As automakers in Asia, Europe and North America ask for billions of dollars in government handouts and ponder green alternatives to the internal combustion engine, they should call a time out. How about shutting down the entire auto industry for one month? Automakers, suppliers and dealers could use that time to reinvent the way that vehicles are mass-produced and delivered to consumers.
The global auto industry is at a major crossroads. In fact, this is probably the most critical junction that it has faced in its entire 120-year history.
As automakers in Asia, Europe and North America ask for billions of dollars in government handouts and ponder green alternatives to the good old internal combustion engine, maybe they should call a time out. I propose shutting down the entire auto industry for one month. Automakers, suppliers and dealers could use that time to reinvent the way that vehicles are mass-produced and delivered to consumers.
I suggest starting with a radical revision of the basic distribution channel. After years of talk, it’s time to implement a true build-to-order, demand-driven production model. Let’s throw out all the old “traditions” and start fresh with a new paradigm. I understand there would be numerous challenges to implementing such a radical system, but I think it would be good for the long-term survival and success of the auto industry.
Perhaps this is a good time to get rid of the traditional dealer system, where billions of dollars worth of inventory sits on local car lots waiting for customers. In recent years, the auto industry has streamlined operating efficiency and improved productivity by implementing just-in-time parts delivery.
During the past decade, automakers have focused on driving waste out of upstream activities, such as supply chain management and assembly processes. Thanks to lean manufacturing initiatives, most automotive assembly plants now operate with just a few hours worth of inventory. But, downstream, it’s a totally different story. Most automakers have several months worth of inventory sitting idle in rail yards, warehouses and dealer lots.
Many experts believe that a true build-to-order concept would help spur the long talked about dream of having a 3-day or a 5-day car. Several months ago, I interviewed Dr. Glenn Parry, senior research fellow in the school of management at the University of Bath (Bath, England) for an article that I was working on about lightweight vehicles. He is one of the leading architects of the 5-day car concept and recently coauthored a book called Build to Order: The Road to the 5-Day Car (Springer, New York).
“The traditional mass production system has a great deal of inventory within it,” Parry told me. “Much of this is removed by lean production. However, neither build to order, so you end up with stocks of finished goods. This is the worst place to have capital employed.”
When I interviewed Parry, he told me that there was an average of 53 days worth of cars being held as inventory within the United States by each car manufacturer. The range was 34 to 94 days. These days, I’m sure those numbers are much higher.
Other keen proponents of the build-to-order philosophy include Matthias Holweg and Frits Pil, who are professors affiliated with the International Motor Vehicle Program, a research consortium based at the Massachusetts Institute of Technology (MIT, Cambridge, MA). Several years ago, they wrote an insightful book, The Second Century (MIT Press), in which they lamented the fact that “inventories pile up on dealers’ lots and at distribution centers around the world while executives applaud marginal improvements in factory efficiency.”
Holweg and Pil believe the auto industry desperately needs a flexible production system that addresses complexity issues by focusing on strategies such as “decoupled assembly” and body shop modularity. “Production schedules, supplier management and logistics planning must be driven by actual orders, not by sales predictions or by power struggles among regional distribution units,” they warn.
Earlier this year, a former GM engineer told me about another interesting concept that could revolutionize the age-old way in which cars are manufactured and distributed. He proposes a system in which local car dealers would engage in final assembly.
Here’s how it would work: A basic car, consisting of an engine, chassis and body, would be delivered to a dealer. Then, a team of individuals would set about customizing the vehicle for each buyer’s individual tastes. In other words, final assembly would be done at the point of sale. It would be interesting to see an automaker that’s bold enough to try that kind of innovative strategy.
Any changes to the distribution system would probably be painful at first. I’m sure many dealers wouldn’t want to buy into some of the build-to-order concepts. But, the auto industry already has too many dealers, which contributes to supply and demand problems.