Huston Tillotson University Chrysler and BMW Case Study

9-600-004
REV. JANUARY 6, 2004
H. KENT BOWEN
Chrysler and BMW: Tritec Engine Joint Venture
Product engineers are generally not upset with having to change a design. We recognize that is part of
engineering. But this was different. I shared my experience with a BMW engineer. He told me, ?At BMW,
manufacturing would not question the design for two reasons. First, they would respect the engineers and have
confidence in their design and the reasons for it. Second, they would accept the challenge and find a way to
manufacture it. They would never say, ?We cannot do it.?? He continued, ?Those problems are unheard of for a
BMW engineer.?
? Chrysler Engine Block SE Team Member
In early September 1997, Jack Smith was trying to decide how to resolve an impasse between the
product design engineers and advanced manufacturing engineers. Ten months earlier, Smith had
become the project leader for Chrysler?s joint venture with BMW. The joint venture, known as Tritec,
was responsible for developing a new 1.6-liter family of engines. Tritec was a high profile
development project with a projected $525+ million investment.
The deadlock involved the selection of an engine block sealing design. Product engineers had
originally designed a lower tie bar for the cylinder block, a design never before used at Chrysler on a
small engine. They believed their elegant design would not only entail lower capital investment, but
also provide a superior seal that would reduce the risk of oil leaks. This design had already been
incorporated in 23 prototypes built as part of the early design phase. Advanced manufacturing
engineers, however, who joined the team after the early designs had been completed, subsequently
pointed out that the design was not appropriate for high-volume production. Without a robust
design, in terms of manufacturability, they argued, the project could not achieve its quality targets.
The product engineers proposed alternative seal designs, including a bedplate design used in
Chrysler?s 2.0-liter Neon engine and a rear retainer design. Selection of one of the three designs–the
tie bar, bedplate, or the rear retainer, involved many tradeoffs, including the engine?s weight, fixed
investment cost, variable costs, impact on the project timing plan, and estimated warranty costs.
None of these tradeoffs could be precisely evaluated at this stage of the project, however.
Although the Tritec team had developed processes and guidelines for resolving problems, Smith
felt he needed to become directly involved. While this was one of many hundreds of product or
process design decisions made in a project of this scope, it was particularly critical to meeting
program cost, performance, quality, and timing goals. Smith realized that failure to resolve the issue
quickly could cause cascading delays in the project and lead to a late product launch. The issue had
already attracted the attention of Frank Ewasyshyn, Vice President, Advanced Manufacturing, and
could easily escalate onto the agendas of other corporate leaders if not quickly resolved. Smith
pondered, ?What is the best block sealing choice? And how should I resolve the problem so that we
can improve our capability of working together??
________________________________________________________________________________________________________________
Professor H. Kent Bowen and Post Doctoral Fellow Courtney Purrington prepared this case. Names, performance data, financial figures, and
other data for the Tritec project have been disguised. HBS cases are developed solely as the basis for class discussion. Cases are not intended to
serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.
Copyright ? 1999 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
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photocopying, recording, or otherwise?without the permission of Harvard Business School.
600-004
Chrysler and BMW: Tritec Engine Joint Venture
Evolution of Chrysler in the 1990s
Under CEO Lee Iacocca (1979-92), Chrysler had twice courted bankruptcy. With the exception of
the minivan, Chrysler products, such as the ?K? car, generated little consumer appeal. Product
development was done sequentially in functional departments known as silos or chimneys.
According to Robert Lutz, ?Our designers worked pretty much in a vacuum, conceiving a product
and ?throwing it over the wall? to engineering in the next building, which would then do the same to
procurement and supply, and down the line.?1 In the latter half of the 1980s, Honda and Toyota had
a commanding advantage over Chrysler in major platform projects (new car designs). They were 40
percent faster (36 months versus 60 months) in terms of cycle times, 100 percent more productive (1.4
versus 3.1 million engineering development hours), and were rated much higher in terms of quality
(conformance and design). An internal study of Honda and external studies of the auto industry
subsequently led Chrysler to change its structure and processes for new product development.
