterprise software blog Supply Chain Shaman currently read
by 15,000 supply chain professionals. She also writes as a Linkedin Influencer and
is a a contributor for Forbes. She has written five books. The first book, Bricks
Matter, (co-authored with Charlie Chase) published in 2012. The second book, The
Shaman’s Journal 2014, published in September 2014; the third book, Supply
Chain Metrics That Matter, published in December 2014; the fourth book, The
Shaman’s Journal 2015, published in August 2015, the fifth book, The Shaman’s Journal 2016,
published in June 2016 and the sixth book, The Shaman’s Journal 2017, published in July 2017.
With over 14 years as a research analyst with AMR Research, Altimeter Group, and Gartner
Group and now as the Founder of Supply Chain Insights, Lora understands supply chain. She has
worked with over 600 companies on their supply chain strategy and is a frequent speaker on the
evolution of supply chain processes and technologies. Her research is designed for the early adopter
seeking first mover advantage.
About Sam Borthwick
As a Research Associate, Samuel Borthwick analyzes balance sheet and income
statement data for the Supply Chains to Admire Report along with the monthly
Metrics That Matter series. A recent graduate of Purdue University, majoring in
Supply Chain Management, Sam loves data. He lives in Indianapolis, Indiana
where he enjoys playing tennis and spending time with his family.

Endnotes
i
Supply Chain Index, Supply Chain Insights, http://supplychaininsights.com/portfolio/launch-of-the-supply-chain-index/, July 17,
2017

Supply Chain Metrics That Matter – A Focus on Auto Parts Companies 19 SEP 2017

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Was ist angesagt?

Was ist angesagt? (20)

Ähnlich wie Supply Chain Metrics That Matter – A Focus on Auto Parts Companies 19 SEP 2017

Ähnlich wie Supply Chain Metrics That Matter – A Focus on Auto Parts Companies 19 SEP 2017 (20)

Mehr von Lora Cecere

Mehr von Lora Cecere (20)

Kürzlich hochgeladen

Kürzlich hochgeladen (20)

Supply Chain Metrics That Matter – A Focus on Auto Parts Companies 19 SEP 2017