Insights from the PACE supplier innovation awards

Peter Warrian, University of Toronto Mike Smitka, Washington & Lee University Presentation to JMU Economics Department February 24, 2015

¡  PACE Awards: Window on Auto Supply Chain Innovation

¡  Drivers vs Enablers of Innovation ¡  Importance of Roadmaps ¡  Case study: Arcelor-Magna Hot Stamping ¡  Discussion: Perspectives on Supply

Chains §  Social Science §  Engineering

¡  Begun summer 1994; first awards given spring 1995 ▪  20th Awards April 2014 in conjunction with SAE

(Society of Automotive Engineers) conference ¡  Sponsored by Automotive News, initially

with Ernst & Young ▪  E&Y believed management competitions were a

good marketing tool ¡  Firms must self-select and apply

▪  a modest fee discourages frivolous applications

¡  Innovative Supplier: “Have we seen it before?” ▪  not seen before in auto industry ▪  idea may have been used in other industries

▪  launched with previous 1-3 years ▪  supplier not OEM as innovator

¡  Commercialized: ▪  can include software, capital equipment, Tier II ▪  end use can be passenger or commercial vehicles

¡  Impact: “changed the name of the game” ▪  evidence of wide uptake / big cost reduction ▪  in general want evidence rivals forced to respond

¡  Initial (paper) screening of applicants ▪  Finalist vs others

¡  Each finalist visited by two judges ▪  all day presentation of innovation and business case

¡  Each finalist vetted with customer references ▪  customers see competitor technologies and actual

performance ▪  sometimes strengthens case, sometimes eliminates as

contender ¡  Academy Award style ceremony

▪  sponsors not privy to results ▪  entire process under non-disclosure agreements

¡  It took a few years to gain momentum ▪  analysis from 1999-2015

¡  First only US, then US+Europe, now global ▪  so can’t analyze geography ▪  more than half of site visits now outside NAFTA

¡  From 2001 divided into categories ▪  reflected sponsor interest; judges ignore ▪  again not meaningful for analysis

¡  Innovation Partnership & Environmental Awards ▪  for Automotive News marketing of PACE

¡  Not dependent on patent data §  propensity to patent varies ▪  much of technology underlying PACE lies in trade

secrets §  hard to measure significance of patents ▪  PACE finalists must demonstrate market impact

¡  case studies rich, but hard to gauge whether representative §  PACE offers a large sample ▪  413 finalists and 186 awards (1999-2014) ▪  passed initial screening so presumption that substantive ▪  but applicants self-select, not random

¡  Range of innovation is wide §  auto industry is today R&D-intensive

¡  Role of suppliers central §  OEMs are integrators but increasingly

innovation in conjunction with suppliers ¡  Innovation is repeatable

§  the ability to deliver innovations with each product cycle is central to supplier strategy

¡  How coordinate? §  vehicles are a combination of multiple systems §  how coordinate innovation in a decentralized

context? ▪  OEMs [assemblers] aim for multiple goals ▪  what OEMs seek depends on what they gauge suppliers can

in combination deliver

▪  what suppliers develop must work in that context ¡  Claim: “Roadmaps” are a central tool

¡  well-developed R&D management technique §  track outside factors that affect technology

demands §  link back to specific product metrics §  link back to specific capabilities that must be

located or developed §  provide a framework to interact with customers:

are roadmaps congruent? ▪  particularly important in assembled goods where R&D is

dispersed across the supply chain

¡  Federal-Mogul develops 30-plus roadmaps

¡  shares with their customers to see that their visions of future needs are congruent §  iterative process §  starting point is ▪  legislative/regulatory trends ▪  market trends

¡  from presentations made to Washington & Lee students at Plymouth Technical Center

Delphi Federal Mogul Borg Warner Keywords: Safe, Green and Connected

Keywords: Renewable energy, Fuel economy, Emission reduction Green materials and processes

Keywords: Powertrain Diversity

Technologies: Electrical/Electronic Architecture Powertrain Systems Electronics and Safety. Thermal Systems

Technologies: Low friction/high-load coatings & materials High-temperature & RFI systems Renewable energy & new combustion

Technologies Downsized turbocharged engines, transmissions, engine timing systems, turbochargers, dual-clutch technology, variable cam timing systems

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

Roadmap External Roadmap Internal Roadmap Total Roadmap

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

Enabling Technologies - totals can add to more than 100% because innovations may draw on multiple technologies -

