The Phenomenon of Slipped Launches
In the past, OEMs launched a couple of major vehicles each year. This is because it was all their organization and all their suppliers could handle. An automaker would prepare for months with trial builds, simulations, test production and other methods to ensure that launches would go smoothly. In most cases, the early preparation and months of planning paid off. When an OEM had planned for an 8-week launch curve, they were able to accelerate it and reach full speed faster than planned. Others hit their planned schedule with little fanfare—keeping management, dealers and suppliers at least content that a hole in their vehicle inventory was not made wider than expected.
However, today there are more frequent launches, which has led to the phenomenon of “slipped launches.” This is a launch which can take twice as long or more as originally expected to reach full speed. Timing and value both slip from original forecasts.
Many causes have been offered to explain why we have seen a spate of slipped launches as the automotive economy rose from the lows of 2009 to the fever pitch found today in North America. Some have offered that the OEM was stretched too thin or suppliers did not prepare appropriately. Sometimes a new technology or process did not perform as planned.
Whatever the reason(s), the rise has been noticeable. Suppliers that did their homework and met their commitments but were caught in the crossfire faced idle resources and lost opportunity to sell their capacity in a robust market.
To protect the innocent, we will not name names, though virtually every supplier in North America could identify major launches which went south and impacted their bottom line. To place it in perspective, in 2013 there were 16 launches in North America. In 2014, this number nearly doubled to 34 launches. Remember, this is not counting a trim level launch on an existing vehicle but full-blown launches of new offerings. As most suppliers are not on every launch, doubling of the rate places extreme pressure to execute flawlessly and to be flexible to changes during the launch. Build rates, content levels, late engineering changes, logistics issues, and a number of other factors can alter the best laid plans.
There are other reasons to get it right and hit the forecasted launch curve. Vehicles produced at the beginning of a production cycle are often the most profitable over the 5-to-6-year period the vehicle is in production. At the beginning, customers are likely waiting for the offering with little to no incentives urging them to place an order. Faster launch curves are welcome, slower ones not so much. Going forward, the industry will view slipped launches as more than just an anomaly if these become pervasive. Given the level of material change, new facilities (e.g., Mid-Mexico) and strain on the industry, it is likely we have not seen the last of slipped launches.
OEMs which can plan effectively in conjunction with their suppliers to avoid slipped launches will drive differentiation into the industry and the suppliers who want to work with them. OEMs which deliver on their launch forecast from a timing and volume perspective will be perceived as preferred customers. Preferred customers may attain new technologies faster than others—thus deriving higher vehicle value to their customers. This circle of value is not lost on the industry.
In the end, slipped launches are wasteful. Unfortunately, the number of launches in North America is not expected to abate until later this decade. Smarter suppliers will work with OEMs who are able to launch as originally planned.