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A Division of AutoCRC

Diversification opportunities for the Australian automotive industry 10th November, 2014 Linsey Siede Director, Automotive Supplier Excellence Australia www.asea.net.au

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Today’s Agenda • Automotive Supplier Excellence Australia (ASEA) • Background & History • Supplier Companies • Supplier - Progress & Improvement • Journey of Growth & Success • Timeline • Supply Chain Analysis - Diversification • Effects of Leadership & Management • Diversification Opportunities • Manufacturing (Australia) • Automotive (ASEAN)

Confidential

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ASEA: Background & History • Commenced in 2007 to help automotive suppliers achieve world class levels of Competitiveness & Sustainability. • Process = Assessment  Opportunities  Projects

– Conducted >120 “Initial Assessments” – Average savings opportunities identified for suppliers in Australia is >$2.4 Million/company over 3 years. – Implemented >350 improvement projects – Gathered feedback on every project & every assessment – Conducted “Annual Assessments” to validate improvements and to identify new projects.

Assessment

1. Benchmark 2. Improvement Report Plans

Scope Project Scope

Implement & Complete Projects Project Management Document Company

Report No Project Title

Harrington's Current

1. Project Status

No of Key issues

1

[Report Updating - weekly and reporting period as per section 7 - this paper] Lean Management Solutions, Ian Wadeson

Dec Jan 11 22

8. Schedule

1

0

[refer section 9 - this paper]

X /∆ / O

No

Activity

Doc PMD

Date

Strategic Business Planning [SBP]

Outlook

0 X /∆ / O

Owner

Wk1

Wk2

Wk3

5 Wk5

10 Wk6

19 Wk7

Background (Why)

1 2 3 4 5 6 7 8

Description (Plan) Refer to original ASEA Scoping document signed by Harrington's and ASEA

3. Key Project Resources Resource

Description

Managing Director Key Managers

4. KPI's

Skills / attributes

Project Management Participate

Utilisation

Facilitation Company knowledge

100% 100%

KPI 1 - Time Commitment 70

Target

Initial Meeting Kick off meeting Training day 1 & 2 Situational analysis Swot summary Strategic objectives Strategic options Develop action plans

9 Develop strategic plan 10 Prepare PPT for training day 3 11 Training day 3 12 Finalise strategic plan 13 Implement plan

AIM H

H H

14 Monitoring plan 1.2

Actual

60

Target

Mar 5 Wk9

Wk10 Wk11 Wk12

1.5 weeks b hi d l 0.5 weeks ahead f l

1 week behind plan

1.5 weeks ahead of plan

Actual

Reporting

1

50

ASEA ASEA AIM H H H H H H H

26 Wk8

Current status line (eg end of week6)

2. Project Statement Refer to original ASEA Scoping document signed by Harrington's and ASEA

Issue No 01091208

##

Feb 29 Wk4

0.8

40

Coaching

0.6

30 20

0.4

10

0.2

0

0 1

2

3

4

5

6

5. Project team [Project management]

7

8

9

10

11

12

1

2

3

4

5

6

7

Name

Company

Business improvement leader Project leader

John Harrington John Harrington

ASEA

Program manager Coach

Peter Taylor Steve Robinson

6. Budget

70

$37,000 $25,000

9

10

11

12

9. Issues (Risks) No

What?

Countermeasure action

1 Attendance

by whom?

Communicate schedule and ensure attendance.

JH

by when?

16.12.08

Contact Nos

+61 3 9681 8626 0417 340 761

Budget plan / status

AU$

Materials/Equipment Personnel internal external Operating expense Total

8

Contact Nos

0418 285 628 0418 285 628

Name

Target

Actual

60 50 40 30

$62,000

20 10 0

7. Company Communications

1

2

3

4

5

6

7

8

9

10

11

12

10. Sign off / Approval From

How

Freq'

Kick off approval

(D,W ,M)

Managers

Training Day 3

?

Managing Director

Presentation

M

ASEA

ASEA Board

Company

To

Feedback Confidential

Original Scoping Document Original Scoping Document

Phase 1

Phase 2

Phase 3

Completion

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Who has ASEA worked with? • Some of the Australian Automotive Suppliers:

Confidential

Suppliers: Progress & Improvement 2008  2011 (Average of 29 Companies)

Assessment Competencies Cost structures and analysis tools 5.00

Customer focus

Technology investment

23% Improvement Supply chain integration

45% Improvement

4.00 3.00 2.00

39% Improvement Financial systems and practices

1.00 -

Safety

16% Improvement People and performance

New model introduction capability

Global sourcing and marketing strategies

19% Improvement Management and Leadership

Manufacturing and Quality AVGE 2008 AVGE 2010 AVGE 2011

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Journey of Growth & Success (SME) Linsey Siede Slide