Metals Foam Plastic Paint Software & Electronics All Tech Enabled

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

Benefits (I) Fuel Efficiency Weight Emissions Safety

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

Benefits (II) Lighting Environmental Recycling Consumer Convenience NVH

Regressions by year weighted by cell size as number of finalists varied; only significant results

Item Coefficient StdErr t

total roadmap 0.019 0.0034 5.94

oem collaboration 0.015 0.0033 4.55

customer request 0.014 0.0044 3.08

external roadmap 0.017 0.003 5.62

idiosyncratic -0.027 0.0043 -6.19

hail mary -0.002 0.0008 -2.53

indirect supplier -0.015 0.0041 -3.55

fuel efficiency 0.020 0.0033 6.07

emissions 0.009 0.0026 3.55

weight 0.009 0.0038 2.49

solo innovation -0.009 0.0042 -2.29

software -0.009 0.0043 -2.15

ceramics plastics -0.006 0.0024 -2.39

cae/simulation 0.008 0.003 2.52

¡  Arcelor-Magna-Honda Hot Stamped Door Ring Project

¡  Overlap of New Highway Safety side crash standards and Imperatives of Lightweighting and Cost Reductions

¡  Partnership: §  Honda Transportation Research Center (Ohio) §  Arcelor Mittal NA (Tailor Blanking Division) §  Magna Cosma International

¡  Collaboration §  Honda, a Tier 1 supplier and a steel company §  across national borders

¡  Driver of ¡  environmental regulations

§  reduce weight ¡  Safety regulations

§  new offset front crash test ¡  Materials science developments and new

engineering tools fundamental

¡  New metallurgy: ultra high strength steel §  much less weight with such BSi steels §  also their highest margin steels

¡  Hot Stamping §  only way to work ultra-high-strength steels §  size limits so need to join to other pieces

¡  Tailor blanking §  Surface coating (AlSi) ruins welds ▪  loses all strength / safety benefits

¡  Magna Cosma leader in modularization §  Body on Frame architecture more amenable §  So trucks and SUVs rather than sedans

¡  Hot Stamping §  complex shapes with less weight §  less welding required so assembly costs fall

¡  New steel grades available §  ArcelorMittal a leader ▪  Ductibor 500P® new (existing Usibor 1500P®)

¡  Steel enters die at 900C §  quenching at 600C changes metallurgy ▪  500MPA to 1500 MPA.

¡  High-strength steel can’t be stamped or punched or sheered §  must laser cut

¡  an alternative to hydroforming

¡  Existing Honda SUV design §  could not pass new IIHS+ Small Overlap

Crash Test §  weak on roof crush & side impact

¡  Honda identifies itself as the leader among the OEMs in using HSS. Seeks to be the leader in Hot Stamping.

¡  Objectives: Better performance. Lower cost but with the same or less weight.

¡  Blank Mass Reduction 34% ¡  Part Mass Reduction 15% ¡  Material Utilization Improvement 29% ¡  Overall Weight Reduction 58% ¡  Cost Reduction 10.5%

¡  Current cars depend on different steels for structural components. In future, bodies will use various materials combined into a single structure. The Multi-Material Body is the future of vehicle architecture. (Keller 1018; Zum Mallen 2013).

¡  Honda Advanced Compatibility Engineering™ (ACE™) Structure distributes the forces of an incoming vehicle across the front structure. Helps maintain structural integrity of cabin during a frontal crash.

¡  Social Science Perspective: Supply Chain Relationships §  Governance §  Relational Distance §  Modularity

¡  Engineering Perspective: Enablers of Innovation and Collaboration §  Materials Science §  New Engineering Tools

¡  Technical Change §  “push” factors (internal technology dynamic) ▪  in analysis, “internal” roadmap

§  “pull” factors (Roadmaps, other aspects induced innovation) ▪  in analysis, “external” roadmap

§  “random” factors (“great inventor” view of technology) ▪  in analysis, “invention”

¡  PACE winners offer insights

¡  Can use for: §  focused case studies, eg environmental innovations ▪  can tie to specific regulatory thresholds?

§  focused case studies, eg Canadian suppliers ¡  small but rich data set

§  underlying change, self-selected so not good statistical sample

§  have not done systematic comparison of finalists relative to the much smaller set of winners ▪  two-stage process of competition important ▪  some finalists prove to be weak ▪  winners face a high hurdle which increased over time