After Robert Eaton became CEO and Robert Lutz became president and COO (Exhibit 1),
Chrysler began to make dramatic improvements in profitability, market share, award-winning
designs, and J. D. Power ratings (Exhibit 2). Forbes selected Chrysler as its ?1996 Company of the
Year.? Executive VP Tom Gale?s design organization created award-winning designs, like minivans
and cab-forward cars. EVP Francois Castaing led the creation of five cross-functional platform teams
(i.e., large car, small car, minivan, jeep/truck, and power train) that ?toppled the chimneys.? The
company?s functional resources were funneled into these platforms, which essentially operated as
five mini-companies. Some senior executives were given two job titles?one functional and another
cross-functional. All the functions were also collocated at Chrysler?s new Technology Center.
Finally, Chrysler pioneered the use of CATIA software in the automotive industry. This software,
created by Dassault Systemes in partnership with IBM, made possible the testing of thousands of
product and process designs without building a single prototype model and helped reduce the
amount of time needed to launch a product.
By 1997, the platform teams had launched multiple generations of products and derivatives
(Exhibit 3) and had acquired formal and informal mechanisms for managing projects. ?Tech Clubs,?
or informal associations of engineers with specific technical knowledge, were created to facilitate
cross-platform learning. Product Assurance Planning (PAP) was also implemented to shorten the
time required to develop new or derivative products and improve quality and customer satisfaction.
A PAP handbook, over 300 pages in length, guided each project team in the ?responsibilities, tasks,
deliverables, quality and reliability methods, tools, and measurements necessary to meet
development milestones? (Exhibit 4).
Other improvements were initiated in manufacturing and procurement. Tom Stallkamp, EVP
Procurement and Supply, led changes in corporate procurement practices to lower costs and bring
suppliers into the new product development process sooner. Over 70 percent of Chrysler?s
components were procured externally. The Supplier Cost Reduction Effort (SCORE) asked suppliers
to submit annual cost-savings suggestions equal to 5% of their annual business with Chrysler. In
1996, the company estimated it derived $1 billion in savings from the effort. To narrow the quality
gap between Chrysler and benchmark Japanese competitors further, Dennis Pawley, EVP
Manufacturing, instituted the Chrysler Operating System (COS). Based on the Toyota production
system, COS introduced a systems approach to manufacturing and received plaudits for
revolutionizing how Chrysler manufactured products.
1 @ Issue, ?Chrysler?s Robert A. Lutz on Design,? p. 2.
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Creation of a Joint Venture
Pre-Project Efforts to Design Small Engines
In October 1995, David Ludlow, a senior power train product engineer, was serving on a task force
given the mandate to explore building a B-class car, a small car with a small engine. Jim Holden, EVP
Sales and Marketing, had assembled the team, which included Bob Marcell, head of the small car
platform, as well as manufacturing, finance, and international specialists.
Future growth
opportunities for low-cost engines ranging in size from 1.0-1.6 liters were believed to be strongest in
emerging markets in Asia and Latin America. While a number of feasibility studies had been
conducted, no vehicle project was ever initiated. The main task force subsequently disbanded after
corporate priorities changed. Nevertheless, a perceived need for Chrysler to develop small-car
capabilities remained. Development of a power train was viewed as the first step toward that end.
A smaller team, including Ludlow, made several more proposals, including one describing the
engine and unit cost for a low annual production of 100,000 engines. Corporate management
responded that the proposal would require too much capital and directed the team to find a partner
to share the costs of developing and producing the engine. Before the team approached any other
companies, however, Bob Eaton arranged a meeting with BMW. Team members were not told why
BMW was chosen. They speculated it was because a joint venture would allow both parties to
explore ?the potential benefits of building a longer-term relationship.?
Joint Venture Explorations with BMW
In January 1996, the Chrysler team held its first meeting with BMW in Munich. BMW, which had
acquired Rover from British Aerospace in 1994, disclosed that it planned to design a new engine for
its Rover Mini. The new Mini, a ?retro style? car, was critical to BMW?s marketing strategy of
moving Rover?s model range up-market and restoring profitability at the company. In addition,
BMW committed to upgrade productivity at Rover by making significant plant investments and
rationalizing production. It also planned to lower costs by using common suppliers, transferring
significant component purchases out of the UK, and reducing Rover?s traditional supply base.
