Rafael Engelhardt has reduced IT expenditures at US-based automotive supplier TRW by imposing a range of restrictions on, among other things, employees’ use of smartphones. He also took action to curb expenses in other areas. That has helped bring down TRW’s IT costs to one of the most competitive levels in the supplier industry. In an interview with automotiveIT, TRW’s IT chief discussed end-user device strategy, outsourcing to IBM, the challenges of accurately forecasting demand and the changes the company is undertaking in its worldwide ERP systems.
AutomotiveIT: Mr. Engelhardt, TRW had record results in the first half of 2011. Chairman John Plant explicitly praised the company for its outstanding performance. What share of the success can IT lay claim to?
Rafael Engelhardt: During the crisis, the entire company worked hard on its fixed costs. The corporate IT department put many aspects under scrutiny – including some that caused some pain to many employees. For example, we have reduced the number of telephones in use for business purposes by more than 70 percent. We also disconnected all the UMTS connections for laptops. And even today every TRW employer who thinks he needs to communicate using a Blackberry needs the approval of a vice president.
automotiveIT: That sounds tough. But if TRW hadn’t had extremely expensive mobile phone contracts in the first place, these steps alone would have hardly been enough to improve profitability, right?
Engelhardt: It’s just one of many examples. We have also switched to multifunctional devices and only print – if at all – rarely in color and always on two sides. These and other measures show that we have tackled indirect expenses quickly, radically and without reservation in every area of the company. We naturally now want to maintain the lower level of expenditures. That’s what’s important to John Plant. With our good cash flow, TRW is certainly one of the most competitive auto suppliers worldwide. Our total expenditures for IT represent barely 1.3 percent of revenue. This shows that TRW has powerful information technology at costs lower than the industry average.
automotiveIT: Aren’t you worried about falling behind on productivity? In the future, aren’t there many business processes that are going to be conducted on a mobile basis?
Engelhardt: TRW certainly won’t be shut out from that. A mobile device strategy is currently being developed at our headquarters. At the same time, we are considering whether and how we would use the “cloud” in the future
automotiveIT: What are you contemplating as TRW’s global director of information systems?
Engelhardt: For the foreseeable future, I don’t see us making SAP smart phone-capable. But we could conceivably put our e-mail system entirely in the cloud and source it as a hosted service. Naturally, the retrieval of e-mails, appointments and tasks must be possible on a variety of mobile and devices such as the iPhone and iPad. But even if employees increasingly want to use their own devices, we in IT must be in a position to offer coherent answers and support them as they do so. The catch phrase: Bring your own device.
automotiveIT: So you see more room for investment?
Engelhardt: If it delivers a pay-off, always.
automotiveIT: Where did you spend money in 2011?
Engelhardt: On the closing of three TRW research centers, in the US, Asia and Europe, for example. We consolidated about 150 server systems at a service provider in Frankfurt. After operating mostly on our own for years, we’ve outsourced to IBM. Now we no longer have to be concerned with supplying and managing of offshore staffing to support the basic operation of our ERP and QAD systems. High staff turnover and the 12 time zones between our computing center in Malaysia and our American corporate headquarters in Livonia near Detroit kept us very busy and slowed operational decision-making at times. Since the transfer of operations to IBM, we’re already noticing much more flexibility in the engine components area that I’m responsible for. All my employees can concentrate on their core tasks. Moreover, day-to-day computing center costs have been cut in half.
automotiveIT: We know that a partnership between TRW and the IT service provider Satyam has existed for years. Did you scrap that relationship immediately?
Engelhardt: No, we are continuing our collaboration with Satyam in application development and monitoring without any change.
automotiveIT: Then what will your contribution to added value be in 2012 after the outsourcing deal?
Engelhardt: We still do a lot ourselves and currently are at about 65 percent in the engine components product line, which corresponds to a budget of nearly $9 million. That’s a figure that I am not unhappy with, and it t won’t change drastically next year.
automotiveIT: What’s the size of your IT team?
Our 36 employees make sure that IT runs smoothly in our 15 production facilities. We support 1,500 users in seven countries and on three continents.
automotiveIT: TRW has inherently been a technology-driven company with a long manufacturing history. Does that have an impact on IT?
