Buyer-Supplier Co-Development in UK Automotive Manufacturing:

Closing the Continuous Improvement Loop

Philip Southey

Senior Lecturer, Coventry University Manufacturing & Supply Chain Management

Centre, School of Engineering (T-Block), Priory Street, Coventry, CV1 5FB, UK. Tel:

+44 (0)2476 838871, Fax: +44 (0)2476 553007, E-mail: esx093@coventry.ac.uk

Dr. Derek Steeple

Director, Coventry University Manufacturing & Supply Chain Management Centre,

School of Engineering (T-Block), Priory Street, Coventry, CV1 5FB, UK. Tel: +44

(0)2476 838274, Fax: +44 (0)2476 838033, E-mail: d.steeple@coventry.ac.uk

Mirko Wilhelm

Research Student, Coventry University Manufacturing & Supply Chain Management

Centre, School of Engineering (T-Block), Priory Street, Coventry, CV1 5FB, UK. E-

mail: MWilhelm@web.de

1

Buyer-Supplier Co-Development in UK Automotive Manufacturing:

Closing the Continuous Improvement Loop

Biographical Notes

Phil Southey is a Senior Lecturer and Researcher within the Manufacturing and Supply

Chain Management Centre of the School of Engineering at Coventry University. His

research interests include supplier development and supply chain integration. He is a

Fellow of the Chartered Institute of Purchasing and Supply and is on the organising

committee of IPSERA, the International Purchasing and Supply Education and

Research Association.

Dr Derek Steeple is the Director of the Manufacturing and Supply Chain Management

Centre at Coventry University, providing support to small and medium sized companies

in the automotive and other industries. He received his PhD from the University of

Nottingham.

Mirko Wilhelm holds a Diplomwirtschaftsingenieur degree from Westsächsische

Hochschule (FH) Zwickau in Germany and a BSc & MSc from Coventry University,

UK

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Buyer-Supplier Co-Development in UK Automotive Manufacturing:

Closing the Continuous Improvement Loop

Abstract

Many vehicle manufacturers are now engaging their suppliers in co-development

relationships which require the supplier to take full responsibility for the design,

manufacture and warranty of their supplied parts. In doing this, both parties seek to gain

competitive advantage by more fully leveraging their respective technical, human and

financial assets for improved performance. While simple in theory, this practice of

closer supplier integration from the vehicle development stage onwards poses many

challenges for both buyer and supplier. This paper explores some of the problems

encountered in co-development relationships, investigates the key challenges for

establishing robust co-development processes and proposes some practical steps which

can lead to improved co-development performance. Case study companies include

Jaguar Cars Ltd, and the UK arms of Toyota and Nissan.

Keywords: automotive; co-development, full service supplier; supplier integration;

design; organisational learning, lessons learnt

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Buyer-Supplier Co-Development in UK Automotive Manufacturing:

Closing the Continuous Improvement Loop

1. Introduction

Intense competitive pressures and increasing consumer focus in today's global

automotive industry are leading to the need for shorter product development cycles and

tighter affordable business structures to underpin the viability of new vehicle

development programmes. Consequently, there are now great pressures on carmakers to

achieve ‘right first time’ and ‘on-time’ designs for new vehicle developments. Any

unplanned or additional design effort or late design changes can have serious

consequences on the timing, quality and costing of a vehicle development programme.

When these trends are coupled with the increasing tendency towards using “full service

suppliers” (i.e. suppliers who take full responsibility for all aspects of sub-system

design, manufacture, programme management and warranty), it can be seen that the

close alignment and integration of the vehicle manufacturers (VMs) with their suppliers

at all stages in a vehicle development programme is critical to meeting overall project

objectives.

2. What is Co-development?

Co-development can be defined as:

the co-ordinated development effort in timing and substance of the various

buyer-supplier organisational disciplines that span the life-cycle of new

products.

Nissan UK define co-development as:

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"Co-development = Meeting the same goals, synchronously"

2.1 Early Supplier Involvement

In recent years “early supplier involvement” (ESI) in the design, development and

manufacturing stages of a product's life has been identified to be key to successful new

product development [Moody, 1992; Liker et al., 1998; Dowlatshahi, 1998].

