Today I was hired as Local Motors Vice President of Manufacturing which was a decision that didnt come easy.

My initial thought of Local Motors was that the organization was attempting to do something that has never been done before in the automotive industry. I saw their approach as one taking huge risks that may or may not pay off in the end. However, after thoroughly reviewing Local Motors manufacturing model, with the help of a SWOT analysis, my decision was to accept the position. External
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Strengths Customers design vehicles in their interests Customers can own a unique vehicle not commonly offered Built to order reduced inventory Opportunities Crowdsourcing and social media leveraged for product design Satisfy local niche market share Instability in the auto industry

Weaknesses Low capital No experience building cars Unknown service and reliability of vehicles. Threats Unknown brand reputation Market softening in U.S. car sales

Several strengths and weaknesses played into my thought process see Table 1. The instability in todays auto industry presents Local Motors with an interesting oppo rtunity to enter the industry and present automotive customers with a new and exciting solution. The unique concept of giving customers the ability to design and build their own vehicles presents the automotive market with a one of a kind experience not common today. According to Jay Rogers, the cost to develop a new car is on average 5 years and $200 million.1 Local Motors developed the Rally Fighter in 18 months at $1.4 million dollars.1 Not only can a customer own a unique design, giving Local Motors a competitive edge, I believe the reduced cost structure from leveraging future customers as a part of the design process brings opportunity for the Local Motors business to earn more profit than current competitors. Another unique strength of the manufacturing model is incorporating customers into the build. Bringing a customer experience into the build of the car is a great way to reduce labor costs but also provide an experience that the customer can share with friends and family which is the definition of affiliated marketing. Finally, the Local Motors model is a build to order setup requiring customers to order a vehicle and customize it to their tastes. From a business perspective this allows the firm to carry little to no finished goods inventory. While there are a lot of strengths and opportunities in the Local Motors manufacturing model, there were some realistic weaknesses and threats challenging the Local Motors business. The primary weakness is the lack of cash and working capital required to build the Rally Fighter.
http://poptech.org/popcasts/jay_rogers_open_source_your_car

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Table 1: SWOT Analysis of Local Motors Manufacturing Model

Local Motors has raised $4 million dollars to date and needs an additional $10 to $25 million to build the first two microfactories. The time required to raise money and then build a microfactory could leave customers waiting longer than they are willing to wait potentially impacting sales. The secondary risk is that Local Motors has little experience building cars. The automotive industry is a competitive market consisting of big and small players who have years of experience. In 2008, the market was made up of 16 primary companies that owned 98.2% of the market.2 The competition is heightened as a result of declining sales. In 2008, sales dropped 18% from 2007 hitting a 10 year low.2 Operating in this market will not be easy. Overall, I feel that the Local Motors solution presents a unique opportunity to satisfy a niche market that is not met with todays suppliers. Apple created the IPod and IPad to create new markets and similarly Local Motors can create a vehicle unlike any other to satisfy a new market. Thus, as Vice President of Manufacturing I will create an operation plan to position Local Motors to win. Operational Plan Local Motors is at the beginning stages of producing the Rally Fighter in its first microfactory located in Chandler, AZ. The microfactory was planned to have a starting production capacity of 500 cars per year.3 As of January 14, 2013, Local Motors has delivered 50 Ralley Fighters at a price tag of $99,000.4 With only 50 cars produced in 18 months, its safe to say that Local Motors is off to a slow start. The first microfactory opened July 31, 20105 for an estimated $6 million6. The average cost of parts and labor was estimated to be $28,250 but it is not widely known today what the actual costs are.6 The initial price tag of the Rally Fighter was targeted for $50,000 and has risen to $99,000 so another assumption is that costs have risen with price. Slow sales and rising costs will be a primary focus for next years operational plan. As vice president of manufacturing, managing Local Motors costs and increasing sales should be primary initiatives for the upcoming year. Additionally, there are several priorities that we need to take as a business to ensure operational excellence at the Local Motors microfactories. Our foremost top level priorities, in sequence, are safety, quality, timeliness and cost. However, it is critical to articulate lower level objectives to supplement our top level priorities.

