Question 1: Should Bertrandi accept the order from Mitsubishi? What are the challenges involved? Studying from the foresighted point of view, Bertrandi should accept the prestigious contract from Mitsubishi of producing Pajero. This would not only provide opportunities to Pininfarina (a niche manufacturer) for further modernizing the production facilities but will also provide learning in productivity improvement, increased quality, better inventory control and space utilization, reduce waste – and all in Japanese way (considered to be the best and meticulous in automobile industry). Heavy revenues for Pininfarina were estimated to be around 900 billion/year over the life of the project. Pininfarina received a proposal from Mitsubishi in July 1995 and volume production of new model to begin by May 1999. Challenges Involved in accepting the contract:
* Adapting - Mitsubishi proposed that Pininfarina adapt the design and manufacture in Italy for all Europe. The major design work would be in adding a left-hand drive model and in adapting the process design to Pininfarina’s capabilities.
* Pininfarina had to adapt the process to its facility (designing an appropriate flow and layout) and to adapt certain processes to a more labour – intensive system. This would be more in Weld shop (BIW) since Japanese have tendency to place robots in Weld shop.
* Contract details - Though the basic characteristics of proposal were clear but details were not fully specified. It was understood that decision to proceed will have to be taken with many details not completely specified or loose ends. This also means some hidden costs or unknown terms & conditions will have to be accounted for to minimize effect of surprises at later stage.
* Standard margin – Calculation of standard margin is based on the target cost which in turn is based on Mitsubishi’s own experience of producing the model in Japan and correction of differing process, parts and transportation costs. Using Japanese culture and methods, cost of production will be very low as compared to European production costs. Hence, earning profit is a challenge for Pininfarina. Moreover, Bertrandi is hoping to achieve production costs below Mitsubishi’s target cost in order to earn additional profit.
* Heavy investment – Total investment were expected to be in the range of £300 billion. Capex of general purpose equipment was in the range of 10% to 15% of total investment. Risk of buying general purpose equipment and robots lies with Pininfarina. There would be an apprehension that after the expiry of contract whether these equipments would be of much use as contract duration is 5 years.
* Unfamiliar suppliers – Pininfarina would have to procure other parts only from Mitsubishi preferred vendors located in Europe which would pose challenge to Pininfarina, they being unfamiliar suppliers. Pininfarina was responsible for parts supply and negotiation of prices with them and moreover, volumes needed were much less which made negotiation for price and delivery difficult.
Question 2: What major changes in facilities; equipment; people; systems will be required if Pininfarina accepts the order? * Working Philosophy – Foremost important thing for Pininfarina to realize is that they need to change their attitude/thinking, working style, procedures according to the Japanese automobile manufacturer’s methodologies in addition to making any physical changes (people, facilities or equipment/tooling). This being Pininfarina’s first contract with any Japanese manufacturer and the operating and management styles of both are different.
* Complete new production facility would be required for producing Mitsubishi Pajero – Land acquisition, Weld shop, trim facility, sufficient parking space.
* Design changes – for European models. Product and process design changes for manufacturing European model of...