Dowlatshahi [1998] argues that ESI is a “means of integrating supplier's capabilities in

the buying firm’s supply chain system and operations”. Reduced cost, improved quality

and design for manufacturability are identified by Liker et al. [1998] as beneficial

outcomes of early supplier involvement. Added to this, of course, can also be greater

customer satisfaction due to improved product performance.

However, in such a fiercely competitive marketplace as the automotive industry, VMs

are looking for further ways to leverage more value and lower total costs from their

supply chains. One way of doing this is by the use of ‘full service suppliers’. A 'full

service supplier' can be defined as:

"a supplier who takes full responsibility for design, manufacture, testing,

prototyping, programme management, warranty, legal requirements, product

liability and aftermarket requirements for a whole car subsystem."

These subsystems suppliers can be either modular systems suppliers or system

integrators or both. A system integrator is a supplier who designs a complete system

and supplies a collection of components that perform together as a system, but which

cannot be delivered in one piece to the car plant, for example braking systems, electrical

harnesses, heating and ventilating systems, etc. In contrast, a modular system supplier

supplies a set of components that are delivered in one assembly as a 'module' to the

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manufacturer’s site (like bumper systems, dashboard systems, seat systems etc.).

Modular systems are usually delivered sequentially and just-in-time.

The specifications of the subsystem have to be determined jointly by the VM and the

Full Service Supplier in the pre-concept stage [Kamath and Liker, 1994]. The customer

provides only performance specifications and space constraints for the manufactured

product [Liker et. al., 1998]. The advantage of using Full Service Suppliers is that they

“can bring in innovation and the industry’s best practices” [Minahan, 1998] due to their

expertise and experience in one specific area of the car and their relationship to different

car manufacturers at any one time.

With the recent trend, particularly in western VMs towards appointing full service

suppliers, several important issues have emerged for car assemblers:

1. How to select and implement full service supplier agreements?

2. How to effectively co-ordinate full service suppliers during the design and

manufacturing process?

3. How to align and integrate the supplier's design, development, information and

logistics processes with their own?

4. How to effectively capture ‘lessons learnt’ from full service suppliers for re-use on

subsequent vehicle programmes?

Dowlatshahi [1998] has developed a conceptual framework in order to implement ESI

focusing on product design and development. This framework comprises four

requirements, namely design, procurement, supplier, and manufacturing. Design,

manufacturing and procurement are three vital and relevant internal functions.

Combining these with the external supplier area gives four essential parts for the

implementation of an effective ESI programme.

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The first building block in Dowlatshahi's framework is design. The tasks performed in

design have a significant impact on procurement, supply and manufacturing. The

following Table 1 shows that between 5% and 8% of the total product costs are

incurred at the design stage, but that between 60% and 80% of these costs are

committed during design. In addition, Dyer [1996] argues that 70% of quality problems

in automotive components are caused due to poor design. It is, therefore, highly

recommended [Dowlatshahi, 1998] that purchasing, manufacturing and the supplier are

all involved early in critical design issues.

Table 1

In Japanese companies, around 65% of design effort is spent in defining the new

product, whilst designing the actual product counts for only 25% of the design effort,

and less than 10% of the time is spent on redesign. This is in sharp contrast to their

Western counterparts where around 50% of design efforts are devoted to changing and

redesigning parts and products (Figure 1).

Figure 1

In Japanese companies a significant amount of preplanning time is spent on achieving

agreement on what the product is intend to be - its features, colour, shape, price, etc.

Once these specifications have been finally agreed, Japanese companies tend to adhere

strictly to them and implementation proceeds quickly. Due to this concentration on the

up-front activities of pre-planning, Japanese companies experience far fewer

interruptions during the development stage or after launch. Thus, time spent up front

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with researching, analysing, planning and building consensus shortens the product

development cycle and accelerates time to market for new products [Jacobs and Herbig,

1998].