Efficiency “Doing things right”. (Internal Focus) People Operations

Business Plan

• Competencies • Strategies • Actions • Tracking • Managing Risk • Alignment

• Competitive • Lean • Kaizen • Processes

• Leadership • Culture • Attitude • Drive • Change Management

Business Assessment

Confidential

Marketing

• Placement • Price • Promotion • Realistic (Competency Audit)• Product volume • Relative • (Competitive Analysis) • Relevant • (Market Analysis)

Diversification

Export

• Growth • Need/Desire • Willingness • Understanding • Preparedness • Target/s • Country • Sector • Customer • Product • Service

Effectiveness “Doing the right things”. (External Focus)

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Efficiency Vs. Effectiveness • Definitions: • Efficiency = “Doing things right”. • Effectiveness = “Doing the right things”.

• Need to be “Efficient” before becoming “Effective” • The transition between the two is not an easy or simple one. Confidential

Linsey Siede Slide

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Timeline • BCSP: “Evolving Innovation” focused on “Diversification” – – – –

Product Process Customer Sector

– – – –

Market Export Aftermarket Services

– – – –

Acquisition JV License Partnerships

• New Paradigm – Not so many options now, depending on the current level of diversification. BCSP

2012

Confidential

New Paradigm

2013

2014

2015

2016

2017

2018

2019

2020

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Supply Chain Analysis - Diversification • Some of the Australian Automotive Suppliers:

• Other Industry Sectors these Companies supply into: Resources Appliance Plastic Confidential

Aerospace Medical

Mining

Machine Tool

Clean Tech

Chemical

Glass Defence

Textile

Electronic

Rubber Rail

Composite

Foundry

Marine

Paint

Construction

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Supply Chain Analysis - Diversification

Number of Suppliers (%)

Australian Suppliers that have Diversified 70% Tier 1

60% 50% 40% 30% 20% 10% 0% 10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Diversification (%)

Confidential

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Supply Chain Analysis - Diversification

Number of Suppliers (%)

Australian Suppliers that have Diversified 70% Tier 1

60%

Tier 2/3

50% 40% 30% 20% 10% 0% 10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Diversification (%)

Confidential

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Supply Chain Analysis - Diversification • This analysis shows that each of the 3 groups have different needs and require different strategies. • Red Group: 0%  20% diversified – Need quick wins. – Cannot wait the 5 - 8 years it takes to enter into the sectors like Medical, Mining, Aerospace, etc. – Need to stick to Auto, and sectors that are quicker to enter. – May need help finding partners, acquisitions, exits, etc.

• Yellow Group: 20%  40% diversified – As above, but a broader range of sector options. – Will also need help implementing and accelerating their existing diversification plans.

• Green Group: 50%  diversified – As above. – Will need help funding their expansion plans and implementing new business strategies.

• However, they all have one thing in common.

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Leadership & Management: • What (or Who) drives (leads) this change process? • Does Management & Leadership have a different effect on each step? • What is the effect of Management & Leadership on each step of this process? Confidential

Linsey Siede Slide

Efficiency “Doing things right”. (Internal Focus) People Operations

Business Plan • Competencies • Strategies • Actions • Tracking • Managing Risk • Alignment

• Competitive • Lean • Kaizen • Processes

• Leadership • Culture • Attitude • Drive • Change Management

Business Assessment

Marketing

• Placement Diversification • Price • Promotion • Realistic (Competency Audit)• Product volume • Relative • (Competitive Analysis) • Relevant • (Market Analysis)

Export

• Growth • Need/Desire • Willingness • Understanding • Preparedness • Target/s • Country • Sector • Customer • Product • Service

Effectiveness “Doing the right things”. (External Focus)

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Leadership & Management: Assessment Results • Since 2007, ASEA has conducted more than 250 Company Assessments. – This has incorporated Tier 1 and Tier 2 suppliers, local and multinational suppliers, products and service suppliers.

