The Auto Industry's New Race

Dec. 21, 2004
Winning competitive power from information technology.

The automotive industry -- the global economic force that forever changed everything about the way we work, live, and play -- is itself undergoing a wave of fundamental transformation. Major information-technology initiatives now underway are reinventing all the processes involved with satisfying the global demand for vehicles. What's notable about the IT implementations is the scope of the benefits. The audacious goals of these sizable IT investments reflect the maturity of today's solutions. Instead of being conceived to optimize specific departments, the implementation strategies are reaching beyond functional barriers to improve corporate performance, efficiency, and the bottom line. In addition to serving as an integrating force for large global enterprises, IT initiatives are extending beyond the enterprise to create a supply chain that is closely linked and cost optimized. It wasn't so long ago that competitive advantage in the automotive industry was dependent on a different kind of innovation -- intrinsic in styling, engineering, economies of scale, and operating costs. The industry's winners are still dependent on innovation, but the focal point has shifted to leveraging IT for process change and business improvement. That is the challenge accepted by Ralph J. Szygenda, General Motors Corp.'s first chief information officer (and corporate vice president). His mission is "to be a catalyst for process change in GM and to implement the information technology that permits those processes to meet the needs of the company." He is careful to stress his assessment that the problem at GM is certainly not the shortage of technology. "Historically GM always has had innovative processes and technologies, but because of the autonomous nature of our business units, the innovations might not be implemented across a significant part of the business. "A particular business unit or a particular factory would have extremely innovative technology and leadership capability, but we didn't necessarily leverage that technology across a majority of our operations. Those unique solutions drove us to spend a lot of money on information technology -- more than anybody else in the industry -- and at times not achieving end results that we would like. So one of my major responsibilities is to drive commonality -- to come up with common processes and systems that go across these different business units that would enable us to execute in a very systematic and efficient manner on a global scale." One example is product development. "When we look at developing new vehicles, we want to do that on a worldwide basis to leverage common platforms, processes, and technology to dramatically reduce cycle times," Szygenda says. "And we hope to drive greater quality into our products through math analysis and testing." A second example is in manufacturing. "We're moving to more of a sense-and-respond mode of trying to understand the customers and what they really want." The point is to service them and create a lifelong business association, Szygenda adds. "We really have to tie our production environments together with our supply chain to integrate engineering and product development to our service-and-parts operation. While GM has built some very efficient production facilities, we need to focus on implementing those improvements across all of the company's factories." Szygenda says that will change with GM's Global 21 thrust, a program for developing next-generation production capabilities. An important part of the plan is the implementation of SAP AG's finance systems at the company's 208 parts-making factories. "We have put SAP into 10 factories in Europe, and over the next three years we will go across the majority of those 208 plants." He says it is one of the most significant deployments of the off-the-shelf software that's ever been done. As for customer care, the third area, Szygenda points to progress in moving to an electronic environment. "We needed to make the customer experience second to none in the business." One initiative was to develop GM Access, a totally electronic link between GM and its 8,500 dealerships to basically transact business in an electronic manner. "And last October we launched GM Buy Power, an Internet capability for selling and buying. We began by fanning it out in the western U.S. with the goal of covering the rest of the states in the next few months." The fourth area of Szygenda's priorities is to rationalize the IT enablers at GM. "By enablers I mean how we do things like financial management, human resources, purchasing, communications -- all those things that support all of the business units and make them common across the entire company." He dramatizes the scope of the challenge by noting that there are 400 different financial systems in the Delphi business unit alone. The ongoing implementation of the SAP financial system will solve that problem on a corporate-wide basis. Last year GM began implementing PeopleSoft Inc. software for human-resources management. He says the role model for all the programs is the success GM has enjoyed with its material-purchasing system. In place when he arrived at GM, he says this centralized purchasing system has saved a phenomenal percentage of the billions of dollars that carmaker spends on materials. The other area on his to-do list is the hardware infrastructure, the workstations, the servers, and the network environment. (GM has 125,000 desktop units in its general office environment alone.) "We started last year, and we are rearchitecting the entire infrastructure from a workstation perspective in a program called GM Online. Using a totally Web-enabled architecture, the program encompasses GM's entire business process." One measure of Szygenda's success is GM's ability to proceed on an aggressive program of IT investments even while throttling back total annual expenditures. He has been able to pare hundreds of millions of dollars from GM's $4 billion IT budget. "At the same time, we've . . . put more money into development of new capabilities. That reduction has come out of legacy systems." The real