This explains why “throughout the 1980’s, Honda and Toyota consistently introduced

new models every three years, compared with a five-year cycle for General Motors and

Ford. As a result, these auto makers gained market share at the expense of their US

rivals” [Birou and Fawcett, 1994]. In fact, new and faster product introduction has

become a competitive weapon in being able to respond quickly to customer needs.

2.2 Organisational Learning

After the successful selection, implementation and co-ordination of the Full Service

Supplier three more question arise:

• How to capture ‘lessons learnt’ in design and manufacturing from the supplier during

and after product introduction?

• How to transfer the ‘lessons learnt’ to subsequent vehicle programmes (or to new

suppliers)?

• How to embed the ‘lessons learnt’ into future designs, whether they be at the VM or

at the supplier or at the VM/supplier interface?

The capture, application and embedding of ‘lessons learnt’ within a Full Service

Supplier environment is a complex task for any vehicle manufacturer. Capturing

‘lessons learnt’ relates to organisational learning. From the literature four stages of

learning have been identified [Huber, 1991; DiBella et al., 1996]:

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• Knowledge acquisition.

• Knowledge dissemination.

• Knowledge utilisation.

• Knowledge keeping.

2.2.1 Knowledge acquisition

is the development of new core skills and/or core competencies. It can be separated into

internal and external knowledge acquisition.

Internal knowledge is generated within a company in the various departments and

through past projects. This knowledge can lead to sustainable competitive advantage

[Yelle, 1979; Henderson, 1979, cited in Ingram and Baum, 1997]. However they also

argue that learning solely from one's own experience can constrain capabilities in a fast

changing world because it may lead the organisation “into competency traps, where it

focuses on perfecting routines” [March, 1991; Levinthal and March, 1993; Simon,

1993, cited in Ingram and Baum, 1997] which are not suitable in a competitive

environment.

External knowledge can be gained through [Lane and Lubatkin, 1998]:

• Passive learning (journals, seminars, consultants)

• Active learning (bench-marking, competitor intelligence)

• Interactive learning from supplier and/or customer

However, only interactive learning will enhance a firm’s strategic capabilities (Lane

and Lubatkin, 1998) since this is a unique source of learning, whereas the knowledge

gained from passive and active learning is tradable and therefore available to

competitors as well, and so is unlikely to add to strategic capabilities.

9

2.2.2 Knowledge dissemination

is the spread of knowledge within an organisation and amongst the members of the

organisation.

2.2.3 Knowledge utilisation

is referred to as the use and application of the acquired new knowledge in different

situations.

2.2.4 Knowledge keeping

is concerned with storing and retrieving of information gained in the past [Huber,

1991].

Jacobs and Herbig [1998] identified that there is a devotion to learning in Japanese

companies. Learning occurs continuously and leads to the process of continuous

improvement. Due to constant job rotation this knowledge is disseminated throughout

the company and subsequent projects [Jacobs and Herbig, 1998].

In Japanese companies the culture of learning is supported in a very prescriptive

manner. At Toyota, ‘Why’ is asked five times or more in order to identify the root

causes of problems [Shingo, 1989]. This method prevents Toyota from finishing their

investigations before they reached the core of the problem. To find the root cause of the

problem is the ultimate goal of continuous improvement [Shingo, 1989].

In addition to the five ‘why’s’, Honda uses a different approach - the ‘3A’ method. The

‘3A’ method is part of Honda of America’s successful “Best Practice” programme, and

‘3A’ means: [Nelson et. al., 1998]

• Go to the actual place where the failure occurred

• See the actual part which caused the problem

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• Learn from the actual situation

This strongly emphasises the use of the experience from the associates on the ‘shop

floor’. With this method, Honda advocate that future failures can be effectively

prevented.

3. Research Methodology

This research was based upon case study data collected from three VMs based in the

UK (Jaguar, Toyota and Nissan) and a number of their first tier suppliers. The methods

used for the data collection comprised a combination of semi-structured interviews,

participant observation, VM supplier workshop attendances and supplier visits.