• For each of the >250 Assessments, we have data for: – – – –

300 Individual Questions 52 Metrics 30 KPIs 11 Competencies

• We can therefore relate any of the above information, to the results of any other information. • So let’s look at how the competency of “Leadership and Management” effects on other Assessment data. – Firstly, the other 10 Competencies Confidential

2.08 2.18 2.40 2.53 2.66 2.77 2.89 2.96 3.04 3.13 3.18 3.21 3.30 3.37 3.41 3.51 3.55 3.59 3.63 3.65 3.69 3.72 3.75 3.78 3.82 3.83 3.85 3.87 3.92 3.93 3.97 3.98 4.02 4.05 4.08 4.10 4.13 4.15 4.18 4.21 4.23 4.26 4.30 4.35 4.38 4.41 4.46 4.55 4.59 4.63 4.76 4.82 4.87

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Leadership & Management: Assessment Results

5.00

4.50

4.00

3.50

3.00

2.50

2.00

1.50

1.00

0.50 CS&AT

Confidential CF FS&P GS&MS M&Q NMIC P&P Safety SCM TI

0.00

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Leadership & Management: Assessment Results 5.00

4.50

4.00

3.50

3.00

2.50

2.00

1.50

1.00

0.50

CS&AT

CF

FS&P

GS&MS

M&Q

NMIC

P&P

Safety

SCM

TI

Linear (CS&AT)

Linear (CF)

Linear (FS&P)

Linear (GS&MS)

Linear (M&Q)

Linear (NMIC)

Linear (P&P)

Linear (Safety)

Linear (SCM)

Linear (TI)

2.08 2.18 2.40 2.53 2.66 2.77 2.89 2.96 3.04 3.13 3.18 3.21 3.30 3.37 3.41 3.51 3.55 3.59 3.63 3.65 3.69 3.72 3.75 3.78 3.82 3.83 3.85 3.87 3.92 3.93 3.97 3.98 4.02 4.05 4.08 4.10 4.13 4.15 4.18 4.21 4.23 4.26 4.30 4.35 4.38 4.41 4.46 4.55 4.59 4.63 4.76 4.82 4.87

0.00

Confidential

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Management & Leadership: Effect/Influence • Global Marketing Strategies (Driver of Diversification) Scores for the “Global Sourcing and Marketing Strategies” 5.00

Gradient = 0.548

GS&MS

4.50

4.00

3.50

3.00

2.50

2.00

1.50

1.00

0.50

Global Sourcing & Marketing Strategies Vs. Leadership & Management GS&MS

Linear (GS&MS)

0.00

Scores for “Leadership & Management”

Confidential

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Management & Leadership: Effect/Influence 5.0 4.5

Gradient = 0.428

Training & Development

4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 Training and Development - extent of training

0.0

Confidential

Linear (Training and Development - extent of training)

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Management & Leadership: Effect/Influence 5.0 4.5

Gradient = 0.788

4.0 3.5 3.0 2.5 2.0 1.5 1.0

Risk Management 0.5

Organisational Risk Management - strategies and analysis Linear (Organisational Risk Management - strategies and analysis)

0.0

Confidential

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Management & Leadership: Effect/Influence 5.0

Scores for the Metric “External Focus”

4.5

Gradient = 0.788

4.0 3.5 3.0 2.5 2.0 1.5 1.0

External Focus 0.5 Linkages to Global MVP Platforms

Linear (Linkages to Global MVP Platforms)

0.0 Scores for “Leadership & Management”

Confidential

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Diversification Opportunities • Diversification is tough!! • Must be driven by the Leadership & Management. • Leadership & Management at many SME’s are not skilled at diversification, and need support. • Different groups need different types of support to be successful. • What is happening to manufacturing in Australia? • Where are the growth opportunities?

Confidential

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Diversification Opportunities • Diversification is tough!! • Must be driven by the Leadership & Management. • Leadership & Management at many SME’s are not skilled at diversification, and need help. • Different groups need different types of support to be successful. • What is happening to manufacturing in Australia? • Where are the growth opportunities? • Where are the Growth areas in Manufacturing?

Confidential

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Diversification Opportunities: Manufacturing

Confidential

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Diversification Opportunities: Manufacturing • Where are the Growth areas in Manufacturing?

Confidential

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Diversification Opportunities: • Diversification is tough!! • Must be driven by the Leadership & Management. • Leadership & Management at many SME’s are not skilled at diversification, and need help. • Different groups need different types of support to be successful. • What is happening to manufacturing in Australia? • Where are the growth opportunities? • Where are the Growth areas in Manufacturing? • What about the Companies that haven’t got time to wait?

Confidential

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Diversification Opportunities: ASEAN Automotive • The Automotive sector in the ASEAN Region is growing rapidly, but they are facing a “Perfect Storm”. 1. Rapidly rising production 2. Changing Market Conditions 3. Changing Customer Requirements 4. Rising Technology Levels 5. ASEAN Economic Community

Confidential

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ASEAN: 1. Rapidly Rising Production • Likewise, the production of vehicles in ASEAN has also more than doubled to over 4.4 million in 2013

Source: GAIKINDO Presentation at Trade Mission - 27th February, 2014

Confidential

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ASEAN: 1. Rapidly Rising Production • Production in the ASEAN Region is forecast to reach more than 6 million units by 2018.

