Global Automotive Industry

8/4/2019 Global Automotive Industry

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A Deloitte Research and Stanford Global Supply Chain Management ForumGlobal Manufacturing Viewpoint

INTEGRATING DEMAND AND SUPPLY CHAINS IN THE

GLOBAL AUTOMOTIVEINDUSTRYBuilding a Digital Loyalty Network at General Motors

STANFORD GLOBAL SUPPLYCHAIN MANAGEMENT FORUMDeloitte Research


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30 Deloitte Research Integrating Demand and Supply Chains i n the Globa l Automotive Industry

TABLE OF CONTENTS

Executive Summary ........................................................................... 1

The Effect of Automotive Digital Loyalty Networks .......................... 4

Demand and Supply Chain Challenges in the

Global Automotive Industry .............................................................. 7

Challenges Met: Building a Digital Loyalty

Network at General Motors ............................................................. 11

Laying the Foundation............................................................. 11

Customer Relationship Management Initiatives ......................... 13

Supply Chain Management Initiatives ...................................... 16

Conclusion ...................................................................................... 21

About Deloitte Research .................................................................. 25

About the Stanford Global Supply Chain

Management Forum ........................................................................25


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Deloitte Research Integrating Demand and Supply Chains in the Global Automotive Industry

Executive Summary

Automotive executives are all too familiar with the issues troubling their industry

these days: From globalization and economic uncertainty to new technologies

and increasing consumer demands, they are facing major challenges that often

stand in the way of profitability and higher shareholder value. Industry expertshave gone so far as to proclaim that the business model for the automobile

industry is broken. As one leading industry insider put it in early 2002: If you

dont have a different business model going forward, youre probably not

needed.1

In response, beleaguered automakers around the world have scrambled to cut

costs while focusing on improved product quality and design. Moving quickly

and nimbly is imperative, yet the web of complexity in the industry, with its vast

networks of suppliers and distribution channels, as well as a long history of

bureaucracy, make it difficult for automakers to turn on a dime. They also

recognize the need to build stronger strategic relationships with suppliers, dealers,

and even competitors to get to market more quickly with the right product forconsumers at the right price.

While there is no quick fix, nor a panacea that will cure all of the industrys ills,

one area in particular goes a long way toward building a sustainable, value-

creating business model that will lead to increased efficiency and profitability.

Called a digital loyalty network (DLN), this model leverages the latest digital

technologies to integrate the demand and supply sides of the business. A DLN

allows automakers to recognize what customers want, identify customers by

value, and closely collaborate with suppliers to serve customers more profitably.

A recent study by Deloitte Research found that the 13 percent of manufacturing

companies that are pursuing a DLN strategy are up to 70 percent more profitablethan other companies (Figure 1). The study also shows that those same companies,

a group that we call Loyalty Networkers, excel in other areas of business

performance as well, including sales growth, market share, return on assets, and

return to shareholders.


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For the past few years, the automotive industry overall has been putting a number

of measures in place to respond to increased customer demands. For example,

by leveraging new Web-based communication and transaction technologies,

automakers have been building the capabilities for a business model that supports

build-to-order (BTO) processes in addition to the traditional build-to-stock

(BTS) model. This allows automakers to respond better to customers who are

increasingly more knowledgeable and demanding about their preferred vehicle

configurations. But while BTO helps automakers to differentiate products and

meet specific customer needs, it does not help identify levels of customer

profitability that lead to the increased value that automakers are striving for.

With its added focus on customer profitability, a DLN goes further than the

BTO model. A DLN lowers costs and boosts efficiency for each member of the

automotive value network by integrating the supply chain and aligning its

priorities with the needs, wants, and value of each customer. Indeed, all

participants in the value chain automakers, suppliers, dealers, and customers

reap the rewards of a DLN strategy through what we call the network effect.

This means that each member provides more value to and receives more benefit

from the network than could be found by a competitive source outside the

network.

FIGURE 1. DIGITAL LOYALTY NETWORKS QUADRANT

Market Takers Loyalist

Collaborators Loyalty Networkers

Note: Size of circle represents share of 850+ companies surveyed globally

SOURCE: DELOITTE RESEARCH

Customer Loyalty HighLow

Supply ChainCollaboration

High

100 =base

54% moreprofitable

10%more

profitable

70% moreprofitable

(46% ofRespondents)

(26%)(13%)

(15%)


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One of the U.S. Big Three automakers, General Motors, has already made great

strides in building a DLN. Endorsed by Rick Wagoner, GMs CEO, and driven

by leaders from the technology, customer, and supply chain sides of the company,

the DLN initiative is helping GM deliver new levels of value to customers, supply

chain partners, and, ultimately, shareholders. As its name implies, a DLN includes

the three components GM is focusing on: digital for technology-enabled;

loyalty for a focus on customers and on increasing their loyalty and lifetimevalue to GM; and network for coordinating and leveraging all supply and

distribution chain partners to serve those customers.

On the customer side, GM has implemented GM BuyPower and GM Owner

Center, two Web-based portals that, respectively, improve the buying experience

and serve as an ongoing resource for vehicle owners. Further increasing its touch

points with customers is OnStar, a telematics service that offers safety, security,

and convenience features at the touch of a button.

On the supply chain side, GMs initiatives include GM SupplyPower, its online

procurement portal, and its Order-To-Delivery program, designed to reduce

inventory and increase customer satisfaction and loyalty by delivering vehiclesfaster and more reliably. The company is also making major headway in

collaboration efforts for supply chain management and product design and

development, as well as further improvements in CRM and logistics. GM is

integrating such initiatives to take advantage of the benefits of a DLN.