Extensive literature review was used to underpin conceptual understanding and to

develop a set of semi-structured interview questions for all participants.

4. The Case Study Companies

4.1 Jaguar Cars Ltd

Jaguar Cars Ltd is a wholly owned subsidiary of the Ford Motor Company, and as such

has adopted the Ford Product Development System (FPDS) as the overall control

process for all new vehicle developments. FPDS embraces the inputs from both Jaguar

and it's supply base, and requires full service suppliers to provide integral members of

the programme module sub-teams working on sub-systems development.

Currently, lessons learnt from suppliers are captured via the Advanced Product Quality

Planning (APQP) process. The APQP process focuses on total customer satisfaction and

has established defined steps to ensure this is achieved. The APQP team is a cross-

functional team with members from both Jaguar and the supplier. Notes of lessons

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learnt meetings are recorded on the Automated Issues Matrix (AIMS) database for

raising, tracking and resolving issues and are also forwarded to a Launch Readiness

Review (LRR) meeting from which they are disseminated to other programmes.

The global platform of the Jaguar S-Type was jointly designed by Jaguar and Ford

engineers in Dearborn, North America. The unique parts of the S-Type were completely

designed in Coventry, UK. The car has been manufactured in the UK, using some

common platform suppliers and some unique suppliers.

In the lessons learnt meetings which happen at each programme gateway, ‘Things Gone

Right’ (TGR) and ‘Things Gone Wrong’ (TGW) are discussed and documented in the

form of a written report which is circulated to all team members at both Jaguar and the

supplier.

4.2 Toyota (UK)

At Toyota, capturing lessons learnt is considered to be a fundamentally important issue

because the company strives for continuous improvement as a means of gaining

competitive advantage. At Toyota nobody starts a new vehicle project without doing a

full review of lessons learnt from previous projects.

Toyota always conducts reviews during the course of each project against a defined

measurement matrix set up at the beginning of the project.

At Toyota the manufacturing associates on the shop floor are considered to be the most

important asset in capturing lessons learnt. Other functions support them and ask them

for their opinions, and, in respect of applying lessons learnt, designers are in a role

which ‘serve’ the pursuit of manufacturing excellence.

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Lessons learnt are usually hand written and stored with the person who discovered the

lesson. This emphasises the culture of going to the spot and learning the actual situation,

in a similar way to Honda.

Toyota uses drawing reviews to bring in learning points from previous projects at the

very beginning of each new programme. In these drawing reviews the manufacturing

engineers layout the shop and contribute their ideas before the prototype is made.

Toyota aim for constancy in the design and manufacturing teams, which ideally allows

the same team to remain all the way through the vehicle programme from design to

launch and manufacturing. Therefore the team retains ownership and accountability for

all problems and issues.

Also, design and manufacturing people discuss together lessons learnt. On any

programme, Toyota manufacturing associates generally present to designers around four

thousand lessons learnt. These lessons are then reviewed and evaluated for workability,

cost and safety. At the end usually about two hundred lessons are applied by design on

the next vehicle programme.

All reviews are summarised on ‘A3 sized paper Management reviews’ and all lessons

are visualised with small pictures for better understanding.

At Toyota, new programme teams are set a target not to repeat any lessons learnt from

previous programmes and additionally to achieve a further 10 % improvement on the

new programme.

In order to capture lessons learnt from their suppliers, Toyota hires a big warehouse

where all major components are displayed on the wall. Above each component, all cost

saving suggestions from the supplier are recorded. Below each component, all

improvement recommendations suggested by Toyota manufacturing engineers are

recorded. Design engineers who are in charge of the component visit the warehouse and

pick up the learning points for their components. They subsequently transfer these

13

lessons learnt to future designs and the assembly line and so contribute to further

improvements.

