From The New York Times:
January 26, 2000
IDEAS INTO ACTION
Dell, It Turns Out, Has a Better Idea Than Ford
By FRED ANDREWS
Time was when Ford Motor's giant River Rouge plant in Dearborn, Mich., was the pinnacle of industrial achievement. Barges of iron ore docked at one end, new Fords rolled out the other.
But that was half a century ago, an eternity at Internet speed. Today's model is no longer Ford's assembly line but the quick assembly techniques made famous by Dell Computer. Dell's pioneering methods for making and selling personal computers have become required reading at business schools. Manufacturers in every industry have studied Dell's immense success.
Yes, that includes the auto industry, producer of the most complex mechanism that human intelligence has ever devised for mass consumption. Now operating in a faster-paced economy, the industry is urgently seeking ways to bring its products to market more quickly. The trade talk at the North American International Auto Show in Detroit earlier this month suggests that the auto giants are lumbering toward Dell's idea of manufacturing for today's world.
Dell made its name by selling directly to customers and allowing them to specify the features they wanted their personal computer to include. Dell quickly assembles customized machines to fill orders arriving by way of the Internet or by phone. Among manufacturers, the company is known for extreme reliance on suppliers for components.
Professor Charles H. Fine, who teaches manufacturing at the Sloan School of Management at MIT, attributes the company's success to mastery of "supply chain management," that is, its complete flexibility about whether a particular function is performed by its own people or by outsiders.
The automakers seem to have absorbed that lesson. Last week, General Motors, the world's largest company and traditionally Detroit's most self-sufficient, declared that from now on it would seek growth through partnerships and alliances -- "clearly a different approach," John F. Smith Jr., GM's chairman and chief executive, acknowledged in a speech at the Automotive News World Congress in Detroit.
Smith's speech was policy ratifying practice. General Motors has gradually evolved a web of alliances with Toyota, Isuzu, Suzuki and other foreign automakers. Last May, GM took the watershed step of spinning off its captive parts maker, Delphi Automotive Systems, a $30 billion business. The parting freed Delphi to seek new customers among rival manufacturers and signaled GM's intent to open its supply base to more vendors. Ford is in the process of following suit with its parts maker, Visteon Automotive Systems.
That decision was right out of the computer industry's playbook. Selling direct, with no distributors or retailers, Dell is spared the expense of an inventory of finished goods. Its supplier system keeps investment in materials to a bare minimum. The Dell process depends on close tracking of customer demand and sharing that intelligence with its suppliers.
An order in hand before making a car amounts to an automaker's vision of heaven. Today, almost all vehicles are manufactured for dealers' stocks. That requires the automakers to anticipate demand and figure out an attractive product mix. That task has become exceedingly difficult as consumer tastes have splintered and as products proliferate. Car and Driver's current guide to new cars, vans, sport utilities and pickup trucks indexes 279 model lines, sold under 45 different brands. The choices in color and options make the potential combinations almost infinite. Wrong guesses result in "lot rot": hard-to-sell vehicles piling up expensively on dealers' lots.
If companies could make cars and add options to order, Fine said, "not only could they charge full price, they could satisfy the customer -- people will pay more for what they really want."
The Internet offers buyers instant access to car data, putting pressure on car companies for immediate response. A customer can choose a vehicle and select options now, of course, but must then wait weeks or months for delivery. Nearly every carmaker has a high-priority plan for chopping down that delay.
At the Detroit auto show, Louis Schweitzer, chief executive at Renault SA, said that by next year Renault would provide 15-day delivery of cars manufactured to customers' specifications. Fujio Cho, president of Toyota, said the time had come to apply the company's mastery of "just in time" manufacturing to distribution and marketing.
Roy Roberts, group vice president for North American sales at General Motors, said GM's ambitious goal was to cut "order to delivery" from about 50 days to 10. Robert Rewey, a group vice president at Ford, said Ford was busily building an information system to dispatch a new order instantly back through the chain to parts suppliers, speeding the manufacturing process.
The Dell system's quick response time depends on "modularity," a basic building block in the computer industry. The term refers to "plug and play" components that click together, like a home-entertainment system. Modularity relies on industrywide agreement on performance standards and on ease of connection.
Fine and others say that all the auto companies are working hard to exploit modularity, especially the companies that produce the cheaper cars. Primary suppliers like Delphi or Johnson Controls no longer provide mere parts. They offer complete "systems," from climate control or braking to entire interiors or fully equipped cockpits. By all accounts, the automakers are relegating more and more engineering of complex components to suppliers.
Not everyone thinks that modularity is the answer for Detroit. The United Auto Workers vigorously opposes it as mainly a pretext for removing work from its jurisdiction. Beyond that, fine cars like Mercedes or BMW all tend to be highly integrated designs, Fine said, with much less scope for "plug and play" systems. Nevertheless, most of the 17 million vehicles sold in the United States last year were not peak-performance cars, and the industry's swing toward modularity is unmistakable.
"Across the board, more systems, more subsystems and whole modules are being done by the supplier community," Harry Pearce, GM's vice chairman, said in an interview at the Detroit show. He predicted that a shakeout among suppliers would produce "half a dozen powerhouses." Those companies will then engage in "a natural tug of war" with automakers over controlling the critical engineering in a vehicle.
Copyright
2000 The New York Times Company