As our research shows and as GMs transformation is beginning to demonstrate,

an integrated, differentiated value chain can go a long way toward improving

the overall performance of the automotive industry.


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The Effect of Automotive Digital Loyalty Networks

For many years, the automotive industry has been described as an industry that

has destroyed, rather than created, value. Facing such issues as slow time to

market, costly inventories, overcapacity, and low customer satisfaction and loyalty,

automakers have launched numerous initiatives in attempts to boost profitabilityand shareholder value. From product innovation and new services, to lean

manufacturing and customer relationship management, these efforts have

touched on many of the problems, but have yet to provide an overall answer on

how to enhance value.

One answer lies in the integration of these disparate efforts; namely, in integrating

the demand and supply chain sides of the business. Achieved through a model

known as a digital loyalty network (DLN), this approach uses digital technologies

to optimize an automakers supply network based on customer value and loyalty.

On the supply chain side, what this means is flawless execution for a companys

most valuable customers, the ability to manage inventory across all types of

customers, and short- and long-term capacity planning that is responsive tocustomer priorities. On the customer side, it means working with dealers to

understand true customer value based on their real requirements and total

supply chain costs to serve them.

To identify the benefits of a DLN strategy, Deloitte Research recently conducted

a study of more than 850 manufacturing executives in 35 countries to measure

their companies levels of supply chain collaboration and customer loyalty. The

standout results of this study involved a group we call Loyalty Networkers

those companies that have integrated their collaborative supply chains with a

strong focus on customer loyalty. Our results show that Loyalty Networkers are

up to 70 percent more profitable than other companies in the study (Figure 2).The results also show that Loyalty Networkers are up to three times more likely

to show superior sales growth, market share, return on assets, and shareholder

value as companies that do not combine supply chain collaboration with a

customer loyalty focus (Figure 3).

The study also highlighted a powerful result of a DLN: by combining supply

chain and customer loyalty efforts, all participants in the network will realize

increased value what we call the network effect. This phenomenon means


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Suppliers in the network benefit from reduced order-to-delivery times due to

customer-focused product innovation and development. A DLN also allows

suppliers to collaboratively align production planning and execution and to better

utilize their capacity.

Dealers realize the benefits of the network effect in a number of ways. First,

better information about customer loyalty allows them to identify profitable

cross-selling and service enhancement opportunities. Their marketing and sales

efforts, now loyalty-focused, are more efficient and less costly. And they see better

and more profitable product available from OEMs and suppliers. With demand

and supply chain integration, dealers can match more profitably different

customer demands with appropriate product whether the product is inventory

on-hand, in transit, or built to order.

Customersenjoy greater satisfaction through streamlined and integrated on-line

and off-line sales and marketing channels, more personalized service, and

customized vehicle options, which means they only pay for the options they

request and value. Overall, customers see loyalty for loyalty loyalty to a brand

that result in a better match of products, services, and price thats right for thembecause their loyalty matters to the OEM network.

Indeed, the network effect is self-perpetuating in that further value is realized as

each member of the value chain contributes to and enjoys the positive experience

of a DLN. By tightly linking supply chain and customer initiatives, success can

breed further success.


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In response, automakers, suppliers, and dealers have tried various approaches to

find a balance between product supply and fluctuating demandapproaches

such as buffer inventory stored throughout the value chain from dealers to tier-

N suppliers and deep financial incentives to spur auto sales. However, these

approaches often have resulted in high inventory carrying costs and lower margins.

Today, members of the automotive value chain are looking for cost-effective

solutions that offer supply-chain-wide visibility to demand information,streamlined information flows, and more efficient and profitable alignment of

the business model with final consumer demand.

Customer Side ChallengesIn todays highly competitive and technology-driven manufacturing environment,

the industry-wide generic, one-size-fits-all supply chain model with similar lead

times and service levels to all customers is no longer adequate. Not only does

this model create inefficiencies along the value chain, but competitive pressures

and changing customer expectations are forcing automakers to look for ways to

improve how vehicles are designed, manufactured, and sold. Leading automakers

such as GM are pursuing a DLN strategy to help build the capabilities to better

sense different customer demands, shifting preferences, and target dealer

requirements, and then respond by making and delivering a vehicle to order

within a shorter and more reliable timeframe than competitors. At the same

time, this approach helps ensure that the inventory in the dealer network, in

transit, and in plant is aligned most effectively with customers requirements

and profitable sales opportunities.

Indeed, to succeed in the automotive industry today, it is becoming increasingly

important for a company to align itself closer to the customer and develop one-

to-one relationships to better understand customer needsas well as the capability

to quickly translate customer requirements to the shop floor. According to RalphSzygenda, CIO of GM, The first, and perhaps the most fundamental issue, is

that traditional automotive processes [still] do not fully meet customer-driven

requirements. [From a supply chain perspective,] products are too complex, and

design cycle times too long, to properly respond to the marketplace. Customers

should be able to configure their own vehicles, add options, select colors, and

understand how these decisions impact price and financing.

The advent of the Internet has enabled OEMs to have a more direct relationship

with customers. Unlike the traditional model through which automobile dealers

were primarily responsible for managing customer relationships, this direct link

to customers opens doors to new marketing and sales opportunities for OEMsand introduces speed in all operations. The Internet also has created significantly

different shopping and buying behaviors, giving customers more information

and, as a result, changing their expectations. The customer-focused approach of

a DLN helps OEMs respond to those increased demands and expectations

and do so more profitably.


