The North American auto industry squanders more than $10 billion each year because of poor planning and faulty coordination between carmakers and parts suppliers when products are developed and assembled, McKinsey research indicates. Yet the level of waste varies widely for players in both roles, suggesting a significant opportunity for improvement. If the entire industry were as efficient as its top performers, it could save $8 billion.
Indeed, we think this estimate is conservative. The study included only those costs borne by suppliers, such as additional engineering, last-minute modifications to production tools, and added costs for the parts themselves. It didn't take into account extra engineering by manufacturers, increases in the final cost of vehicles because of production issues, or the expense of warranty repairs, which often stem from design problems and cost the North American auto industry around $12 billion a year.
Our study evaluated the recent product-development efforts of eight parts manufacturers and six Japanese and US carmakers operating in North America1 and found that 80 percent of the waste is concentrated in three areas. The largest one involved changes to product specifications during a new model's two- to three-year development process. We estimate that these modifications...