At a subsequent meeting in Michigan, both sides discussed their future small engine development
plans. BMW revealed that it intended to invest in a new engine plant in either Germany or Britain,
and it planned to manufacture a single overhead cam, 1.6-liter engine with an aluminum block. The
Chrysler participants disclosed their intention to build a 1.6-liter engine plant in Brazil using a cast
iron block. Chrysler had decided on Brazil after earlier studies revealed other emerging markets
were too risky. No in-depth study of Brazil?s market potential was made. The manufacture and
export of engines in Brazil, however, would build export credits used to import Chrysler vehicles into
Mercosur nations. Chrysler also had no definite plans for what car(s) would incorporate the new
engine.
Both sides held several more meetings in February and compared estimated costs for their
engines. BMW?s engine was projected to cost roughly $400 more to produce. Its anticipated level of
investment was also significantly higher at a similar volume of production. BMW projected its
annual demand to be about 200,000 engines. During discussions, it became mutually evident that a
partnership would allow the companies to reduce their investment costs by at least 50 percent. BMW
would also be able to learn how to design and produce a low-cost engine. While 200,000 engines
were twice its projected demand, Chrysler believed it could design an efficient engine plant with a
capacity of 400,000 units/year. The company also hoped to learn engine durability and reliability
testing for a ?European-type? market from BMW.
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Chrysler and BMW: Tritec Engine Joint Venture
In April, a Chrysler team led by Francois Castaing held a major technical meeting with BMW. The
Chrysler side gave a very detailed presentation, including 3-D models showing the engine design, as
well as performance, cost, and timing projections. BMW?s presentation was less detailed. Dr.
Wolfgang Reitzle, Rover Chairman and the BMW Board Director responsible for R&D, was
impressed enough with Chrysler?s proposal and analysis that he implicitly endorsed a collaborative
venture and cited BMW?s need to learn low-cost design and manufacturing.
For much of the rest of 1996, Chrysler and BMW engineers disagreed over a range of design
issues. Chrysler engineers believed BMW?s designs would have made the engine more expensive to
develop and manufacture. In June, when it seemed that explorations of a partnership were about to
flounder, Dr. Reitzle overruled his own engineers and decided to accept most of the elements in the
Chrysler proposal. At an early November meeting, both sides subsequently agreed to sign a joint
venture agreement. Several weeks later, the Chrysler team met Rover engineers for the first time.
Rover explained the new Mini?s strategic importance for the company. BMW turned technical
development of the engine over to Chrysler and Rover. The small Chrysler team then started
working with Rover on the design.
Overview of the Joint Venture
Under the terms of the joint venture signed in January 1997, Chrysler and BMW agreed to design
an engine, build a 400,000-unit annual capacity engine plant, and manufacture a family of 1.4L-1.6L
engines. Each would own 50% of the venture, located in Campo Largo, Brazil. The $525+ million
investment for plant, equipment, research and development, and launch was to be equally shared.
Important decisions were to be subject to the review and unanimous approval of a steering
committee (Exhibit 5). Each side had the right to terminate the venture, if any material dispute could
not be resolved. The agreement could be terminated upon one year?s notice, but not before June 30,
2006, unless there was a breach of the agreement, deadlock on a key issue, insolvency of either party,
or one of the parties became owned (>25% interest) by a competitor.
Staffing the Organization
The Project Manager
Jack Smith joined the project in November 1996. One year earlier, at the age of 33, he had been
selected to run Chrysler?s van assembly plant in Windsor, Canada, despite his limited experience
running large, complex operations. Known as a talented manufacturing manager, Smith had
advanced degrees in mechanical engineering (combustion science), materials science, and
management. After 11 months at the plant, however, he was told by senior Chrysler executives that
they were looking for someone to create a new 1.6L engine, design a plant that would implement
COS from the ground up, launch the product, and run the plant. Smith was highly surprised by the
offer. It represented a major career change and meant uprooting his family. He had expected to
continue as the plant manager for two or three more years. Smith?s initial reply was: ?I don?t know
very much about product development from a practical experiential basis. Are you sure I?m the
person you want??
In response to Smith?s concern about his inexperience in managing new product development,
Francois Castaing and Dennis Pawley promised to provide whatever resources were necessary.
Smith recalled them saying: ?We?ll surround you with some of our best people. Trust us Jack, you?ll
be able to get this done.? On the basis of this promise, he accepted the offer. At an early November
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1996 meeting in Germany, Smith met several BMW executives in order for them to decide if they
would be comfortable having someone of his age and background leading the project.