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Also on the customer side of building a DLN, automakers need to address a

number of issues relating to dealers inventory levels and the need to work with

dealers to develop new sales and distribution channels. Many large dealerships

have long preferred to maintain large inventory levels because they view inventory

as a competitive advantage that provides a buffer against demand uncertainty

and long replenishment lead times. Dealers and automakers alike have assumed

for some time that holding inventory would provide customers with themaximum available choices immediately, letting potential buyers touch, feel,

and engage with a vehicle and thus make it unlikely a potential sale would walk

out the door. The price of dealer inventory, however, includes the financing of

excess inventory, maintenance costs, incentives to move unwanted inventory,

compromised customer choice, and inefficiency in the ability of the supply chain

to sense and respond.

New marketing, sales, and distribution channels such as the Internet and auto

supermarkets also are important avenues to explore, although automakers must

work closely with dealers to produce a win-win situation.

Supply Chain ChallengesOne of the key supply chain issues facing automakers today involves long order-

to-delivery lead times and unreliable production schedules that lead to excess

inventory throughout the value chain. Lengthy demand planning cycles and

lack of visibility to supplier, material, and production constraints cause scheduling

delays and short-term production changes. These problems drive automakers

and suppliers to build up buffer inventory and limit their ability to flexibly react

to changes in customer demand. Under these conditions, suppliers are unable to

sense customer orders and manufacture solely on schedules with 12-16 weeks of

lead time. Constrained, inflexible production and assembly capacities and long

delivery lead times also contribute to high dealer inventory levels in the form ofsafety stock.

Another supply chain issue that automaker face, especially in the U.S., relates to

vehicle content. Over the years, foreign automakers, primarily those from Asia,

entered global markets with higher-content vehicles (i.e., with many options

included as standard equipment) as one way of overcoming the customization

constraint imposed by the lead time of shipping product overseas. In response,

U.S. automakers increased their standard vehicle content and features. Today,

however, consumers prefer to select vehicle content thats right for them rather

than pay for standard options they dont need and the entire automotive

supply chain is trying to respond to this shift.

Other supply chain issues that the automotive industry is working to address

include a lack of collaboration in product development, which can lead to product

development cycle times of more than 48 months. Communication channels

between OEMs and other supply chain partners remain manual in many cases.

This is especially true with small suppliers unable to afford an investment in

electronic data interchange (EDI) technology that is used between OEMs and

their larger suppliers.


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Logistics operations in the automotive supply chain are complex and represent a

major expense and opportunity for improvement. For example, management of

inbound logistics often involve a global network of more than 10,000 suppliers

for a single automaker. Whats more, the overall lack of communication and

coordination of inbound and outbound logistics operations often prevents

automakers from optimizing their supply chains, reducing inventories, and

accurately forecasting and responding to customer demands.


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General Motors is making great strides in building a DLN to deliver new levels of

value to customers, suppliers, and shareholders. GM is focusing on the three areas

that make up a digital loyalty network: digital for a focus on IT; loyalty for a

focus on customers and on increasing their loyalty and lifetime value to GM; andnetwork for a focus on the entire supply chain from suppliers to distribution

chain partners, dealers, and final customers.

Laying the FoundationIn efforts to improve and integrate its demand and supply chains, GM has made

significant progress in streamlining its IT operations a feat that laid considerable

groundwork for building a DLN. In the mid-1990s, information systems at GM

had proliferated, but most of them were antiquated, isolated silos of information

that did not integrate data flow across the enterprise. For example, marketing data

researched by one GM marque was difficult to share with other parts of the

organization. Design engineering used 22 different engineering systems that

threatened collaboration among the global product development staffs. In all, the

company had more than 7,000 discrete information systems.

Over time at GM, billions of dollars had been invested in various IT systems and

initiatives. Whats more, value chain partners had systems of their own: dealers had

their own dealer management systems (DMS) and suppliers had their own IT

systems to communicate with GM and other customers. Integrating those disparate

systems and building a robust and scalable architecture was indeed a challenge.

One of the first things GM did to tackle this challenge was to educate executives

about the strategic importance of IT. Each business unit now has a chief information

officer (CIO) who reports to the business unit president, and process information

officers (PIOs) have been assigned throughout the organization to quickly assimilate

technology initiatives into GMs core business model (Figure 5). PIOs are responsible

for the design, development, and implementation of major business processes in

product development; production; sales, service, and marketing; business services;

and the supply chain to drive common solutions across those units. The PIOs

identify business, functional, and technical requirements, build key business

processes, and integrate them across functional and geographic areas.

Challenges Met: Building a DigitalLoyalty Network At General Motors


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In addition to raising the level of awareness of IT throughout the company,

GM has significantly improved its existing systems and technology infrastructure.Its worldwide telecommunications infrastructure has been overhauled to gain

three times the bandwidth for wide area networks (WANs) and 30 times for

local area networks (LANs). Middleware applications are being inserted to make

systems talk to each other and link disparate systems to extract information

from formerly mutually incompatible legacy systems. Systems are also being

standardized. For example, GM now has just one computer-aided design system

worldwide, whereas at one time there were more than 20. The organizations

vast numbers of information systems are being consolidated into a few with

standardized inputs and outputs, the same data structures/data formats, standard

software and hardware application architectures, and common communication

interfaces.

Assessing the progress GM has made in IT, Ralph Szygenda, GMs CIO says,

Leveraging the Internet into the environment was a critical part of the business,

and we have built $1.7 billion worth of Internet-based applications, probably

more than any other company in the world. We overlaid those things on top of

this infrastructure to change the business. By the way, it cost GM nothing. We

funded all of this transformation with all the e-business movement and still

gave back $2 billion to the company.

