The global automotive industry has
been and continues to be in a period
of wrenching change. Intense price
pressures and stagnant share prices
are resulting from more powerful
customers and major industry
overcapacity. In addition, easy access
to cost information provides the
customer with new leverage in
negotiating with dealers. These facts,
combined with volatile economic
cycles, will result in the shakeout of
weak and unresponsive automotive
OEMs, a reshuffling of the global
market share leaderboard, and changes
at the CXO level in those companies
that lag the competition. In their place
will emerge a new group of innovative
leaders who create a new kind of
“adaptive”
automotive company.
Research by the CGE&Y Center for
Automotive Excellence has determined
that many global OEMs have already
begun the process to create this
adaptive automotive enterprise. This
movement is counter to the traditional
“push” manufacturing system made
famous by Henry Ford and
perpetuated by most OEMs. The
adaptive automotive enterprise
replaces the old push system with a
new customer-pull system and an
organization that allows the extended
enterprise to sense actual customer
demand in near real-time, then rapidly
respond to this demand in an
integrated, coordinated manner.
The objective of being “adaptive” is
three-fold:
To provide a better response to the
customer demand (improve the
ratio of cars delivered against
customer expectation) while
reducing the time to deliver the car.
To incorporate the “Five Drivers of
Shareholder Value” into the strategy
and execution of automotive supply
chain management. (“Five Drivers
of Shareholder Value” are Cost
Minimization, Profitable Growth,
Fixed Capital Efficiency, Working
Capital Efficiency, and Tax
Minimization.)(See Figure 1 below.)
To make it possible for the industry
to be more adaptive in constantly
aligning the production and
delivery capacities with actual
customer demand.
It is estimated by the Automotive and
Supply Chain experts at CGE&Y that
the achievement of an “adaptive” state
has the potential to reduce the cost to
build a vehicle by up to $1,050 per
vehicle (1,200) and compress the
time from order-to-delivery from
months to weeks or less! The impact
on shareholder value from achieving
an “adaptive” state is truly significant.Reshuffling the Global Automotive Leadership
During this period of change in the global automotive industry, a new group of
innovative leaders will emerge who create “adaptive” automotive companies.
ProfitabilityLiquidityGrowth
Profitable
Growth
Cost
Minimization
Tax
Minimization
Cash-to-Cash Cycle TimeDays of Sales in Inventory
Inventory TurnsAccounts Receivable (DSO)
Accounts Payable (DPO)
Perfect OrdersSegment by Channel/Customer
Global OperationsAfter-Sales Services
New Product Development
Total Delivery CostProcess Cost Reductions
OutsourcingShared Services
Asset & Sales LocationsTransfer Prices
Customs DutiesCommissionaire Structures
Working Capital Efficiency
Fixed Capital Efficiency
Return on Assets (PPE)Network Optimization
Capacity Mgt/ThroughputOutsourcing
Supply Chain Value
Time
$
Market
Cap
EVA orShareholder
Value
Figure 1: Five Drivers of Shareholder Value1
Innovative executives already realize
they cannot simply take the
organization and its current operations
for granted including all existing
functions, business processes, and
information systems.
Technology
(whether in the form of innovative
materials, manufacturing process, and
information management/
communication) provides the flexibility to
rethink the very essence of each process,
in order to better adapt to the ever-more
volatile changing economic circumstances.
The pressure for auto companies to
change is clear and pervasive:
Global auto companies’ ten-year
share price track record stands at
the bottom of the top 100 global
companies.2More important, CEOs
know they have less time to turn
things around; as a ten-year study
of worldwide CEO tenure found,
“Nearly eight out of ten major
companies worldwide changed their
top leader at least once during the
1990s. In the past five years, close
to two-thirds of all major
companies replaced their CEOs.3”
Prices are squeezed as cost
pressures have risen. The cost of
buying a new car in Europe (as a
percentage of the average
employee’s pay) has declined by
over 20%. In the US, GM and Ford
continue to offer zero-per-cent
financing to move vehicles, even
though they forego the profitability
they receive from interest income
paid by dealers. Over-capacity
issues plague manufacturers, who
admit they make as many as 2.5 cars,
in the aggregate, for every one car a
customer demands, yet must
increase production on those
models customers want but cannot
get.For example, the waiting
time/backlog for highly desirable
vehicles in Europe averages six to
eight months!
Environmental regulatory pressures
mount worldwide. The European
Commission has announced that it
intends to issue a directive in 2002
that makes OEMs responsible for
recycling automobiles so that they
do not end up in landfills. In the
UK, the London mayor will soon
levy a tax on consumers driving
into the center of London. In
addition, the U.K. government
plans to create toll roads
throughout the United Kingdom.
The response to these pressures has
been a series of innovations evident
throughout the global automotive
value chain:
A European OEM
has begun to
develop a new system to link
customer orders into demand
planning, integrating all of the
various channels into a single
demand system that will allocate
orders out to various production
processes.
Another European OEM
has
instituted an entirely new approach
to global ordering, cutting lead
times for specific models by 64%
(to 15 days from 42 days) while
increasing delivery reliability over
98%.
Cap Gemini Ernst & Young 2002.2
point of viewCreating and Leading the Adaptive Automotive Enterprise
A U.S. OEM
has implemented
targeted product offerings in
selected brand lines, reducing the
total number of available
combinations by 83% while
increasing customer satisfaction.
Toyota
continues to look for
creative ways to leverage its
capability in its five-day order-to-
ship program.
A Japanese OEM
is accelerating
the use of sold vehicle information
to align production schedules to the
lines that sell.
A U.S. OEM
has developed the
Capacity Management System to
better match supply and demand
with more than 2000 suppliers,
improving the speed and accuracy
of component supply.
While no one company has integrated
all of these innovations, we believe that
the first competitor that designs a
holistic adaptive solution for its entire
extended (including its supplier
network) enterprise will win. The
winner will implement the innovations
necessary to create its own adaptive
automotive company, seize market
share from the others, and drive
significant shareholder value.
3RANK35
OEM
Where will you be in five years
200
6Mar
ketshareLeaderb
oar
d
Figure 2: Global Auto Companies’ Ten-Year Share Price Track Record
Of the 12 Automotive
OEMs, the average
number of CEO changes
in ten years is 3.2.
—Various company websites
and annual reports。