Smith was given a mandate to create a business. He was instructed to ?take the concept that the
vice presidents had agreed to with BMW, fill in the blank spaces, organize the project, and get the
business running.? His span of coordination responsibilities was extensive. He was given direct
responsibility for all work ?from cradle to grave? for the project. The considerable executive support
Smith enjoyed provided him the organizational leverage necessary to accomplish tasks in a timely
manner, even though he did not outrank the functional managers who would provide many team
members to the project. He reported to senior Chrysler executives, including those on the joint
venture?s steering committee. His executive sponsor was Francois Castaing. Beyond the broad
parameters given him, Smith was not given an explicit charter that established project objectives.
Early Dedicated Staffing
Before Smith was selected to lead the project, David Ludlow began recruiting a small nucleus of
product engineering specialists, who had worked with him on the 2.0-liter Neon engine. Some had
also participated in the early concept phases of the 1.6-liter project. In early November 1996, this
small team of product engineers and designers was working full-time on the project. At the time,
Ludlow was uncertain about Smith?s role during the design phases of the project. But he thought it
was a great idea to bring some of the plant people on board early, ?so they could understand the design
process and own it.? This had not been his previous experience at Chrysler.
Ludlow sought to create a cross-functional platform team, with dedicated people from engine
engineering, advanced manufacturing engineering, supplier quality, procurement and supply, and
finance. His initial request was ?rather conservative in terms of numbers? because he thought he
would ?never get the people he wanted.? Castaing helped provide most of the necessary resources,
however. According to Ludlow, ?a champion at that level was highly unusual for a development
project of this scale.? Ludlow regarded the presence of an executive sponsor as vital. He compared his
?dream experience? on this project with prior experiences:
On other projects we would have deployed product engineers who had worked on the 2.0
liter and were available. Advanced manufacturing support would have initially consisted of
3?4 part-time engineers. Over time, it would have ramped up to 10-20 people, but with only
five dedicated on a full-time basis. No one from procurement would have been dedicated fulltime to the project.
Smith and Ludlow both sought outstanding people inside and outside Chrysler with the requisite
skills. They wanted tenacious, talented, and outspoken people, who could tolerate complexity, work
in a foreign setting, and still demand support from their functional departments. They also preferred
to hire managers who had significant plant manufacturing experience (Exhibit 6). Except for his
managerial staff and some advanced manufacturing personnel, Smith was not directly involved in
most hiring decisions. Some managers joined the project after their engineers were on board. These
managers included Ron Stone, Engine Engineering; Tomas Morales, Advanced Manufacturing
Program; and Frank Simon, Procurement and Supply. Ernst Schmidt was selected by BMW as Chief
Financial Officer.
By June 1997, staffing for the design phases was nearly complete. The project team (Exhibit 7)
comprised about 120 members (mostly dedicated full time). Despite an emphasis on ?choosing
experienced talent with a good reputation,? nearly half of the team was new to Chrysler. Tritec was
projected to be two-thirds the investment of Chrysler?s recently launched 4.7-liter engine program, but
had 16 more advanced manufacturing engineers. On a normalized investment basis, Tritec employed
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Chrysler and BMW: Tritec Engine Joint Venture
more than twice the number of manufacturing engineers (54 versus 26). The upfront, dedicated
staffing of advanced manufacturing engineers (and future plant staff) was done to ensure that a
problematic design would not simply be thrown over the wall?as a Tritec manager explained had
happened in the past: ?After we found that the design didn?t work very well, we would then get into
a panic mode of finding ways to fix it, adding costs, adding manpower, and making the equipment
late for delivery to the plant floor. Or maybe we would take the problem to the plant floor because
the supplier couldn?t get it fixed in time.?
By having so many fully committed manufacturing engineers on board early, more time was
spent reviewing manufacturing processes, plant and machine layout, gauging and tooling. Each fulltime advanced manufacturing engineer cost about $125K per year, however. There was also a
shortage of advanced manufacturing employees because of a large number of ongoing power train
programs. This led to the hiring of contract engineers. Although many were young and inexperienced,
Ludlow observed: ?They don?t carry old baggage and consider new ways of doing business.?