SOURCE: GENERAL MOTORS

FIGURE 5. GM INFORMATION SYSTEMS & SERVICES (IS&S)

Global TechnologyManagement

Global ServicesDelivery

ApplicationSolution Delivery

TechnologyGlobal Processorsand Systems

Geography

SectorPresident

SectorPresident

SectorPresident

SectorPresident

SectorPresident

GM CIOR. Szygenda

SectorPresident

Asia PacificIO

GMEIO

NAIO

LAAMIO

e-GMIO

GMAC FSIO

Process Integrationand QualityAssurance

Develop ProductIO

Produce ProductIO

CustomerExperience IO

Supply ChainIO

StrategyPlanning

ContractManagement

Legal

HumanResources

Purchasing

Finance

Business ServicesIO

(Finance, HR, Legal, Comm.,EAG, Public Policy)

LegendGME: GM EuropeLAAM: Latin America, Africa and Middle EastGMAC: General Motors Acceptance CorporationEAG: Enterprise Activities Group


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Customer Relationship Management InitiativesGMs primary focus area on the customer side is to develop stronger one-to-one

relationships with customers. By personalizing interactions and aligning vehicle

content with expectations, GMs customer-centric approach offers new levels of

service and support and, at the same time, reduces distribution and selling costs.

GM is working closely with dealers on these efforts as well as exploring alternative

sales channels to reach customers in new ways.

One initiative to strengthen customer relationships has been to better gather,

manage, and leverage customer data and enhance customer interaction. By

consolidating its vast enterprise customer management (ECM) databases not

to mention some 150 Web sites and 63 call centers GM has put into motion

its strategy of being able to capture valuable information with each customer

interaction. It then feeds that information back into product improvements,

sales and marketing campaigns, and personalization efforts. Such customer-

centric capabilities are slated to create a cycle of continuous improvement. Better

customer knowledge leads to more profitable customer acquisition and greater

loyalty, which leads to richer customer information, and so on.

This initiative also allows GM to track customers over time as they move across

brands, locations, and GM businesses (finance, mortgage, and so on). Tracking

customer touch points and mapping that to the customers age, income, and

other factors help GM to anticipate where the customer may be next (Figure 6).


FIGURE 6. AGGREGATING CUSTOMER TOUCH POINTS

GMCustomers

CustomerCare

OutsidePurchasedData andLegacy

System

CustomerInformation Data

Warehouse

CustomerAnalytic Data MartReal-Time

ContactManagement

Data Base

Marketingand Lead

ManagementData Base

Business IntelligencePredictive Modeling

Reports and Measures

Category ManagementAnalysis, Data Miningand Insight Creation

Marketing ProgramAutomation

Planning Execution

Marketing Sales

Web

Call Center

Direct MailE-Mail

Fulfillment Centers

Interactive Vehicles

MarketingEvents and Shows

Field and FleetCommercial Sales

Retailers and GMACBranch Offices

Service DeskAfter Market P&A Service

Direct TV

DataSecurityandConsumerPrivacyProtection


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In essence, integrating customer data allows GM to better leverage its broad

shelf of brand offerings. By integrating customer data among different business

units and complementary businesses such as car financing and insurance, GM is

better able to match customer requirements across the product offerings of

different divisions, which Alfred Sloan, the CEO of GM from 1923 to 1946,

had envisioned when he created GMs multi-divisional structure.

In another move to become more customer-centric, GM also is addressing

customer demands concerning vehicle delivery. Assuming that customers want

quick delivery, many automobile companies have begun initiatives to enable

two- to three-day delivery. However, market research reveals that such a broad

assumption is off-basein fact, customers have widely varying and personalized

expectations when it comes to such order fulfillment attributes as lead time,

delivery reliability, and the importance of getting exactly the desired vehicle

configuration. What customers really value is that they get the car they want, at

the desired time and desired price. In many instances, customers also have to sell

an existing vehicle and get the appropriate financing lined up. Many customers

will wait for a certain amount of time and some even might pay premiums to get

their preferred vehicle. Most customers ideal wait time is somewhere between

one and eight weeks. So what is really needed is a differentiated value proposition

and supply chain response for each customer to build loyalty where it matters

and to maximize long-term revenue potential. This will ensure optimum customer

satisfaction as well as the most profitable use of costly and constrained supply

chain capabilities.

New Channels: Harnessing the Power of e

In collaboration with dealers, GM has developed a Web-based channel that not

only allows customers to search for desired vehicles but also provides GM and

dealers with rich customer information. Called GM BuyPower, the portal offersconsumers the best of two worlds an integrated online channel and the

opportunity for a more personalized offline dealer experience (Figure 7). Using

GM BuyPower, customers may search for their nearest or preferred dealer, view

unbiased third-party comparisons, get incentive information, request the dealers

best price, and apply for financing online. Because every customer request from

FIGURE 7. GM BUYPOWER WEBSITE



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BuyPower is tagged with customer information, dealers are able to personalize

their responses with appropriate offerings.

Today, GM BuyPower is the most frequently visited automotive OEM Web site

in the world. Upon completion of global deployment in 2003, GM BuyPower is

targeted to reach 3.5 billion of the worlds 6 billion people in a language they

understand and with familiar GM products.

GM BuyPower also strengthens the shopping and buying aspects of the GM

purchase funnel (Figure 8). This funnel includes all of the steps a customer

takes in shopping for, buying, and owning a vehicle. GMs marketing efforts

as well as its Web presence through third parties such as AOL, Edmunds, Kelly

Blue Book, and NetZero and affinity alliances such as College Club, Black Voices,

and iCanhave created a strong awareness of GM brands and have led an

increasing number of customers to consider purchasing GM vehicles. GM

BuyPower provides an aid for customers who are close to purchase and is designed

for customers to choose (shop) the dealer as well as the vehicle. It also serves as

an ongoing communication link to customers in the ownership phase, after

purchase, and may lead them to consider GM again when they reenter the market.A key component of the companys emerging DLN, GM BuyPower also is

designed to serve as a link between the customer and supply sides of GM. By

using the click-stream data from GM BuyPower, GM can sense market demand

and respond accordingly.