4.3 Nissan (UK)

Nissan’s European Technology Centre (NETC) and Cranfield University, both based at

Cranfield, UK have recently undertaken a three year, three million pound co-

development research project called ‘Cogent’ involving the participation of eighty five

of Nissan’s suppliers. The main objective of this project was to improve the co-

development capabilities of Nissan and it’s suppliers in order to reduce both product

development times and costs by a targeted 30 percent in three years. They identified

that the suppliers design and development processes have to be of a very high standard

in order to achieve ‘right first time’ designs and hence avoid late engineering changes

and duplication of effort. Therefore NETC has undertaken workshops at several levels

of supplier management in order to develop, communicate and embed their co-

development process understanding.

Nissan identified that if the design is right first time, with early concurrent input from

suppliers and manufacturing associates, then fewer additional costs subsequently occur

during the design release, testing, manufacturing and assembly stages. With the earlier

involvement of suppliers up front in the pre-design stage, such engineering change costs

have been taken out and hence duplication avoided. At the design and development

stage Nissan applies all lessons learnt from previous projects.

Co-development is primarily concerned with alignment. Internal consistency between

the customer’s and supplier’s processes is an important pre-requisite for significant co-

development improvement. An objective measurement system is also an important

element in driving real improvements at Nissan and it's supply base.

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NETC use the ‘Merlin exercise’ to identify common problems existing between

themselves and their suppliers. The ‘Merlin exercise’ is an effective way for both

problem solving and the generation of strategic plans in a company through combining

free-form simulation and scenario planning [Fulmer et al, 1998]. Usually participants

project themselves into a future ideal state of having successfully completed a new

product development. Then through a process of visualisation of that ideal state,

participants work backwards and imagine how they got there, what actions they

undertook to get there, what problems occurred along the way and how they overcame

any obstacles. After identifying all the problems, each individual issue is then uniquely

addressed and solutions are jointly developed between Nissan and the supplier. Many of

the issues identified subsequently turn out to be common across most suppliers, so

standard processes can then be evolved to deal with them. The major issues revealed on

a real development project between Nissan and its co-development suppliers were trust,

communication, willingness to share confidential information and cost. Through

working through these issues jointly with their suppliers, and through jointly developing

an objective (rather than subjective) performance measurement system for design and

development processes, Nissan have achieved the following substantial improvements

on their replacement model for the Nissan Almera:

• 30% faster design time

• 40% reduced design budget

• 34% reduced part cost - across the vehicle

5. Research Findings

5.1 The Drivers for Co-development and the Capturing of Learning

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From the above data collected from the three VMs, the following driving forces were

identified as reasons why VMs wish to establish co-development and lessons learnt

processes with their first tier suppliers:

1. Cost reductions from the capture of 'cost-down' ideas prior to design commitment

enable the embedding of savings at the pre-conception stage.

2. Cost reductions can be achieved through the standardisation of designs and design

processes between VM and supplier.

3. Aligned customer/supplier design processes leading to reduced design time and more

robust design solutions with fewer engineering changes.

4. Co-development and ‘lessons learnt’ capture lead to higher designed-in product

quality leading to higher customer satisfaction and reduced risk of product failure.

5. The embedding of processes which address environmental issues, (e.g. reducing

waste & scrap, improving energy management etc.) and attack environmentally

harmful or inefficient processes (e.g. changing from toxic paint plant chemicals,

recycling paper, specifying reusable packaging etc) leads to lower total costs, lower

environmental impact costs and an improved public profile.

5.2 The Barriers to Improving Co-development Performance

From analysis of the case study data, the barriers identified for all three VMs in seeking

to improve their co-development performance were found to be:

5.2.1 Trust

How to develop trust and sufficient levels of openness for effective co-operation and

co-development to take place between VMs and suppliers, and also internally

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between functions.

5.2.2 Communication

How to communicate effectively when time differences, cultural differences and the

reduced opportunity for people to meet face to face occur due to the global

nature of the industry.

5.2.3 Geography

How to ensure that ‘lessons learnt’ are captured and effectively communicated when the

design occurs in one part of the globe (e.g. the USA), and the product is

manufactured and assembled in another location (e.g. Europe).

