Winds of Change Blow
Through Wiring Harness Industry

Our report in the March/April issue identified several key trends in the wire harness industry. We found that OEM customers are increasingly outsourcing much of their wire harness and cable assembly business; some OEMs that were vertically integrated have shed their internal wire harness operations and accepted bids from competitor companies; these OEM customers expect a much higher level of service, including harness design, rather than just build to print capabilities. They expect producers to have global sourcing and manufacturing capabilities; quality assurance programs in place, and at the same time be extremely cost competitive. These changing requirements have forced many companies out of the game; others have merged with larger companies. Captive producers have been spun off as independent companies, companies that stay in business have undergone massive restructuring to meet these new requirements. In this issue we take a closer look at how several top players have responded to these changing market conditions.

By Jennifer Read

In 1990, Robert Stirniman released a report on the North American wire harness, cordset and cable assembly industry that identified nearly 1000 producers, both captive and merchant. This report was published by TAMA Reports of Lake Zurich, Illinois. The report identified and profiled 925 separate organizations which produce wire and cable assemblies at 1,354 plant locations in North America, with total shipments of $7,336 million in 1990. This compares to Ken Fleck's wire harness consumption data, reported last issue, of $6 billion. These numbers do little to reveal the dramatic restructuring that has occurred among the companies listed in the report.

Perhaps the best way to bring home the massive changes this industry has undergone since the 1990 TAMA report was released is to recount how difficult a time we had tracking the companies listed as top producers in the sales ranking of all identified wire and cable assemblers. Most of the phone numbers are simply not in service. One call to a Colorado number listed connected us to an Asian restaurant. And the problem isn't that the phone numbers were inaccurate. They were good in 1990. But that world simply no longer exists.

For example, Packard Electric is listed as the top producer in terms of sales volume. In 1990, Packard Electric was the captive wire harness facility of vertically integrated General Motors. In those days it was thought to be a competitive advantage for OEMs to be able to manufacture everything internally. Since 1990, Packard Electric has become Delphi Automotive Systems and just recently has been spun off as a completely independent company, free to bid on contracts for other auto makers.

And the other side of the story is that other suppliers can now bid for GM business. Steve Leggett, United Technologies Automotive Vice President of the General Motors' Product Team division says his company has become the first non-Delphi company to win a major contract for GM's wire harness business. But not before UT Automotive has itself gone through an extensive reorganization. "Before 1990, most wire harness suppliers built mostly to print source. Now we have to be full service providers. We do all the product engineering for our wiring customers," said Leggett. The UT Automotive reorganization occurred mainly in response to auto makers' moves. "The automotive OEMs are organized around product platforms now. So it made sense to align our structure with that. It is pretty much dependent on the customer. Some want us to co-locate our people into their plants. Others don't want that. We do what they want, basically," Leggett explained.

Appliance industry goes global

A key driver for appliance OEMs is globalization. White goods manufacturers are moving plants to Mexico and other low-labor rate countries in an effort to become more lean and efficient. They expect their suppliers to have global sourcing capabilities and to provide a broader range of services. Wire harness contractors are scrambling to establish a presence in other areas of the world, by building facilities or forming joint ventures to allow them to serve these customers' manufacturing sites. Companies throughout the supply chain are shedding businesses in order to focus on core competencies.

For AMP Product Manager, Gina Caruso that means her company has to sell to the OEM and the wire harness contractor. Since the OEM is outsourcing the design function as well as the manufacture of the wire harness, in order to get AMP components designed into the wire harness, they have to establish a stronger relationship with both entities. "AMP has built a warehouse that sits on the border between Mexico and the U.S. and that is a key selling point — that we can deliver parts to the manufacturing facility of the wire harness contractor that in turn delivers to the OEM facility." Caruso said. "Our customers are requiring more value from their suppliers. For example, AMP subsidizes tooling and has simplified our pricing structure to serve our customers better."

Another interesting outcome of the trend toward globalization, according to Caruso, is the interest in the European RAST standard for wire harnesses. European appliance manufacturers have been using the RAST method since the mid-1980s because of the advantages in improved quality, increased productivity and applied cost savings. Now North American wire harness producers and OEMs are interested in the technology. RAST stands for Raster Anschluss Steck Technik, which translates to Pitch Connection Plug Technology. It is a system-based approach to designing connectors and harnesses that was defined by a group of European white goods manufacturers. Use of the system reportedly minimizes labor costs through automation and the fact that components are delivered with contacts already inserted into housings. Multi-wire harnesses can be produced directly from application tooling. Using the RAST standard is also said to reduce development time and cost.

Datacom industry shake-out continues

Another AMP response to changing conditions is the ACES program. ACES stands for AMP Cooperative Electronic Subcontractors and was formed in 1989 because AMP recognized the strength of the outsourcing trend and wanted to establish a program to align itself with select subcontractors to more efficiently serve the OEM. The program is now highly successful and has grown with the industry.

AMP ACES Director John A. Carrigan offers an analysis of the industry that clarifies things. He said that while before 1990, there were two categories — OEMs and contractor manufacturers — that built, among other things, wire harnesses on a build to print basis, now a third category of player has emerged — the subcontractor to the contract manufacturer. That is the company that actually is building the wire harness. In the datacom business, companies have become more specific in what they do, focusing again on only their core competency. Contract manufacturers are therefore defined as building complete systems for the OEM, handling all their manufacturing; but these contract manufacturers are, in turn, outsourcing their wire harness design and manufacture to other subcontractors who actually build these subsystems. The overall result is that many companies that used to do wire harnesses have been gobbled up by a handful and the rest have become subcontractors.

Customer interface must be very user-friendly

W.L. Gore and Associates Technical Marketing Manager Liz Petrick points to her company's dedication to making buying from Gore easy for the customer. This, she said, is what her company thinks the changes in the industry have required. Gore emphasizes partnerships with their suppliers to make it possible for the end customer to have "one-stop shopping" when they buy from Gore.

This is also an important part of General Cable's current thinking. Mark Horita, vice president and general manager of OEM products said that harness suppliers must be solutions providers. Vertical integration is a must; engineering investment in people and tools and large scale program management are also prerequisites when dealing with the large multinational OEM customers. His company promotes itself with the slogan, "The Power of One" which they claim means one order, one shipment, one source. The organizational structure had to be created to support project teams and business to business partnering. This meant investing in EDI and virtual product development tools.

Company wide, in 1997, this approach led to sales growth of 22 percent with General Cable's top 20 customers. Over the past three years the sales with these key customers have more than doubled; this continues a three-year trend where they now have one-fourth fewer customers buying an average of 60 percent more. Further more, approximately half of these customer orders are received using EDI.

From the automotive to the appliance to the datacom markets, wire harness and cable assembly producers and suppliers have been racing to find the right mix of competencies and facilities to serve the OEM customer. The consolidation is probably not over: NOMA was recently purchased by General Chemical; a purchase of General Cable by BICC is reportedly in the works. As business conditions tighten around global economic shakiness, it's a pretty sure bet the road to success won't get any smoother for companies servicing these highly competitive markets.

~ WHN ~