Further leveraging Internet technologies to reach customers in new ways, GM

has also built a Web-based tool for post-purchase customer care called GM Owner

Center (Figure 9). Using GM Owner Center, customers may create personalized

profiles of all GM vehicles they own. These profiles provide vehicle information,

trigger maintenance reminders, and track service history. Customers also get

access to digital versions of their owners manuals, informative videos of

procedures outlined in the manuals, and other helpful features such as service

center locationsas well as incentives for participating in the site.

FIGURE 8. AUTOMOBILE PURCHASE FUNNEL

Aware Consider Shop BuyOwners

1-6 monthsPost Sale

Owners6 monthsX years

OwnersLast 6

months ofownership

ReenterMarket

Purchase Funnel

Ownership Phase



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Direct Links to Customers with Telematics

In another effort to establish a direct link with customers, GM envisions every

vehicle to become part of a limitless, wireless telecommunications network.

Leveraging its telematics service, OnStar, GM is on the way to making the vehicle

another critical node on the information highway, allowing the company to

interact daily with its customers.

OnStar allows consumers to push a button and receive a wide variety of safety,

security, and convenience features. Using OnStar, consumers may make hands-

free calls via Personal Calling, or hear the latest news and traffic information via

Virtual Advisor. OnStar subscribers have the ability to remotely unlock a car

door if the keys were accidentally locked inside, or to summon assistance for a

disabled vehicle. With more than 10 million customer interactions in five years

time and some 5,000 new customers enrolling every day GMs OnStar service

provides the company another way to improve its customer reach. GM alsocontinues to explore the integration of additional new services, such as XM

satellite radio.

Supply Chain Management InitiativesGM understands that to reap the real benefits of customer side initiatives, the

back end of the supply chain has to be robust, flexible, and responsive. Investing

in front-end initiatives is not much use if a company does not have strong internal

capabilities and effective supplier networks. To that end, GM has been doing

plenty of work on the supply side, especially in supporting and enabling initiatives

that allow vehicles to be built to order, and in improving and supportingcommunications and collaboration capabilities across GMs vast network of

suppliers, distributors, and dealers.

In response to increasing customer demands and moves toward increased

profitability, the automobile industry overall has begun to migrate from being

primarily a build-to-stock model to a more balanced build-to-stock and build-

to-order model. One of GMs initiatives on the supply side is called Order-to-

Delivery (OTD), which is designed to transform the supply chain to meet the

FIGURE 9. GM OWNER CENTER



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increasing demands of customers in the growing digital environment. As a result

of this initiative, a new department called Order-to-Delivery has been formed

to address GMs supply chain issues. The OTD organization has more than

5,000 employees and is divided into three cross-functional groups order

fulfillment, supply operations, and logistics. Together, these groups are responsible

for all OTD processes, whether the underlying vehicle was built-to-stock or

built-to-order. The order fulfillment team is responsible for working on customerfacing, sense and respond, and planning activities. The supply operations

group focuses on internal plant activities and the movement of materials, material

communication, and visibility with suppliers. The logistics team is responsible

for transportation and delivery of vehicles.

The OTD capabilities at GM are designed to provide dealers and customers

with the right vehicle, at the right place, the right time, and at the right price.

OTD aims to reduce inventory and increase customer satisfaction and loyalty

by delivering vehicles faster and more reliably. GM has made tremendous strides

in meeting those goals around the globe. Average delivery lead times for all GM

vehicles have been reduced by 50 percent in just two years from more than 80

days prior to 2000 to just over 40 days. At the same time, delivery reliability has

jumped from 68 percent to 90 percent. As another key component of GMs

DLN, OTD is strengthening the link between engineering, manufacturing,

dealers, and customers and to allow GM to work more collaboratively with

suppliers.

Shoring Up Communication in the Supply Chain

The Internet is replacing most conventional modes of communication, allowing

companies to collaborate and link up with their suppliers as never before. GM

executives estimate that about 68 percent of direct materials procurement will

be done via the Internet by 2004. OEMs are using the Internet to connect totheir multiple tier suppliers and communicate more effectively.

Given that quick, reliable communication across the supply chain is a requirement

of a DLN, GM leverages its private, Web-based portal called GM SupplyPower,

which was built in 1999 (Figure 10). The portal links GM and its suppliers,

allowing them to complete transactions and share information related to

purchasing, sourcing of materials, quality and production control, logistics,

engineering, and manufacturing. GM SupplyPower helps GM reduce operations

costs, contributes to speeding up the vehicle development process (VDP) via

engineering collaboration, improves supplier quality and responsiveness, and

improves supplier communication relative to product schedules and capacity

plans.

