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 NEWSAuto industry geared for e-customization By Ephraim Schwartz March 23, 2001 1:01 pm PT After nearly a century of missed economic opportunities, U.S. automakers are driving full speed ahead on Web-linked enterprises
 Because the industry makes up 25 percent of all revenue generated in the U.S. economy, it's worth watching as it transforms from a traditional brick-and-mortar operation to a New Economy player.At the heart of the auto industry's efforts is the newfound realization that every division of an auto company, from design concept to sales, can now access information in real time. This is a key point for any company watching the carmakers make their Internet transition. When all e-business systems are ready to go, any company in any industry will be able to share information instantaneously. The benefits for market players include compressing the time to market, remaining closer to the demand cycle, and causing less duplication and fewer wasted efforts on projects that may have been changed by another division. An overnight transformation The Internet turned the spotlight on the worst of the auto industry's old model: wasted customer insights. "No other industry that I can think of has had the names, addresses, and financial information on its customers for 100 years and has done less with it than the auto makers," says J. Ferron, an industry analyst at PricewaterhouseCoopers, in Detroit, characterizing automakers' weak marketing efforts over many decades. But in the past three years, the industry has done a 180-degree about-face. Although it's difficult to pinpoint what initiated the industry's almost overnight transformation, change it did, showing the rest of the world that automakers understand the Internet. "Time to market is everything. When you see trends in the marketplace, you can react quicker," says Tony Scott, CTO of General Motors, in Detroit. In a similar vein, DaimlerChrysler launched its Fast Car initiative in August 2000, aiming to leverage the Internet to overlay legacy systems so that designers and engineers -- as well as people in finance, distribution, marketing, and sales -- all have access to the same information simultaneously. "If we could communicate in real time throughout the organization, it would compress the time it takes to develop new vehicles. What is it worth to us if we can leave the design window open for another six months? It is huge. Fast Car is an incredible undertaking," says Gary Dilts, senior vice president of e-Connect at DaimlerChrysler, in Auburn Hills, Mich. Today's automakers are leveraging the ability to communicate in real time in every part of their operations, from customer sales to the supply chain. They've even taken steps to try what would have been unheard of just a few short years ago: working with competitors in the online exchange, Covisint, which has the promise of reducing procurement costs by billions of dollars. Dilts says that in 27 pilot purchases made on Covisint, the company has saved 17 percent of what they would have paid using their usual supplier channels. Although Ford is not yet using Covisint, the company reports that its own exchange saved the company approximately $38 million in 2000 by by making purchases online for some of its $91 billion annual expenditures, according to Randy Ortiz, executive director, B2C ConsumerConnect at Ford Motor Company in Detroit. The industry's ultimate goal is mass customization. Giving customers what they want "Suffice it to say we are looking at putting the infrastructure in place to allow customer access to the plant floor, to get what they want when they want it," Ortiz says. "We are not [fully integrated] from a manufacturing infrastructure point of view. We don't have it all connected. But everyone wants the holy grail of build-to-order." It may take 10 years before a consumer can go to a dealer's Web site and configure a car from the ground up, but the potential payoff of moving in that direction touches every aspect of automakers' business. "The strategy is to give the customer more flexibility and more of what they want versus taking what is available," says Randy Miller, a partner in the automotive consulting division at Arthur Andersen, in Detroit. In order to allow the customer on the front end to order any combination of options and take delivery within 14 days -- the stated goal of all the automakers -- the industry must make changes to the entire back-end operation. The vehicle development process used to be measured in multiple years, four to five years from concept to physical prototypes. "Now we are aiming toward an 18-month process from digital design concept to reality," GM's Scott says. Similar efforts are under way in the manufacturing process, where retooling used to mean starting with a concept and going through everything from clay mock-ups to prototypes, a process that took years. Trimming production time and costs The benefits of mass customization are not limited to faster reaction to consumer taste. As the automakers consolidate design collaboration, they also drastically reduce design costs by creating a single version of a component across make and model lines. GM has one global power train organization, for example, that works in collaboration with all of its partners, including Fiat and Isuzu, Scott explains. To capitalize on this savings opportunity, automakers are busy working behind the scenes on what they call "locate-to-order" initiatives as the second component of its mass customization efforts. With thousands of vehicles in transit or already on dealer lots, the auto industry is looking to reduce inventory dramatically by creating an online logistics system that can tell them in real time where every vehicle is located. The benefit of such a locate-to-order system will be getting customers exactly what they want, or close to it, without having to build cars that already exist. At a recent announcement of a new GM logistics initiative, a GM executive said he believes the company could cut in half the $40 billion spent on logistics within five years once a complete system is in place. In the process, a customer shopping online can order a car with many options. Instead of waiting weeks, the new locate-to-order system will locate and deliver the closest match by finding that vehicle wherever it is and rerouting it to the buyer. Starting with just a few models and dealerships, automakers are also developing a more advanced build-to-order model, the next step beyond locate-to-order. GM is allowing customers to configure customized car models that will be built from scratch -- using a limited number of vehicles to start with -- and take delivery in less than two weeks. The pilot programs will cover the markets in Michigan and Brazil. "Build-to-order requires that you span from dealer to manufacturer into the supply channel itself," McClure says. "If you are going to get the benefits of cost reductions through efficiencies, do things quicker, and carry less inventory, you need to change the fundamental way you do things." What's in store As are many industries, the auto industry is working simultaneously on a number of fronts. From supply-chain integration to e-procurement of direct materials to making inventory more visible by bringing logistics -- a manual process of getting products from point A to point B -- under the control of technology, the disparate technology streams are all flowing. The trick now is to have them all meet up and become a single river. And according to Miller at Andersen, in any industry, the company that can figure out how to continue systems integration and enable the supply chain will be the winner. 
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