It starts with the customer
But after that, for the auto industry supply chain, things get really hairy
By Kevin Parker, editorial director -- Manufacturing Business Technology, 4/1/2006 7:00:00 AM
How do consumers want to buy automobiles? Do they want to order the car of their dreams and then wait for it to be built? Or would they rather go to a dealership, find a reasonable, affordable fit, and drive it home that day?
In many parts of the world, it's common to wait for a purchased car to be delivered. In the U.S., immediate—if not total—gratification has been more the norm.
Things change, though, and major automakers are succeeding, or failing, based on their responses to how consumer sentiment is changing, and how good they are at influencing entrenched interests—like their dealership networks—to change along with it.
If cars will be more often sold as customized—or at least highly configured—products, then automakers need to remove supply chain latencies that impede realization of a pull-demand model—often euphemistically referred to as the "five-day" car—although delivery within two weeks to many seems more than reasonable. By almost all accounts, there's still a ways to go.
Issues of complexityIt's been clearly demonstrated that information technology use in manufacturing industries can measurably increase production flexibility and improve supply chain coordination. Enterprise, product life-cycle, execution, and automation vendors say their Internet-based solutions can synchronize automotive supply chains to a degree never before possible.
But automotive supply chain scale and complexity are daunting. Globally, about 60 million cars and trucks are built each year, including an average 17 million car sales in the U.S. At least one attempt at a radical supply chain solution failed. And it's not entirely clear whether Detroit, in its heart, thinks it's really necessary.
Historically, the U.S. automakers—General Motors, Ford, and DaimlerChrysler—operated in hierarchical, tiered supply chains with a heavy emphasis on competitive bidding amongst tiers as a means to low costs.
In recent years, U.S. automakers responded to challenges posed by Japanese and other foreign automakers now resident in this country by inaugurating lean policies, rethinking supplier relationships, and recognizing that build-to-order was at least a possibility. That manufacturing system software vendors are placing so much emphasis on deploying line-sequencing tools indicates where the action is.
These efforts, aimed at better inventory and throughput management, came as cars themselves were becoming more complex, with the incorporation of advanced electronics and other technologies.
Yet according to a recent study by The Harvard Business School of the history of the automotive industry trade exchange Covisint, Detroit automakers remain determined to put in front of consumers the widest possible range of vehicle options, even as they move, some say too tentatively, toward modular design and assembly of cars. One effect of modularization has been increasing product responsibility for Tier 1 suppliers, leading to use of terms like Tier 0.5 or Tier 1 OEMs.
According to the Harvard study, Covisint, as one of the original and most celebrated of the trade exchanges introduced at the end of the Internet bubble, was an attempt to simplify and decrease the cost of coordinating this increasing complexity.
At the time, a number of influential parties believed trade exchanges would quickly come to dominate B2B interactions in at least two ways. First, auctions would allow buyers to source product at low cost from practically anywhere in the world. Second, exchanges would be the means to machine-to-machine (M2M) computerized integration across wildly disparate platforms.
From the get-go, there were warnings that sellers weren't wild about the idea of any third-party entity coming between them and buyers, let alone an entity that tended to focus transactions strictly on achieving low cost. And the depth of integration needed for M2M communications to be productive wasn't well understood.
Bruce Richardson, chief research officer for Boston-based AMR, tells the story of how one trade exchange executive, when asked how the need to burrow deep into enterprise systems at successive supply chain levels would be achieved, answered simply, "XML."
After a long and tortured history, today Covisint is owned by e-business solutions vendor Comergent, and is completely out of the auction business. Current products support M2M connections for data messaging, collaboration via portal technologies, and access to shared software applications.
Standards for coordination
In retrospect, no one seems very shocked that Covisint happened, or that it failed. On the other hand, the quest for industry standards that allow computerized coordination of supply chains continues on a number of fronts. Yet EDI remains firmly entrenched as the reigning automotive technology for M2M communications.
Cascade Engineering, Grand Rapids, Mich., is a $250-million manufacturer of plastic components for the automotive and other industries. Mike Malone, director of information systems, says the move to modular assembly increased Cascade's involvement with Tier 1 suppliers to automotive OEMs.
"Creation of the big integrators increased our shipments to them, but the OEMs are still in the mix," says Malone. "It's led to more complexity in EDI transmissions because the standards for GM, Lear, and Johnson Controls aren't identical. We use a number of VANs for transmission, but do our own translation."