By leveraging long established relationships with supply side partners, private

exchanges like GM SupplyPower enable deep integration with trading partners

back-end systems. And, as a private exchange, GM SupplyPower also maintains

and protects GMs unique business processes. However, to make procurement

of commodity items more efficient, to reach the globally fragmented community

of suppliers with whom GM has intermittent business relations, and to have the


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ability to aggregate industry information for better forecasting and planning,

GM, together with other large automakers, in early 2000 created the worlds

largest Internet-based virtual marketplace. Named Covisint, this business-to-

business (B2B) exchange is able to connect automakers with thousands of

suppliers (Figure 11). By developing an open infrastructure, which eliminates

expensive point-to-point connections and third-party transaction brokers,

Covisint can provide immediate value to large and small suppliers alike. Small

suppliers can leapfrog over rigid and expensive-to-implement EDI technology

and participate in the marketplace the way big companies do. Covisint also

helps establish common transaction and communication standards for the auto

FIGURE 10. GM SUPPLYPOWER


GM SupplyPower is GM supplier communication website. It is used as a medium for GM to provide up-to-date information to the supplier community quickly, effectively and conveniently. GM SupplyPower alsoacts as a gateway to supplier applications. Through web-enabled applications, suppliers directly interactwith GM to complete a variety of business transactions. Ultimately, the GM SupplyPower portal will be theprimary means of communication between GM and its suppliers.

GM SupplyPower contains several modules to address the needs of the key processes:Purchase Power: To communicate and collaborate with GMs supplier base in the area of

purchasing and sourcing materials.

Quality Power: To provide and exchange information on quality and supplier development withGMs suppliers.

Engineering Power: To establish a data and automation environment that enables the highest levelof electronic digital data exchange and collaboration between General Motors vehicle programsand their suppliers.

Material Power: To communicate and collaborate with GMs supply base in the area of productioncontrol and logistics.

Finance Power: To communicate and collaborate with GMs suppliers in the area of finance.Manufacturing Power: To provide GMs suppliers relevant information on manufacturings technical

specifications and procedures.Logistics Power: To communicate and collaborate with GMs logistics suppliers.

Each module features content and applications that enable two way communication and collaborationbetween GM and its suppliers. The content library includes over five hundred useful documents to assistsuppliers in business planning and execution. Some examples of content include standard terms and con-ditions, APQP manuals, production schedules, shipping manuals and training courses. GM SupplyPoweralso hosts several web-enabled applications that can be accessed by suppliers.

FIGURE 11. COVISINT SOLUTIONS

Procurement Supply Chain

Collaborative ProductDevelopment

Value AddedServices

Covisint

Covisint's solutions are targeted at transforming all key business processes within the automotive industry.Covisint's solutions allow companies to harness the power of the Internet to unlock significant value andefficiency through collaboration, visibility, and integration. Following are the solution suites offered byCovisint (www.Covisint.com):

Collaboration Collaboration Manager, Quote Manager, Engineering Manager Procurement Auctions, Catalogs, Quote Manager, Asset Control Supply Chain Fulfillment, Supplier Connection Quality Advanced Quality Planner, Problem Solver Corporate Portal, Integration, Financial Services



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industry. The biggest selling point may be that Covisint provides a single exchange

with one protocol, so suppliers that go through the exchange do not have to deal

with different standards and different systems while dealing with each automobile

OEM.

Covisints architecture and language are enabling GM, other OEMs, and suppliers

to move away from a complex one-to-one relationship model to more of a hub-

and-spoke public exchange design (Figure 12). The Covisint marketplace began

as a central procurement hub, connecting hundreds of customers to thousands

of suppliers, but now offers supply chain and product development collaboration

solutions as well.

GM and other major worldwide automakers have been effectively using Covisint

for direct and indirect material procurement, calling for supplier requests for

quotes (RFQs), forward and reverse auction of machinery and equipment, and

putting product catalogs online. In 2001, GM alone procured about $25 billion

worth of material via Covisint. Using Covisint, GM and other major automakers

have linked directly to thousands of suppliers on the exchange and significantly

reduced the number of paper and EDI transactions.

GM is also initiating a pilot program at GM assembly plants in North America

that uses Covisint fulfillment functionality to provide simultaneous real-time

connectivity with multiple tiers of critical supply chain partners. This allows

real-time visibility of inventory levels (raw materials, work-in-process, finished

goods at partner and OEM sites), parts usage history, forecasts, in-transit

inventories, receipts, and other relevant information between manufacturers and

suppliers. Covisints product development solution, with its virtual project

workspace, allows members of the network to exchange and work collaboratively

on computer-aided design (CAD) drawings and designs. Overall, Covisint

promises to help reduce inventory, allow automakers to respond faster to market

dynamics, and speed up vehicle development times. And, together with GM

SupplyPower, Covisint provides GM with strong and flexible capabilities across

a range of sourcing, procurement, and product development areas.

FIGURE 12. TRANSITION TO HUB AND SPOKE MODEL

Purchase

Tier 1

Tier 2

Tier 1

Tier 2

Tier 1 Covisint Tier 2

Tier 2

OtherExchanges OEM

Tier 2

OEM


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Inventing New Practices in Logistics

To further tighten the supply chain, GM is also working to streamline its logistics

operations. To ship its daily production of 35,000 cars to more than 12,500

dealers worldwide, GM in recent years has been spending about $6 billion

annually on logistics operations, using multiple third-party logistics providers

(3PLs) to manage its inbound and outbound logistics activities. But the company

hasnt been seeing acceptable payback on that $6 billion: Lack of communicationand coordination between third-party logistics suppliers has often led to unreliable

order fulfillment lead times that could range from an average of 70 to 90 days.

Inbound logistics operations are also very complex. A total of 180 million pounds

of material is shipped every day from 12,000 suppliers globally. The changing

supplier base makes optimizing delivery routes difficult, and the lack of visibility

into inventory levels at different locations (such as supplier finished goods and

vehicles in-transit) makes materials planning very challenging.

Realizing that it needed a super-3PL that could centrally manage multiple

3PLs and reduce cost and delivery lead time in each segment of logistics, GM

formed an alliance with CNF, a logistics company providing global supply chainservices, and incorporated a new company, Vector SCM, to manage GMs vast

logistics network.

