The Jaguar XF, as seen above, is just one of the many vehicles that uses a drive shaft supplied by Dana. But the automotive component company is having to adapt now to remain relevant in a very different future, says Craig Price. Why? The electric car doesn’t have a drive shaft.
Put 2025 into your diaries. That is the year automotive components company Dana expects a revolution in the pick-up truck. The gas-guzzling US icon is one of the enduring blue-collar cultural references, as American as burgers, jeans and an open road.
Rednecks in the US modify the diesel engines of their pick-ups to “roll coal”, pumping as much fuel into the engine as possible and belching out plumes of black smoke, often in response to the sight of a Toyota Prius hybrid car. But Dana sees that world changing, and it’s preparing for it now.
“If you look at Tesla, electrification is already happening in the smaller car segments,” says Craig Price, senior vice president for purchasing and supplier development. “Where Dana plays in the light vehicle market, we are more into the all-wheel drive and pick-up truck area. We believe that segment of the market will really start to go electrified in 2025, so getting ahead of the game is the right strategy.”
Electrification will prompt sweeping changes across the automotive sector because the technology is so different to that associated with the internal combustion engine.
Dana specialises in axles, drive shafts and transmissions. It signed deals worth more than £300m with Jaguar Land Rover last year to provide axles for various models, including Jaguar’s XF saloon, though the relationship with JLR goes back over 70 years. Its customer list reads as a who’s who of the automotive industry. The thing is, electric cars have completely different components.
“It’s revolutionary,” says Price. “An electric car doesn’t have a drive shaft. It’s a game-changer for the industry.”
What electric cars do have are batteries, electric motors and inverters, the gizmos that change the direct current from a battery to an alternating current, allowing engine speed to be adjusted. Dana has responded to the challenge with several key acquisitions.
“If you look at electrification we are really at the start of that journey and, making sure we partner with the right supply base, we decide what we want to manufacture ourselves and what we don’t want to manufacture ourselves, to ensure we’re successful going forward,” says Price. He says a “make-versus-buy” analysis is carried out to determine the best strategy.
The company bought a majority stake in TM4, a Canadian manufacturer of electric motors and inverters, last year. Price describes this as “our first path in the electrification stage”. In January it announced it had acquired an Italian maker of low voltage motors, SME. In 2018 Dana also bought Oerlikon Drive Systems, which provides planetary hub drives, gearing and e-propulsion, for use in Dana’s off-highway division, which covers work vehicles for agriculture, construction, mining and forestry.
Price says electrification and hybridisation was identified as a key area of focus in an enterprise strategy created in 2016. “The acquisition of TM4, SME and Oerlikon are all key pillars of that strategy; we think it’s important that we have the ability to make our own motors and inverters,” he said. “Those acquisitions set us up well. There is a lot of money being invested in our industry right now in electrification. We see it as a key area of focus.”
But he adds: “The question is, how do you make money from it? There are not many of these companies that are profitable.” Tesla’s financial troubles are well-known, though VW has announced a new range of electric cars.
Dana has made five acquisitions over the last five years, but Price says statistics that show only around 60% of such deals produce the promised synergies do not apply at his company.
“We’ve found the opposite of that,” he says. “The most important part of the acquisition is the integration phase. When we acquire a company from a purchasing perspective we are very diligent in terms of the integration.” Price explains how matched pairs of buyers are created in Dana and the acquired company, covering key commodities, and these people are “put in a room for several weeks” to create a “synergies roadmap”.
“Given procurement is such a big portion of the synergy element we are very diligent to make sure we hit our objectives, both on the direct side and the indirect side,” he says.
This system of matched pairs is also used as a bridge between procurement and engineering within Dana. “We have matched pairs of purchasing and engineering key people, so as we develop our strategies both from a commercial and a technical perspective we are joined at the hip in selecting which supplier we source for which commodity,” says Price. “For all our key commodities we have an engineering lead and a purchasing lead. As we develop our strategy and pick the suppliers of the future for Dana, those folks are aligned on who we are choosing for which programme.”