Source: Austrade Presentation - Leigh Willmott - June, 2013

Confidential

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ASEAN: 2. Changing Market Conditions • The base level pickup trucks and cars of the past are being replaced by high spec vehicles, suitable for export – Different supplier base required – Higher quality levels

• The ratio of passenger motor vehicles to LCVs is increasing, requiring higher levels of features and quality – New products and technologies – New skills – Higher levels of trim and electronic sophistication

• EEVs and Eco Cars are now the future focus in both Malaysia and Thailand respectively – These smaller, lighter and more fuel efficient vehicles provide a range of new challenges and opportunities

Confidential

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ASEAN: 3. Changing Customer Requirements Automotive Supply Chain - Asia (Past) OEM Manufacturer

Tier 1 Manufacturer

Tier 2 Manufacturer

Tier 3 Manufacturer

Vehicle Producers

Build to Print

Systems & Component Manufacturers

Small Components & Assemblies/or Tool & Die (SMEs)

Commodity & Raw Material Manufacturers Confidential

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ASEAN: 3. Changing Customer Requirements Automotive Supply Chain - Asia (Future) OEM Manufacturer

Tier 1 Manufacturer

Tier 2 Manufacturer

Tier 3 Manufacturer

Vehicle Producers

Build to Print

Design, dev’t & Manufacturing responsible

Systems & System Integration Component & Complex Manufacturers Assemblies (Hi-Tech)

Small Components & Assemblies/or Tool & Die (SMEs)

Commodity & Raw Material Manufacturers Confidential

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ASEAN: 4. Rising Technology Levels - Thailand Thailand Automotive Industry - Technology Roadmap

Confidential

Reference: Figure 3.8, Master Plan for Automotive Industry 2012-2016, TAI & MOI.

Confidential

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ASEAN: 5. ASEAN Economic Community • The ASEAN Economic Community is due to become a reality in 2015. Automotive is just one sector that will experience change.

Confidential

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ASEAN: Rapidly Rising Production Forecasts • On October 24th, 2014 the “Bangkok Post” announced details about the 2nd phase of the Thailand “Eco-Car” Program: – “In total 10 car makers including five existing eco-car manufacturers officially applied for the programme. The 10 projects are slated to make a combined 1.58 million ecocars for 100 billion baht more than the combined outlay from the five eco-car manufacturers in the first phase.”

• On October 28th, 2014 the “Bangkok Post” announced the forecast for 2015. – TAI president Vichai Jirathiyut said "Overall production is thus likely to hit 3.35 million units in 2015." References: http://www.bangkokpost.com/business/marketing/439983/bold-forecast-for-2015-carproduction?utm_source=Thai+Auto+Book&utm_campaign=2c8fad7c29Thailand+SEP+14+Sales&utm_medium=email&utm_term=0_9138913d81-2c8fad7c29-36821025 Confidential & http://www.bangkokpost.com/auto/news/439275/bearish-market-delays-eco-car

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ASEAN: Rapidly Rising Technology Levels • The Thailand Technology Roadmap outlines the changes that must occur in the ASEAN Automotive supply chain within the next 6 years. – This includes “Part Design” (2015-2018) and “System Design” (2019-2021)

• Western OEM’s such as Ford and GM are rapidly increasing their volumes in Thailand, and require their suppliers to do more than just “build to print”!! – They require Part Design & System Design.

• How can the levels of manufacturing capability and technical knowledge be raised in the supply chain? • Who can provide the knowledge and expertise that the supply base in ASEAN requires? • The Australian Automotive Supply Chain can!! Confidential

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ASEAN: Capability Levels of Automotive Suppliers • According to the Malaysian NAP 2014, there are 5 levels within an Automotive Supply Chain:

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Reference: Malaysia - National Automotive Policy 2014.

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ASEAN: Capability levels of Malaysian Suppiers • The plan is to raise the levels in Malaysia from the current 2 & 3, up to levels 4 (Part Design) & 5 (System Design).

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Reference: Malaysia - National Automotive Policy 2014.

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Summary • The CEO/MD is the key driver for initiatives to help their Company!! • Whether your Company is in the Red, Yellow or Green Groups is irrelevant. Everyone needs to act NOW!! • Diversification is not easy!! • There are definitely opportunities available in Australia, but due to timeline limitations these may be restricted. • There are “significant” opportunities available in ASEAN for automotive suppliers. • There is help available. Just ask. • Only you can take the initiative to help your Company! Confidential