Dann, Jermey and Norton, Michael. Local Motors: Designed by the Crowd, Built by the Customer. Harvard Business Review. Harvard Business School Publishing. Boston, MA. September 12, 2011. pp. 15. 3 Dann, Jermey and Norton, Michael. Local Motors: Designed by the Crowd, Built by the Customer. Harvard Business Review. Harvard Business School Publishing. Boston, MA. September 12, 2011. pp. 20. 4 http://www.jaylenosgarage.com/cars/custom-built/local-motors-rally-fighter/index.shtml#item=272514 5 http://www.localmotors.com/arizonas-own-car-company-opens-its-doors/2010/07 6 Dann, Jermey and Norton, Michael. Local Motors: Designed by the Crowd, Built by the Customer. Harvard Business Review. Harvard Business School Publishing. Boston, MA. September 12, 2011. pp. 8

These objectives include lean manufacturing, social media, additive manufacturing, product provenance, crowdsourcing, and a cost conscience work environment. The operations plan will commence on April 1st beginning with the development of our lean strategy. The focus of our lean strategy will be to identify areas containing waste throughout the microfactory. There are seven deadly wastes using the lean methodology including overproduction, waiting, transport, extra processing, inventory, motion, and defects that impact an organizations performance.7 The main motive is to understand what our customers need and develop processes to meet those needs. Waste within the process increases costs to build the Rally Fighter. Following the lean planning stage, there will be a total of 3 large lean action workouts, see Error! Reference source not found.. Each event will be given three months to complete the planning phase and the week long action workout event. The team will be challenged to continue with the Local Motors vision of crowdsourcing and bring in customers to partake in the event. Social media such as LinkedIn and Facebook will be used for recruiting local customers and integrating an outside perspective into the actual events. In the spirit of increasing sales, the sales manager will be challenged with creating a social media buzz and hype around the local factory keeping customers informed on the progress of the microfactory utilizing social media tools. Customers should have access to pictures of progress from the lean events and know when the dates to upcoming events along with instructions on how to participate. Another focus in the operational plan is a project centered on integrating additive manufacturing into the microfactory. Beneifts of additive manufacturing include ease of prototyping, reduced costs, and reduced lead time.8 Additive manufacturing is becoming more advanced each year and is changing manufacturing.9 There are opportunities to cut costs on materials purchased for use on the Rally Fighter as well as on future vehicles. Parts such as door handles, body panels, interior trims, and alike can be made with a 3D printer. If an assembler needs to fabricate a part or if a service technician needs to create a part from one that is broken, the 3D printer will have the capability to make that part right on site. Also, if a part is running short from a supplier the 3D printer has the capability to reverse engineer the part and build it from scratch. The production manager will be the lead on this project and given a budget of $200,000 to justify, locate and purchase a 3D printing machine. Product provenance and traceability on purchased parts is an additional objective that is going to be a high priority in the coming year. The cost incurred to a company for a single defect can be severe. For example, in 2012, Toyota was granted preliminary approval for a $1.1 billion
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http://www.leaninnovations.ca/seven_types.html http://www.manufacturing.net/articles/2013/02/top-five-benefits-of-additive-manufacturing-you-neverconsidered 9 http://www.forbes.com/sites/tjmccue/2012/05/02/additive-manufacturing-will-change-in-the-next-5-10-years/