Due to the challenge of hiring contract engineers, advanced manufacturing was the last function
to become fully staffed.
Even then, product engineering was unaccustomed to a strong
manufacturing voice so early in the product creation process. One product engineer, while
acknowledging the benefits of early manufacturing involvement, nevertheless nostalgically recalled
the days when ?AME [Advanced Manufacturing Engineering] was not looking over our shoulders.?
Another complained, ?AME is too strong and demanding.? But Smith believed the manufacturing
engineers should have been added to the project about six months earlier ?in order to get full
alignment, full clarity about strategy, and full orientation of people.?
Aligning the Organization
Leadership
Smith?s perception of what constituted effective leadership generally coincided with the way
project team members described him. He believed leaders should be trustworthy, sincere, reliable,
predictable, and competent. He believed relationships with his team members should be based on
trust with open and sincere communication. Team empowerment came from giving team a clear
direction and guidelines on how to achieve its mission. He characterized his managerial style as
?open and results-oriented.? Finally, he believed that alignment of the organization?s strategy,
structure, systems, and metrics was critical.
Smith was especially concerned with alignment in an organization, where he discovered ?many
people had tacit knowledge of how to create a product, but there existed no Chrysler development
system? per se. He was surprised to learn that each Chrysler platform team conducted product
development somewhat differently. Tacit knowledge was often lost and not transmitted even within
the platform to the next generation when leadership changes occurred. He found himself wondering,
?How can I tap into that knowledge and share it with other members of my team?? This led him to
discussions with a university mentor in December 1996. The professor recommended that he study
state-of-the-art literature on new product development (best practices) and use modest external
resources to coach him and his team. Smith also enlisted the services of several Chrysler retirees.
Within the team, there was a range of perspectives on Smith?s efforts to bring in outside experts,
as well as his continued efforts to develop better approaches to product development. One manager
commented, ?He believes everything is broken and needs to be fixed.? Others felt that when he
brought in coaches, it represented ?a lack of trust for the team to do its job.? Still others believed he
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did so, in order to fill in ?gaps in his knowledge, because he was on a career fast track.? Many were
also initially skeptical about the ?value-added? outside specialists could provide.
Smith championed a number of concepts for the team. One was that the engine design should be
?simple and proven,? as should the manufacturing process, given the many risks and uncertainties
already inherent in the project. He characterized himself as a ?strategic problem solver.? According
to Smith, ?I spend my time on those items where I can help the team lay a foundation and move
forward.? He emphasized training his staff on how to resolve conflicts themselves. When his
intervention was required, however: ?I make sure everyone is heard and we get all the issues on the
table. Hopefully, the groups can then resolve the issue themselves. If not, I will then interject some
philosophy or some guidelines in order to expedite resolution of the issue.?
Collocation of Team
While assembling the team, Smith and Ludlow decided to collocate all team members in the same
suite at the Chrysler Technology Center. They believed this would improve understanding between
functional experts, increase cross-functional flows of information, foster team building, facilitate the
creation of a shared vision, and expedite decision-making. While such proximity of team members
was not uncommon for Chrysler?s vehicle platform teams, it was unusual for the power train projects,
whose team members typically conducted most of their work within the geographic confines of their
own functional community.
Advanced manufacturing was not collocated with the team, however. Union bargaining unit
rules prohibited contract workers from working at a Chrysler facility. Faced with the choice of
moving the entire team off-site, or dividing his team, Smith decided to locate all manufacturing
engineers at a facility three miles away, which became known as ?the AME building.? This was
because he was concerned that moving the entire team offsite would isolate it from the rest of the
Chrysler organization. One product engineer, however, pointed to the ramifications this had for
organizational dynamics: ?You lose the coffee pot interaction. During the early design phases, a
component design can change four times in a day. But you can’t just drop by someone’s desk when
they are a 30-minute commute away. On the other hand, had manufacturing been collocated, the
product engineers may have been even more overwhelmed.?
The Contract Book
In late March 1997, Smith spent a day with his university mentor to better understand the strategy
and best practices for leading a product development project. Upon his return to Chrysler, Smith
assigned Len Ramsey, a management trainee, to begin work on a Tritec contract book. This formal
document was designed to specify the measurable objectives of the project, the processes used to
achieve them, and to help team members understand (and agree on) the overall strategy and relate it
to their daily work activities.