5.2.4 Supplier Changes

How to ensure that if supplier A is chosen to supply one car model but supplier B is

chosen for the subsequent or parallel vehicle programme, then the lessons that

are captured and learnt by supplier A are transferred (by the VM) to supplier B

in order to prevent the same mistakes being repeated again and again.

5.2.5 Constancy of Design Teams

How to establish constancy within project teams responsible for a vehicle development

in order to underpin the process of capturing, communicating, feeding back and

embedding lessons learnt. The challenge of accommodating staff changes (e.g.

because people leave or get promoted), and the increasing use of temporary

contract labour to balance the peaks and troughs in demand presents a very

complex task for the remaining members of the teams.

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5.2.6 Capturing ‘lessons learnt’

How to effectively capture and channel the interactive learning which takes place

between VMs and supply partners for competitive advantage. At present,

differences in the initiatives, operating systems and demands of the various VMs

make it difficult for suppliers to implement standardised common ‘lessons

learnt’ processes, resulting in sub-optimised overall performance.

5.2.7 Alignment

How to align the objectives and targets of VMs and suppliers for breakthrough

improvements in co-development performance.

5.2.8 Developing Common Industry Standards

How to standardise common measures and best practice processes used across major

VM customers and their suppliers in order to remove the waste associated with

similar but bespoke parallel demands emanating from each VM causing

suppliers to suffer from "initiative overload". This is similar to the problems

caused by multiple quality systems prior to the introduction of the common

QS9000 quality standard pioneered by Ford, Chrysler and General Motors.

6. Underpinning Improved Co-development Performance

From these findings, and particularly from the Nissan Cogent programme, the following

eight elements have been found to underpin improved co-development performance:

1. Co-development is primarily concerned with alignment of objectives, processes and

targets, not with improving suppliers design expertise.

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2. Internal consistency within the customer is an important pre-requisite for

significant co-development improvement.

3. Improving communication and openness between a VM and it's suppliers is

accelerated by using a third party facilitator who's role is to help make the process

objective, impartial and transparent in agreeing joint improvement actions

4. An objective performance measurement system is the best steering mechanism for

setting and achieving improvement targets.

5. Enormous attention to detail is required in order to remove the potential for stress

and mistrust between VM's and supplier's representatives, and to ensure that agreed

processes are repeated and embedded as a common way of working.

6. Co-development performance improvement is best pioneered on a real development

project, so that all participants are focused by real targets and deadlines. Then

events and workshops act as key 'accelerators' in the process and establish "real

moments" of people joining together in a common purpose on a common project.

7. Co-development improvement requires enormous amounts of planning and

execution time in order to overcome people's natural fear, mistrust and resistance to

change. Additional investment in planning and execution time is further required in

order to align people's perceptions, processes and targets, which then in turn focus

participants on delivering joint performance improvements.

8. The intangible elements of a successful co-development programme include a

strong belief in the principles of co-development, a tight process, great attention to

detail to ensure the co-development processes become embedded, and a lot of effort

and determination to overcome numerous "insurmountable problems" and people

issues.

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7. Conclusion In conclusion, it was observed that all three VMs and almost all the suppliers

interviewed had very good design teams and internal processes for design and

development. The challenge of how to improve their co-development performance was

therefore not concerned with the quality of their people or of their respective

organisational processes or of their design skills, but more with how the separate

processes and design teams of each organisation could be integrated and aligned to

improve their combined performance.

Acknowledgements

We would like to thank Jaguar Cars Ltd, Toyota Motor Manufacturing (UK) and Nissan

Motor Manufacturing (UK) for their generous assistance with this research.

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Table

Cumulative total costs by percentage Incurred Committed Conception 3-5 40-60 Design 5-8 60-80 Testing 8-10 80-90 Process planning 10-15 90-95 Production 15-100 95-100

Table 1 Design Stage and Product Cost [Charney, 1991; cited in Pawar et. al., 1994]

Figure

Design activity (% effort)

010203040506070

Definition Design Redesign

Perc

ent

Japan

UK/USA

Figure 1 Comparison of Design Activities between UK/USA and Japan [PA Consultants; cited in Pawar et. al., 1994]

23