settlement for a recall impacting 10 million vehicles due to unintended acceleration of their vehicles.10 Not only did this defect cost Toyota money, but it also cost them their quality reputation despite the fact that the defect originated at a supplier. An event such as this could be detrimental to Local Motors. Without proper traceability, the blame of the defect commonly will fall to the supplier or firm at the end of the supply chain.11 The Rally Fighter has parts sourced from various household names such as Honda, General Motors, and Ford. Part origins are critical to understand and should be integrated and documented within the Local Motors MRP system. Crowdsourcing has been a primary pillar for building the Local Motors business. It has created differentiation from competitors giving customers a voice on what to design. We want to leverage this thought process in manufacturing. Following each build that the customer conducts the production manager will be assigned to gather feedback from the customers experience. The idea would be to ensure the customer is getting the most out of their build experience and source ideas to improve future experiences. If a reoccurring theme or idea surfaces from the interviews then several customers could be selected to come back to the microfactory and help Local Motors improve the process. The quality manager is assigned to design a build a forum that captures the information, see Error! Reference source not found.. Lastly, the final objective in the operation plan is to develop a tool to measure productivity performance driving a cost conscience work environment. One area that is missing from the operations in todays microfactory is a system and rigor to review how well the facility is running. Productivity measurements are tool to measure and understand if an organization is going to know when to add resources or when to remove resources. Local Motors currently employs 50 individuals for various functions and reasons.12 With current sales, can the business sustain this level of employment and still be profitable? A productivity report can tell you if your organization is being more or less efficient based simple techniques such as labor wages or standard hours earned versus actual hours worked.13 I will take this objective and develop a tool that will measure the productivity of the Chandler, AZ microfactory. The tool that becomes developed will be leveraged across future microfactories so performance across the plant can be measured consistently. Bonus Compensation
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http://www.bloomberg.com/news/2012-12-28/toyota-wins-preliminary-approval-of-1-1-billion-settlement-1.html 11 New, S. Supply Chain Traceability and Product Providence: Challenges for Theory and Practice. Supply Chain Management and Logistics in a Volatile Global Environment. New York. Blackhall Publishing. 2009. 1842181777. pp. 89-97. 12 http://www.jaylenosgarage.com/cars/custom-built/local-motors-rally-fighter/index.shtml#item=272514 13 http://hbr.org/1988/01/no-nonsense-guide-to-measuring-productivity/ar/1

Bonuses at Local Motors should be awarded based on business performance along with customer satisfaction. As vice president of manufacturing, my bonus should be based on four factors including sales, cost out performance, productivity, and customer satisfaction. Each area should be weighted based on the influence of each factor related to my position within the organization. Factor Sales Cost Out Productivity Customer Satisfaction Weight 20% 20% 30% 30% Goal $5.9 Million (60 Ralley Fighters) 10% Cost Reduction 6.5% Productivity Gain 90% Customer Satisfaction on Build Experience

Table 2: Bonus Table for VP of Manufacturing

A fair weight distribution for my position is show in Table 2. The logic behind putting more emphasis on productivity and customer satisfaction is due to the fact that as vice president of manufacturing my role has more direct influence over these two topics versus sales and cost out. The sales target was set at $5.9 million which is equivalent to 60 Ralley fighters. In the last 18 months Local Motors sold 50 cars. The target was set at a 20% production increase hinging on the sales team to bring in orders. Increasing sales is critical for Local Motors in terms of generating investor confidence and kick starting the company into potentially building another microfactory or expanding the current Chandler, AZ microfactory. To improve profit margins, strengthening the business financials, a 10% cost out target was set to compliment the lean and additive manufacturing strategies in the operation plan. Productivity was set at 6.5% to coincide with the lean strategies and the implementation of the productivity tracking tool. The last metric was customer satisfaction which was set at 90% satisfaction in the build process. Customers will have a chance to provide feedback based on their build experience in the microfactory. The feedback forum will be constructed such that a satisfaction score is calculated which ties back to the microfactory performance with the customer. The target was set at 90% which is an aggressive target due to the fact that Local Motors needs to strive to satisfy every customer that purchases a Rally Fighter. All in all, the bonus structure is designed to drive Local Motors to a new performance level while measuring the vice president of manufacturing accordingly.