Modularization and Outsourcing: Implications for the Future of Automotive Assembly "Management of the Extended Enterprise" Research Team

Abstract

Overview Twice in this century, automotive assembly has been the setting for dramatic innovations in production organization that have transformed the basis of competition in the auto industry. Henry Ford's mass production and Taiichi Ohno's lean production are both systems of interrelated practices held together by a core "logic" - powerful ideas shaping how we think about "making things". As we approach the second century of the car, there are important debates about whether, once again, auto manufacturing will strike off in a new direction -- commonly described as "modular assembly." Our IMVP research team aims to contribute to this debate through the research project described below. Deverticalization through the outsourcing of production from the large automakers to their suppliers has been a dominant trend during the 1990s, including the transfer of component design responsibility as well as manufacturing. A related trend is the effort to develop more modular designs, i.e. self-contained functional units with standardized interfaces that can serve as building blocks for a variety of different products. These trends have been visible in other industries for some time, but they are relatively recent in the auto industry; as a result, the implications are still not clear. In industries such as consumer electronics and personal computers, the ultimate consequence of extensive outsourcing is often that the final customer, i.e. the Original Equipment Manufacturer (OEM), manufactures very little in-house. When extensive outsourcing is combined with more modular designs, the outcome can be a dramatic reshaping of the value chain. We want to investigate the extent of these trends in the auto industry and evaluate the implications for the role of automotive assembly and the structure of the entire industry, by doing case studies of specific modules.2