The first draft was about 100 pages. It was presented at the June town hall meeting, where
management staff led small breakout groups to facilitate communication, to elicit feedback, and ?to
foster organizational learning.? The initial reaction from some team members, irrespective of
function, was somewhat negative. This was partly related to the initial size of the document. A
typical response was ?I don?t have time to read this. What relevance does this have for my job??
Some managers did not encourage team members to read it.
The document required several more revisions and critical input from outside experts. The final
document was eventually 47 pages long and defined both the program?s goals and how to
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accomplish them (Exhibit 8). The entire team eventually signed the contract book, which contained
the following statement: ?The mission of TRITEC Motors, the Chrysler/BMW Joint Venture, is: To
develop a family of high quality, strong performing 1.6 L engines, and to build the world?s lowest
overall cost engine business in the city of Campo Largo, Brazil by July 2000.?
Achieving this mission would depend on five critical success factors: 1) high quality, equal to any
engine in the world; 2) low overall cost; 3) execution of a world-class product development process;
4) implementation of the Chrysler Operating System at the plant; and 5) continuous learning. The
metrics used to define success included certain performance, productivity, investment, quality, and
cost targets. Target values used to define world-class performance were calculated by benchmarking
other engine plants. High quality depended on achieving three attributes: function, reliability and
variability. Function required that the product perform in a manner that met customer needs under
all operating conditions. Reliability meant that the product was durable under all anticipated duty
cycles. Minimal variation meant that processes were in COS terms, ?robust, capable, and in-control,?
so that all engines functioned as designed and with the design reliability sought. A warranty
assessment was used as a principal measure of product and process quality.
By signing the contract book, team members agreed that these project goals would guide all their
key decisions. Smith hoped that this would not only encourage individual ownership of project
goals, but help the team arrive at more timely decisions and with a clearer understanding of the
tradeoffs involved. He regretted that completion of the contract book was so protracted, since it
therefore had less impact on some of the early design decisions. Although the contract book also
contained a section on senior management involvement, the Chrysler-BMW steering committee was
not approached about signing it. Some staff members believed this was a tactical mistake.
Product Assurance Teams and SE Teams
The guidelines in the PAP Manual emphasized the central role performed by cross-functional,
Product Assurance Teams (PAT’s). Over 30 of these teams at Tritec managed the process for
designing, developing, testing, and manufacturing of dozens of components procured externally.
Advanced manufacturing was generally not involved in the process. Product assurance teams were
generally led by a product engineer and typically included a supplier quality specialist and 2-3
representatives from the supplier. Believing Chrysler already managed its product assurance teams
well, Smith did not focus much on these teams in 1997.
Smith instead viewed Simultaneous Engineering (SE) Teams as the critical nexus for product and
process integration. Unlike Product Assurance Teams, SE Teams focused on a small number of
critical engine parts to be designed, machined and assembled by Tritec. These teams were
responsible for the integration of manufacturing process, layout and tooling, and supplier selection
(process equipment) with the engine design. SE Teams were the primary vehicle for interaction
between advanced manufacturing and product engineering specialists and were structured to ensure
that the engine and its critical components were designed for manufacturability, assembly, and
serviceability (Appendix). He hoped that cross-functional expertise would decrease the number of
late design changes in the project. Finally, he wanted ?everyone to wear two hats, his functional hat
and the team hat. And everyone should see his career as inextricably linked to the project?s success.?
Seven SE teams were created in May 1997: Connecting Rods, Cylinder Head, Crankshaft,
Camshaft, Cylinder Block, Cylinder Head Assembly, and Engine Assembly. The SE teams included
product engineers, engine designers, advanced manufacturing engineers (tool, process, and gage),
and support functions (when needed) like procurement and finance. External machine and raw
material suppliers also participated. Each team was co-led by an advanced manufacturing engineer
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and product engineer. Both were in charge. According to Ludlow, the composition of the SE teams
was different from his prior experiences:
In the past, because of manpower constraints, there would have been one senior product
engineer, one product engineer, one designer, one AME person if we were lucky, probably
assigned part-time, and no one representing the plant. You would have had a casting supplier
and a machine tool specialist. But it was an engineering-driven SE process. And the product
engineers were always the SE team leaders.
Formalized procedures were created by