Engelhardt: Certainly. For example, we supplied sodium-cooled engine valves for the legendary “Spirit of St. Louis” airplane in which Charles Lindbergh flew across the Atlantic nonstop in 1927. Today we are a global technology company and one of the largest suppliers in the automotive sector. We are a proud partner of all the major engine manufacturers. Our customers above all appreciate two things in their work with TRW: our great capacity for innovation and our ability to deliver reliably. IT has to support both aspects.
automotiveIT: What form does that take exactly?
Engelhardt: Our business area for engine components has been run globally for 10 years. Here’s the situation for supply chains: our production facility in Thailand delivers valves for internal combustion engines directly to Ford via a warehouse in the US, for example. Something like that is simply not feasible without powerful IT.
At any point, we must know our exact inventory data and be able to deliver electronic orders across two or three ERP systems without any losses. Cooperation across TRW facilities and communication with the customer must function flawlessly around the clock. That’s precisely our core mission.
automotiveIT: What collaboration tools do you use for that?
Engelhardt: The exchange of electronic documents runs with Microsoft SharePoint. This standard solution puts us in a position to exchange and simultaneously process Office data quickly, without running the risk of putting versions differing from one another out into the world.
The situation is different for demand planning and material requirements forecasting: here we rely on software that we developed specifically to meet our needs. One example is data warehouses tied closely to our ERP systems; same-day information from our market monitoring systems flow into them. With this knowledge base, management can make decisions very quickly and steer our global production system flexibly.
automotiveIT: But flexibility is relative. TRW’s steel suppliers work with lead times of up to six months…
Engelhardt: Right. But that’s exactly the reason precise forecasting tools are so important to our success. It’s crucial to the TRW cost structure that we operate our global manufacturing network at full capacity. We give our full attention to this.
automotiveIT: Were you successful during the crisis, too? The automotive markets in particular have never been as dynamic as they have been in the last three years?
Engelhardt: That was a very exciting phase, in fact. I think I can say that we have never more impressed our management as we have recently. At the end of 2008, we determined that our customers were sending us EDI orders calling for continued high volumes, although the downturn had been discussed in the media for a while. There was a mismatch.
As a result, TRW sales, manufacturing and IT formed a task force to create a sort of radar system. It was designed to help us analyze order data from our EDI systems and to reflect publicly available market data and industry news. In this way, we arrived at realistic planning volumes that were very close to the actual trend.
Three or four weeks before orders from our automotive customers fell off, we had already adjusted our factories to the lower level and scheduled our materials and staff accordingly. Inventories remained low and the cash flow high. And all our units, whether in China or Brazil, trusted the figures and learned to appreciate our global forecasting system.
automotiveIT: How quickly did you have this tool at the start?
Engelhardt: It only took two weeks. We analyzed the process and built the system. We exhausted our own data sources and platforms and actively integrated platforms like SharePoint. We were making a killer product, not giving speeches. You could see our American company culture at work quite clearly and feel all the team spirit.
Is the positive effect continuing?
Engelhardt: Yes. An enormous push in the standardization and cleansing of master data came from this phase, for example. For us, the crisis released an unbelievable amount of momentum that I, as the person responsible for IT, could exploit to carry out things that had been on my agenda for a long time – but only as a second or third priority. And we can naturally activate our rapid volume adjustment tool at any time if necessary.
automotiveIT: How dependent are you on your IT colleagues at TRW’s Livonia headquarters?
Engelhardt: There are naturally strategic guidelines that we have to execute. But we are free to support business processes in our product line as we wish. We’re ultimately the ones taking the actions associated with day-to-day business. We can make decentralized decisions.
automotiveIT: Final question: Could you conceive of separating the engine components area from one of its two ERP systems?
Engelhardt: Given where TRW now stands as a company, it’s too difficult to give up the mixed mode of operation. In fact, just last year we commissioned the consulting firm PricewaterhouseCoopers to objectively investigate whether a system consolidation would pay off. The answer: No. The benefits do not make up for the financial and organizational costs. But the product lines meanwhile have a free hand to commit to a centralized ERP system and to press ahead with a consolidation in their lines. In our operations, QAD will get an edge of eight factories to six compared to SAP at the end of 2011. A system rollout is underway at the moment in China.
-Interview: Ralf Bretting and Hilmar Dunker