Cascade's ERP system is QAD's MFG/PRO. In a typical scenario, following translation, the QAD EDI Ecommerce module maps EDI flat files to the QAD database. "When the scheduler comes in, the orders are in the system and the MRP scheduling has been done," says Malone. "The scheduler can make additional scheduling decisions and need only deal with exceptions."
Purchase orders created by the ERP system are disseminated to Cascade's suppliers by QAD Supply Visualization, a portal solution appropriate for Tier 3 and Tier 4 suppliers without EDI infrastructures.
Malone remembers well the time when Covisint was introduced. "I'm not sure to this day what Covisint was supposed to be about," he says. "There was so much ambiguity and people never got comfortable with it. Too many saw it as a way to put further pressure on suppliers. With the investments dealers have in their lots, are they really interested in a five-day car?"
As for greater supply chain synchronization, says Malone, "EDI remains a batch process. In-line vehicle sequencing delivers near-real time demand signals, but that comes at a price. Eventually the cost of signaling will come down. It's the communications from Tier 2 to Tier 3 and below where information quality and speed degrade. That's the weakest link. I view QAD Supply Visualization as an initial version of the type of real-time system that will be needed to support the building of a five-day car."
Another problem is data security and information sharing. To achieve higher degrees of synchronization, asks Malone, "Will I need to open up my enterprise system database? I'm not sure the supplier community is ready for that. And if I was to suggest it to management, I'm not sure what the response would be."
Despite the predictions at the time, "EDI didn't go away because it's a low-cost means for machine-to-machine communications" says Malone. "What takes its place must have immediate value, and it has to be inexpensive. With that in hand, the 14- or 21-day car will become a reality."
No single technique
Pam Lopker, president and chairman of QAD, was one early voice critiquing the trade-exchange concept. "The idea of all transactions filtering through a single exchange didn't work because of control issues," she says. "And it's not trivial to break an order into components, explode the bill of material, do the scheduling, and define the requirements at one pass through each level of the chain. To succeed, it has to be a more distributed environment. And yes, ERP systems will need to be more open, but that's already happening today."
The need for synchronized supply chains is even more pressing today, adds Lopker, because of globalization.
"There's no single technique sufficient to the entire supply chain," she says. "EDI is for well-defined relationships. What it does is say, 'Here's my order and here's my schedule.' The time it takes to push those requirements through ERP could vary, but what you want is a one-hour delay only. With a tool like Supply Visualization, you can then see how much inventory you have, replenish to the needed level, and use orders and schedules to supplement that.
"The next step is to use lean techniques so you always know where you're at and make that information available to the supply chain," Lopker continues. "That combination of lean and kanban can then be moved downward in the supply chain. If you had hourly feeds of what's being sold at the retail level, and then move that information through each tier level within an hour, you would have a five-day car. Best in class today is that it takes a week to move the information through each tier."
Lopker says there are U.S. auto industry executives who still believe what's important when Americans go out to buy a car is that they can drive it home that day.
The Japanese automotive companies have an approach somewhat equidistant between the two extremes of buying what's available and make-to-order. Using common platforms and limited options, they maintain a large inventory of cars at U.S. dealerships. Dealers ship cars on their lots to any other dealer in response to a customer request. It's assumed the buyer will find the car wanted on some dealer's lot.
Lopker doesn't believe that's good enough, and points to the success of the Austin Mini Cooper, with its "thousands of options that couldn't be stocked, so that a make-to-order policy had to be pursued," says Lopker. "I do believe people are willing to wait for what they want, if they could get what they want in about five days."
Still about supply chain
It's less clear that Detroit at this point sees supply chain synchronization as an important priority. AMR's Automotive Industry IT Spending Profile, 2005-2006, indicates only 3 percent of those surveyed consider supply chain-related initiatives as the most important.
However, this may be misleading, as the highest priority—for 32 percent of respondents—is "better use and analysis of data throughout the organization," involving analytic engines for better visibility into manufacturing operations and demand forecasting. The previous survey ranked these type initiatives as only sixth in priority.
In sum, the trade exchange executive Bruce Richardson referred to wasn't entirely wrong when pointing to XML as an important technology. Efforts continue at industry organizations—such as AIAG here in the U.S. and Odette in Europe—to forge XML schemas and other standards specific to the auto industry supply chain.