By integrating all 3PLs into one information system, Vector SCM offers real-

time carrier management and improved visibility of all materials and vehicles

moving within GMs supply chain. This enables GM to track and trace shipments

via the Web and to manage shipments by exception. To better manage GMs

service provider network, logistics control centers act as command centers. These

centers are equipped with and linked together by the latest IT to provide visibility

to track GMs assets raw materials, empty racks, finished vehicles, or service

parts - and to locate all carriers. The resulting improved information flow,

reliability, and flexibility of GMs production and distribution systems lead tobetter service to dealers and car buyers.


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Conclusion

By leveraging digital technologies to integrate its demand and supply chains

supported by an inclusive view of its business model from the perspective of

customers through end suppliers GM has made great progress in building a

DLN. Recognizing the power of such integration, GM is weaving the strategy

throughout the entire GM business web, a vast infrastructure of all of the

companys constituencies: suppliers, dealers, employees, alliance partners, and

customers (Figure 13).

FIGURE 13. GMS BUSINESS WEB

CustomerHome/Office

CustomerAuto

SupplierDealer

Employee GMValueChain

As GM has seen, a major capability on the demand side of its efforts capturing

and sharing customer demand information across the network brings new

efficiencies throughout the entire value chain. According to Brad Ross, GMs

executive in charge of OTD, All members of the network are able to make

modifications to their plans to support what the market really wants as opposed

to what we had thought they wanted.

A better understanding of customer demands is one side of GMs success in

building a DLN. Better communications and teamwork with suppliers is another.

To that end, GMs efforts in building a DLN support the philosophy recently

outlined by Bob Lutz, GMs chairman of North American operations. Lutz

says, Our philosophy is to encourage and challenge all of our suppliers to help



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Putting the Model to Work:The Chevrolet Celta

One example of where GM has put the DLN model to work is its

September 2000 launch of the Chevrolet Celta in Brazil. The launch of

the Celta, a sub-economy car produced at the Gravatai assembly plant

in Brazil, presents one of the first high-volume, Internet-based sales

models in the industry. Consumers may access the Celtas Web site fromtheir own PCs or from a kiosk at one of more than 470 Brazilian Chevrolet

dealers. From the site, customers can configure the Celta of their choice,

select a payment option, make the purchase, and confirm delivery of

their vehicle.

Using digital technologies, the network integrates all aspects of the

demand and supply chains: customers, dealers, distribution, production,

and suppliers. With fewer than 100 build configurations for the Celta,

manufacturing facilities are more flexible and can rapidly change schedules

to match end-customer demands. Also, with production and distribution

facilities receiving real-time information via the Web, they can speed updelivery and better forecast production needs.

Customers receive the car of their choice, in just 11 days on average, and

at a lower price because of the tax benefits of purchasing online. Dealers

are highly satisfied as well. They see lower costs through lower inventory

levels and the potential for further sales through accessorization of the

vehicles at the dealerships. Indeed, inventory pooling between the factory

and dealers optimizes vehicle availability and minimizes inventory costs,

including capital and depreciation costs. Dealers also continue to see

high levels of customer traffic, with 90 percent of online Celta transactions

completed at dealership kiosks ensuring face-to-face communication

with the customer and opportunities for dealers to further build customerrelationships.

Just 16 months after its launch, more than 110,000 Celtas had been

sold, with 70 percent of those vehicles sold online. The streamlined

processes of the DLN model have not only lowered costs through lower

inventory and taxes, but also allow GM to more accurately predict profit

margins. This model shows the network effect of a DLN in action, with

all members of the network customers, dealers, distribution partners,

manufacturers, and suppliers realizing the benefits. As Mark Hogan,

former head of e-GM says, The Celta program has taught us how to

use technology to create a better retail experience, and the learnings fromCelta could be applied worldwide.


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us get to the point where we can see a visible improvement in thequality of

our products. To do that, we have to encourage frequent and open

communications. Frequent and open communications with suppliers is indeed

one more capability enabled by GMs initiatives.

Combined with initiatives underway in other parts of the organization such as

product development and manufacturing, GMs demand and supply chain

integration efforts are leading to quantifiable results, most notably in the areas

of higher customer loyalty, reduced delivery lead times, and higher delivery

reliability, while maintaining or increasing market share in a fiercely competitive

global automotive industry.

The latest standings for R.L. Polk & Co.s Automotive Loyalty Awards2 showed

that more customers returned to GM to buy and lease vehicles than any other

automaker. According to Polks findings, 65.2 percent of GM vehicle owners

that returned to market in 2001 repurchased a GM vehicle, the highest loyalty

percentage in the industry and 11 points higher than the industry average. On

the supply chain side, a 50 percent reduction in delivery lead times and 32

percent improvement in delivery reliability over the last two years are furthersignals of progress. As GM continues its launch and roll-out of new, innovative

cars and trucks and builds on the business model it is putting together, its

performance is likely to improve further. While some of the initiatives GM has

taken yield immediate benefit (see Box Putting the Model to Work: The

Chevrolet Celta), many of the results from the overall move toward strengthening

the customer experience, enhancing customer satisfaction, and building customer

loyalty through better and better-integrated CRM and SCM capabilities,

and enhancing the product line-up will arrive over the long haul. For example,

the time between purchases for the average customer in the automotive industry

can be three years or longer, suggesting that many benefits will take at least that

long to materialize.

