Data driven: How technology is reviving GM, Ford and ChryslerApril 5, 2010: 1:53 PM ET
In the age of global enterprise software, US carmakers are re-learning the secrets of efficiency
By Fred Thomas, Industry Director, Apriso
After the government provided a $17.4 billion lifeline to two of the largest US automakers last year, most Americans still thought that the big Detroit three – GM, Chrysler and Ford – were down for the count.
Over the last few decades, we've seen domestic car sales from American companies slide from over 80 percent to less than half, with steady year-over-year market share losses. Correspondingly, Toyota, Honda and other Asian manufacturers have become highly profitable sales volume leaders while the Detroit three struggle to make a buck.
From an outside perspective, the charts and trend-lines paint an uncertain future for US automotive manufacturers. Despite the headlines, this is a historic moment where America's iconic automotive industry can bounce back. It can be an automotive renaissance, where US automakers will return to the principles that once fueled their success – powered by enterprise software technology.
Matching Supply with Demand, Not the Other Way Around
For the decades that US automakers had been losing ground, domestic brands had become increasingly fixed on single products in a single plant with production lines that ran continuously to cover fixed overhead costs. Even as the competitive alternatives for the American consumer increased, US automakers continued to flood the market with more cars than there were buyers. Even incentivized, low-profit prices intended to create additional demand was not enough to offset the financial hole Detroit found itself in.
Today, US carmakers are returning to the "pull-based strategy" Asian automakers adopted from Henry Ford just after World War II, where cars are produced at the same rate they are bought to lower costs and eliminate oversupply.
The paper, pen and gut feeling approach to predicting demand for each model and color is being replaced by advanced demand signal analyses. While some bad decisions have been made in the past in the automotive industry, the best decision has been to implement enterprise software applications that can make better decisions moving forward.
Car Parts, Worldwide
In 2009, Toyota had the largest global sales volume, while GM lead the fastest growing market, China. Global competition as the Chinese automotive industry matures over the next few years is full of uncertainties.
The number of parts and the processes for designing, sourcing and testing each part across a global supply chain is complex. Some automakers have leapfrogged competitors by using common parts across multiple countries and vehicles to increase efficiency.
Toyota set the bar for decreasing part costs by limiting the number of suppliers producing parts for their numerous models. To do this, they have used collaborative design software for product development, global procurement software to select their suppliers and enterprise supply chain software to help manage the material supply to multiple plants.
With a $2 billion recall bill and a wealth of public criticism, Toyota now knows – if they didn't before – they need systems to provide global traceability and defect visibility in order to decrease the risk of having one bad part—say an accelerator pedal—pop up across their entire lineup.
Build it (Cheap) and Profit Will Come
Industry analysts think US manufacturers have the potential to halve manufacturing costs in as little as five years. Reducing oversupply, sourcing parts globally, and increasing efficiency through their processes and product supply network will help US automakers fill this tall order.
Another component is the way cars are designed for practical manufacturing. In the past, designing a new car model was like putting two teams of engineers – design and manufacturing – into a boxing match. The fight over cost-effective manufacturing and the "right" features wore down both sides, resulting in a mediocre product.
Today, technology has already improved the design process for new vehicles in terms of both quality and time-to-market. Cars can be designed with manufacturing costs in mind from the start. Advanced software can quickly transfer product and process designs to manufacturing, making product rollouts that much faster. Additionally, feedback on production problems can instantaneously reported back to the engineering staff for fast corrective action. Manufacturers embracing this approach can dramatically reduce recalls, and improve the quality of final products.
It's exciting for me to be a part of this critical turning point in automotive history, where US automakers are reinventing their business and rebuilding after hitting the wall of a long downward trend. There's a promising future ahead for US automakers; investors, workers, technologists and innovators are all needed to come be a part of that future as well.
Thomas is the industry director for the automotive industry at Apriso, a developer of enterprise software for manufacturing operations management.