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Situation:

A Supplier was falling short of the contracted capacity requirement for its wiring harness products through its pre-assembly and assembly processes.  During a product launch, the OEM had to shut down production to wait for the Supplier’s wiring harnesses.  In addition, even when sufficient harnesses were available, the packaging and sequencing of the harnesses into a complete vehicle set was not executed correctly.  Seraph was engaged by the OEM to assist in developing and implementing capacity and production improvement action plans

Approach:

Using a statistical-based analysis of the Supplier’s production output, the Seraph team was able to show that the actual constraints were in the initial stages of the value stream, not on the final lines that the Supplier was targeting. 

The primary constraints were in the cutting and lead preparation areas.  A mathematical model of the cutting process was developed to calculate the optimal lot size, change over targets, and machine loading.  Production parameters and schedules were changed to implement the new lot sizes and machine loading.  Changes to the KANBAN system enabled a more visual tracking of the production as it flowed through the cells, providing support to drive the shop floor cadence.

Result:

In order to meet OEM quality standards and complete exit criteria from their at-risk status, the Supplier was guided to refocus the plant logistics on discipline, processes, and controls.  By communicating goals and progress to all operators on the shop floor, Seraph helped the Supplier to develop a culture that supported a sense of urgency within the plant.  Floor-based workshops were conducted which identified 17 process improvements.  These improvements were implemented which within the first few days and resulted in a 22% increase in OEE.

By laying out production flow, changing manning, reducing labor for product efficiency, and running workshops for employees on cutting machines for increased output, the Supplier was able to meet the OEM’s production requirements with the implementation plans developed with Seraph in a six week turnaround.

At the G20 summit, U.S. President Donald Trump and China President Xi Jinping agreed to a 90-day tariff-hike truce.  The truce intends to provide a negotiation window for the two countries to settle intellectual property and industrial policy differences.  President Trump later tweeted that China would be lowering tariffs on automotive imports from the United States.

The announcements made by both countries have not been identical, Beijing has been characteristically quieter than Washington, fueling some concern as specifics of the forthcoming changes.  The U.S. plans to introduce the 25% tariff if there isn’t progress in the 90-day period. The announcement marks the first meaningful trade deescalation between the U.S. and China, even if only temporary for now.

Also at the G20, leaders of U.S., Mexico, and Canada met for a formal signing of the USMCA (NAFTA replacement). While the formal ceremony may have presented itself as the official acceptance of the document by the three countries, final implementation isn’t going to roll out until at least 2020.   At the time of the signing, the Mexican president was Enrique Peña Nieto, since then, Andres Manuel Lopez Obrador (“AMLO”) has been inaugurated. It looks as if AMLO will continue to honor the deal, but the change in political power only increases chances of disruption. On the U.S. congressional front, discussions of the deal are essentially tabled until 2019, where changes in composition after recent elections may pose a challenge to the president. The Democratic Party will now control the House of Representatives, after 2 years of a Republican controlled Congressional and Executive Branch political tensions will likely manifest in prolonged debate.

The U.S. stock market has improved since both announcements, likely influenced in part by positive sentiments for business if trade tensions subside.

Dairy, cultural protections, and dispute resolution measures remain as the final core obstacles for the US-Canada closure of the second phase of NAFTA-replacement negotiations.  On August 27th, President Donald Trump announced that the United States and Mexico reached an new agreement on trade that would replace NAFTA. During the 2016 elections, both political parties railed on NAFTA and promised reforms and renegotiation. President Trump has made good on those promises by coming to terms with outgoing Mexican President Enrique Peña Nieto.  While there is risk of a broken agreement by both congress after their 90-day review period, and by Mexico’s incoming president, Andrés Manuel López Obrador, when he takes office, neither seems likely.

The US-Mexico Trade Agreement mainly focused on automotive labor regulations, while the Canadian deal is being held up by smaller, more symbolic measures. US-Canadian negation tensions run high on both sides, an Canadian President Justin Trudeau has echoed Trump’s priority for only completing a good deal for their respective countries by saying, “no NAFTA deal is better than a bad deal.”

If Canada does not join the US-Mexico Trade agreement, the implications of the higher wages needed to avoid US tariffs will become even more severe, as using Canadian parts may bear new financial consequences.  As suppliers think about future consolidation and cost-reduction measures, they will need to be cautious of the OEM’s content requirements and ensure that they will be able to deliver certain parts at the appropriate $16 per hour wage.  At four times the cost of Mexican counterparts, the pressure to develop a highly-skilled US workforce leveraged with automation will be stronger than ever. Although the media promises higher prices to consumers if the tariff landscape with Canada worsens, that cost increase will undoubtably be shared with manufacturers. The suppliers who are able to accomplish the most with their US-based employees will have a significant advantage under this new trade agreement.

Anh Nguyen and Justin Fortier are analysts at Seraph, a management consulting firm that works with clients to transform, relocate, or restructure business operations. They frequently work with the client teams of leading international companies in the automotive, aerospace, energy infrastructure, and medical technology/device sectors.