Fundamentally, a DLN is all about satisfying different customer needs with

differentiated supply chain capabilities, which increases value for all members of

the network. And in helping to improve the automotive industry business model,

a DLN allows automakers to move from the transaction mindset of selling a car

to a relationship mentality based on the desire to offer a customized stream of

products and services to meet customers needs over a lifetime. By better

recognizing what customers want, identifying the most valuable current and

prospective customers, developing the right product portfolio, and then closely

collaborating with suppliers and dealers to make the model work, GM can

continually improve the model and reap the benefits of increased loyalty andbottom-line profitability of an automotive digital loyalty network.


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End Notes1 David Stockman, former Director of the Office of Management and Budget;

co-founder, Heartland Industrial Partners

2 R.L. Polk Automotive Loyalty rankings and annual awards are based on Polks

Manufacturer Loyalty Excelerator report. This report was created to provide

household loyalty information to manufacturers at many different levels. It isnow used to provide loyalty percentages for the entire automotive industry and

allows for cross-industry comparisons of loyalty behavior. R.L Polk collects,

compiles, and interprets state vehicle registrations and title information, and

supplies demographic, lifestyle, and other information about consumers. The

report measures loyalty throughout the entire model year so that manufacturers

may keep abreast of loyalty trends as they occur in the industry.


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About Deloitte ResearchDeloitte Research identifies, analyzes, and explains the major issues driving todays business dynamics and shaping tomorrows

global marketplace. From provocative points of view about strategy and organizational change to straight talk about economics,

regulation, and technology, Deloitte Research delivers innovative, practical insights companies can use to improve their

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and academic and technology partners, Deloitte Research exhibits deep industry knowledge, functional expertise, and a

commitment to thought leadership. In boardrooms and business journals, Deloitte Research is known for bringing new

perspective to real-world concerns.

For more information about Deloitte Research, please contact the Global Director, Ann Baxter, at 415 268 1026 or via

email: [email protected].

Peter Koudalis Director, Deloitte ResearchManufacturing Institute. He leads the global manufacturing research and

focuses on business strategy and performance, supply chain management, customer relationship management, and demand-

supply integration and optimization. He is a member of the Academic Steering Council of the Stanford Global Supply

Chain Management Forum. Peter Koudal can be reached at Tel: +1 212 492 4275; e-mail: [email protected].

About the Stanford Global Supply Chain Management ForumThe Stanford Global Supply Chain Management Forum is an industry-academic consortium with the mission of advancing

the theory and practice of global supply chain management. The Forum conducts research, develops teaching materials,

collaborates with industry, organizes industry seminars and roundtables, and provides a forum for professional networking.

For more information, please contact Ms Debbie Newman, Assistant Director, Stanford Global Supply Chain Management

Forum, Graduate School of Business, Stanford University, Stanford, CA 94305-5015; Tel: +1 650 723 4289; e-mail:

[email protected].

Hau L. Leeis the Thoma Professor of Operations, Information and Technology in the Graduate School of Business, at

Stanford University. His research focus is on supply chain management and global logistics. He is currently a co-Director

of the Global Supply Chain Management Forum at Stanford University. He can be reached at Tel: +1 650 723 0514;

e-mail: [email protected].

Seungjin Whang is the Jagdeep and Roshni Singh Professor in Operations, Information and Technology at Stanford

Universitys Graduate School of Business. His research focus is on e-business, information systems and supply chain

management. He is currently the co-Director of the Stanford Global Supply Chain Management Forum. Seungjin Whang

can be reached at Tel: +1 650 723 4756; e-mail: [email protected].

Barchi Pelegis the Research Director of the Stanford Global Supply Chain Management Forum. She directs research in

e-business, inventory modeling and supply chain management, and teaches global supply chain project coordination at

Stanford. Barchi Peleg can be reached at Tel: +1 650 736 1831; e-mail: [email protected].

Paresh Rajwatis a doctoral student in the Management Science and Engineering Department at Stanford University, and

a research assistant for the Stanford Global Supply Chain Management Forum. His research interests are in supply chain

management and new product introduction. Paresh Rajwat can be reached at Tel: +1 650 704 7701; e-mail:

[email protected].



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2003 Deloiite Consulting. All rights reserved.ISBN 1-892384-41-1

AcknowledgementsDeloitte Research and the Stanford Global Supply Chain Management Forum gratefully acknowledge the contributions to

this study from Michael Mitterer, Nadine Trinh, Richard Tully, Harry Wisniewski, and a number of other people at Deloitte

as well numerous executives at General Motors. The study is part of a multi-year, global research program around demand-

supply chain integration and digital loyalty networks by Stanford University and Deloitte Research under the direction of

Hau Lee, Jin Whang, Barchi Peleg and Peter Koudal.

For Further Information, Please Contact

GLOBAL AUTOMOTIVE PRACTICE

PAUL WELLENER WIM VAESSEN KEVIN GROMLEY

Tel: +1 216 706 0281 Tel: +49 211 6211 0411 Tel: +81 3 4288 5005e-mail: [email protected] e-mail: [email protected] e-mail: [email protected]

RICHARD GABRYS KEES VAN DORP ALAN FLANDERS

Tel: +1 313 396 3250 Tel: +31 33 479 2726 Tel: +65 6530 5574e-mail: [email protected] e-mail: [email protected] e-mail: [email protected]

MICHAEL J. FRADETTE BILL FORSYTHE LARRY KOCH

Tel: +1 617 850 2040 Tel: +1 216 706 0212 Tel: +1 313 396 3234e-mail: [email protected] e-mail: [email protected] e-mail: [email protected]

26 Deloitte Research Integrating Demand and Supply Chains in the Global Automotive Indust ry


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Global Automotive Industry

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