PA Consulting Group had been asked to work with Fiat Auto – the largest company in the Fiat Group empire – to support an aggressive cost-reduction programme for annual purchasing of more than €1 billion.
Fiat Auto and PA both recognised the major challenge lay in fully understanding all the factors underlying component costs. Fiat Auto had already started a programme that aimed to reduce costs by several hundred euros per car, with a total annual cost reduction target of more than €100 million by end-2007. PA was asked to accelerate this programme and to help it adopt a new methodology, initially focused on four new models that were seen as crucial to Fiat Auto’s future success: the Fiat Croma, Grande Punto, Alfa Romeo 159 and New Ducato.
PA’s bold approach was to create a total understanding of the costs involved (components, supply chain, technical design), develop cost-saving ideas, and capture and implement every idea. Using a versatile and unique cost model developed by PA – coupled to the firm’s intimate knowledge of automotive manufacturing processes – the joint team were able to determine what any component ‘should cost’. The team then investigated any disparity between the ‘should-cost’ and quoted price, and had detailed discussions with suppliers to agree savings.
By analysing the supply chain, PA’s modelling tool helped identify the optimum supply chain and associated costs. For example, relocation of labour-intensive trim/cover production to Eastern Europe saves more than €10 per car.
And finally, to analyse Fiat Auto’s own vehicle design and parts complexity, competitors’ vehicles were literally ‘torn down’. This enabled possible cost benefits from technical changes to be identified. A workshop area (nicknamed ‘the Zoo’ because it was enclosed by a steel mesh cage) became the focus of the process. More than 16 competitor vehicles were stripped down and placed side by side in ‘the Zoo’ to compare their design with Fiat Auto’s equivalents. Using PA’s costing model, teams in workshops identified and quantified improvement ideas.
This significant programme helped Fiat Auto achieve its 2006 cost reduction objectives and will further enhance its drive for future growth. From the beginning of the programme, the value of viable cost-saving ideas identified for the four models had more than trebled to over €100 million per annum. Of this, €80 million has already been realised. In a year that has seen dramatic materials and energy price increases – eg copper up by more than 60% – some of the ideas generated have been successfully used to offset this negative impact on overall costs.
What the client said about PA's work
“PA worked with the integrated multi-disciplined Fiat teams to significantly improve our way of working. In particular, the structured dismantling, evaluation and benchmarking of Fiat cars with competitors’ identified major improvement opportunities. It laid the groundwork for a tremendous increase in idea generation, evaluation and implementation – for both current and future models.”
Carlo Bassotto, Programme Manager, Engineering and Design, Fiat Auto
“The impact on Fiat Auto goes well beyond the four new models. Fiat Auto has significantly improved its approach to costing for all its product ranges.”
Gianni Coda, Senior Vice President, Purchasing, Fiat Group
“The joint Fiat-PA team trebled the number of improvement ideas, and introduced a process that implemented them more quickly than before. Innovative new product designs will improve existing and future model development.”
Harald Wester, Chief Technical Officer, Engineering and Design, Fiat Auto
