Automakers finding ways to cut costs, time with build-to-order initiatives
By RALPH KISIEL
Remember how Internet technology was going to sweep in an era of building vehicles at the snap of a customer's fingers?
The 21st-century consumer would log on to a Web site, call up a configurator tool and build the car of his or her dreams. Forget waiting five weeks for a car. It would be ready for delivery in five days.
Whatever the experts called it - "build to order" or "order to delivery" - the idea of creating a manufacturing and distribution system that serves up just what customers want was compelling. Automakers reasoned that they could reap greater profits by reducing or eliminating costly parts and vehicle inventory. There would be no need for incentives to spur sales. And if salespeople no longer had to cram excess vehicles down consumers' throats, customer satisfaction scores at dealerships would skyrocket.
Many Web initiatives did vanish after the dot-com meltdown and the slashing of IT budgets. So did the notion that the Internet would by now be piping consumer requests directly into assembly plants. But automakers have not abandoned their build-to-order initiatives.
Instead, "the thing kind of went underground," says Brad Ross, the executive in charge of global order to delivery at General Motors.
At least nine major automakers in North America have build-to-order pilots, and some have integrated changes into the way they do business. While talk of a so-called five-day car has faded, automakers instead have focused on improving their supply chains, their shipping and the methods they use to track vehicles at plants.
Their efforts are starting to come to light. Ford Motor Co. (ford.com) in the past year has reduced to 37 days the time it takes to build and deliver a Focus. That's down from an average 52 days across all Ford vehicle lines.
GM (gm.com) whacked nearly a week from the time it takes to transport a new vehicle from the assembly plant to a dealer. The systemwide inventory of Mitsubishi Motor Sales of America Inc. (mitsubishicars.com) has been slashed in half and reduced the average age of vehicles on dealer lots to 38 days. Mitsubishi also has eliminated storing slow-selling imports at the ports, resulting in an annual savings of $100 million. The Chrysler group has reduced the time it takes to get a car to a consumer to just 30 to 35 days. The company says that is a 20 percent improvement over last year. "Electronic technology allows you to make these quantum leaps in improvement," said David Hodgson, Chrysler group vice president of worldwide supply.
Huge potential cost savings have kept automakers busy on their build-to-order initiatives, despite the dot-com meltdown. "It might actually turn out to be a huge competitive advantage," said Thilo Koslowski, an automotive industry analyst at GartnerG2 (gartnerg2.com), a research and advisory service of consulting firm Gartner Inc. of Stamford, Conn.
A 2001 GartnerG2 study notes that the average dealer cost for inventory and advertising was $813 for each new vehicle sold. Based on the fact that automakers sold 17.2 million vehicles in the United States last year, the dealer tally comes to nearly $14 billion.
But simply wanting to cut costs is the easy part. Adriana Karaboutis, Ford's director of global customer order fulfillment and product scheduling, divides the world into two different spheres. There's the "Hollywood" part, about configuring a world online. And the less glamorous, nitty-gritty world of logistics, manufacturing and supply chain management.
"You can put configuration systems out on the Web and have customers playing and dancing with them. But the reality is, until you get the back-end operations going, it's all a big hype," said Karaboutis.
"That's what we're going after now."
Automakers are reluctant to say they'll be able to produce a custom-ordered vehicle in five or 10 days. But they realize that the number of customers who want to custom order a new vehicle at the dealerships will grow. By 2010, 21 percent of new U.S. car purchases will be built to order, according to Forrester Research Inc. (forrester.com), a technology research firm in Cambridge, Mass. That is up from about 5 percent today.
Forrester also projects that build-to-order will enable automakers to save $200 per vehicle sold by 2010.
The GartnerG2 survey noted that three weeks is the maximum consumers are willing to wait for a build-to-order vehicle.
Yet a major obstacle to ordering vehicles in the United States is the time elapsed between order and delivery - currently from 15 to 60 days for most makes and models, according to GartnerG2.
When automakers in the late 1990s began to examine seriously how to improve order-to-delivery, the driving force was taking cost out of the process, said James Kowalski, group vice president for automotive at software provider Manugistics Group Inc. (manugistics.com) of Rockville, Md.
But along the way automakers shifted their thinking.
"Order-to-delivery has gone away from a cost center that needs to be cut into being a competitive weapon," Kowalski said. "It's a clear differentiator. It's now become a hotly competitive market."
My first car was a 67 Mustang Coupe, 2nd one was a 67 Cougar XR-7, 3rd one was a 66 Mustang Coupe. Why did I get rid of these cars for ? I know why, because I'm stupid, stupid, stupid.
My next Ford.....