Dana has 24 key commodities, which include castings, bearings, forgings, fasteners and electronics. Within the electrification strategy there are another 12 sub-categories of parts that go to make motors and inverters, including sensors, solenoids and stators. Price says demand is at record levels in many of the markets in which Dana operates and there are limited suppliers for some commodities. As a result markets are “very constrained in terms of supply”. There is also the backdrop of the US/China trade war and US tariffs on aluminium and steel (Dana buys around 650,000 tonnes of steel each year).
“Making sure we have supplier capacity for our key commodities is a big area for us,” he says. “Managing our supplier risk is a key part of that. In the last few years a number of suppliers have fallen by the wayside.” They address this risk by limiting the proportion of spend with a single supplier, he says.
Price took up his current role two-and-a-half years ago, having previously led Dana’s European purchasing arm and then off-highway purchasing, after joining the company in 2010. His strategy has been to be less transactional and forge closer relationships with fewer suppliers, a task perhaps not made easier by the fact that each acquisition adds more of them.
“When you acquire a company, that mostly comes with a lot of suppliers to integrate into our supplier base,” says Price. The acquisition of Oerlikon added “several hundred”, he says.
Dana has just over 2,500 suppliers, but around five years ago it was double that figure. The firm works with around 100 key strategic suppliers around the globe and the aim is to grow that number while halving again the total number of suppliers.
Dana is organised into four business units: light vehicles; commercial vehicles; off-highway and power technology. It spends just over $3bn a year on direct materials, while indirect spend on products, services and capital expenditure comes to just over $1bn. The company has 5,000 customers and last year’s sales revenue reached $8bn.
Price reports to CEO Jim Kamsickas and takes part in weekly meetings with him. “I’m fortunate. Our CEO understands procurement, he sees the value of it.”
Around the world, there are around 375 people working in purchasing across five international purchasing offices in China, India, Hungary, Mexico and Brazil. The team operates under global level coordination and local execution. “We are organised by business unit and then we have commodity buyers and managers for commodities across the company, so we try to leverage our economy of scale,” explains Price. The head of castings, for example, is responsible for coordinating the castings commodity strategy for all the business units in every region. “Then we have local people deployed in the regions to help execute that strategy.”
Price says they target 3% cost savings each year through methods including negotiation with suppliers and value engineering, which involves “working with our supply base on technical changes to improve the cost of a product that doesn’t necessarily impact in a negative way on their profit margin”.
“You could makes parts from a cheaper material, increase tolerances, those kinds of things,” he says.
“Our strategy overall is to spend money as wisely as we can, to give our businesses a competitive advantage. We are focused on a number of areas. Obviously material performance is one, but supplier risk is a massive part. We look at supplier risk not only from a financial perspective but in today’s age of the geopolitical things going on, it’s a much broader topic for us. Tariffs and those sorts of things are integrated into our supplier risk programme.”
Dana has calculated that a hard Brexit would cost the company around $2m in terms of border delays and duties.
Every two years Dana carries out an employee survey. Feedback said that people wanted a more structured approach to training. “Until two years ago we had an ad hoc way of training, learning and development,” admits Price. The Dana Procurement Academy was born at the end of 2017, based on the CIPS Global Standard. All buyers are being put through a foundational programme. Around 12-15 people each year will be selected to complete an advanced practitioner programme over 18 months, which results in MCIPS.
“We see our future leaders graduating from that programme,” says Price.
Into a carbon neutral future
Automakers will invest $300bn in the next five to 10 years to put electric cars into production in China, Europe and North America. The Reuters analysis also says that VW will be responsible for almost a third of that spend, around $91bn. And that is already a conservative estimate, given that VW has since raised its electric vehicle production target to 22m by 2028.
At the forefront of VW’s strategy is the ID., which it claims will be CO2 neutral through its entire life cycle, from raw materials sourcing, manufacturing, charging and use, to recycling.
VW recognises potential barriers through supply chain transparency issues and ethics around minerals in batteries, which it is addressing.
Stefan Sommer, VW’s group board member for procurement, says: “Transparency in the supply chain – especially for graphite, cobalt, lithium, and nickel – is a prerequisite for the assessment of social and environmental standards.”
Transparency will be challenged by the more than 40,000 direct suppliers worldwide, plus indirect suppliers, involved in production of the ID., which begins this year.