gain, of course, is more than cost savings; it is the projected increase in the company's process efficiency. "Cycle time will be reduced in almost every area, bringing us new competitiveness across the entire spectrum of the company." The ultimate focus, to demonstrate GM's desire to quickly translate customer desires into competitive products, is resulting in a radical organizational transformation. It started with Szygenda's presence. "You have to understand that I'm the first information officer at GM. The title didn't exist before my arrival two years ago." (At that time EDS Corp. was guiding GM's IT fortunes.) To build an IT team, Szygenda brought in 150 executives to help bring leadership to IT and establish the new agenda. This new structure places a senior executive on the inner circle of each of the major organizations at GM. "IT is part of the daily operations of everything -- it is not down three levels, buried in our organizations." Each CIO reports to Szygenda as well as to the president of his business unit. Szygenda reports to Harry Pearce, vice chairman. "GM is convinced that IT is a critical driver for business success." To assure the growth of process commonality across the business units, there also is a horizontal cut in the GM IT strategy. "We have top technologists in the product-development area, manufacturing, sales, service, and marketing to drive commonality. Their performance is measured in terms of how they perform as change agents. All of those individuals and I have a direct link into the president's council where progress is reviewed on a monthly basis." In terms of supplier relationships, EDS is still a major GM player. Estimates position GM as the source of a fourth of the EDS revenue stream. Szygenda expects that to be reduced as GM pursues cost reductions and new process efficiencies by rationalizing its IT structure with new technology. "Our real focus is in restructuring GM's approach to IT and reducing our 7,000 systems by 30% to 40%. Taking out thousands of systems will mean significant cost savings -- if those systems don't exist, they won't have to be maintained." Paring the number of systems also brings enormous process efficiencies. For example, when Szygenda joined GM, the company had 27 different CAD systems. "Consider the delays that could occur if you had to design a common vehicle among five of these systems. The process slows drastically." GM now uses CAD from Unigraphics Solutions Inc. Szygenda implies that the issue is not so much having adequate technology as it is having the same technology "because we're trying to run common and global across the company. We want to design vehicles the same way and as efficiently in Germany as we do in Detroit. We don't want two different design environments. Why? We're trying to leverage the same design teams and platforms worldwide. You can't do that if you have different technologies, even though each is among the most innovative." Ford's C3P GM is not alone, of course, in attempting to capture competitive advantage through IT. Ford Motor Co., for example, is in the midst of the largest computer-based initiative in its corporate history. Savings of hundreds of millions of dollars are already pouring in from a product-development strategy it labels C3P. The acronym derives from the strategy of using a product-information-management (PIM) system to integrate computer-aided design (CAD), engineering (CAE), and manufacturing (CAM) into a global system of common data. The idea is to have the information accessible to all automotive disciplines within Ford and its suppliers to improve product quality, reduce cost, and speed time to market, explains Paul Blumburg, director of product-development systems at Ford's Product Development Center in Dearborn, Mich. Eventually, more than 8,000 Ford employees and suppliers will use the technology. By midyear more than 100 suppliers will be virtually collocated to Ford teams directly through PIM, and more than 400 are connected electronically to C3P. Now at the halfway point in implementation, the C3P strategy "is a commitment to shrinking the asset base at Ford, reducing our break-even point, and getting the cost of our products down," adds Blumburg. "There's overcapacity in the automotive sector, so it's a buyer's market." When complete, all Ford development teams around the world will have at their fingertips the collective knowledge of the rest of the company present and past, adds Blumburg. "With an automated ability to do design, we can embed best-in-class performance criteria of a component, such as a crankshaft, into the software that produces the design, and then we can generate a crankshaft in a flash." In addition to cutting engineering costs by 25% to 30%, Ford is using the technology to cut vehicle development time from 37 months to 24 months. "And we intend to reduce development time further -- to 18 months or even less," Blumburg asserts. C3P also addresses one of the costliest and most time-consuming aspects of the product-development process -- the development of prototype vehicles and the accompanying validation testing. Using computer-aided simulation technology, Ford has succeeded in reducing the number of prototypes by 25%, with a goal of eliminating 80% to 90% of the "bucks" (physical prototypes) when all vehicle programs have migrated to C3P. "If you have to build a physical buck to validate information or build one to crash into barriers at $200,000 each, it becomes very costly and time-consuming." In 10 or 15 years, he speculates, no physical prototypes will be used in the design process. In addition to validating function, reliability, durability, and crashworthiness with the digital prototypes, Ford's vision includes taking the digital prototypes through a simulation of the factory where the vehicle will be built. "At that early stage, before any design commitments, we can determine its manufacturability with existing tooling and fixtures," says Blumburg. With C3P tools, Ford engineers recently identified a front-rail design as incompatible with plant equipment during the concept design phase of a Ford B-segment car in Europe. The early catch saved the company $30 million to $60 million. Ford's C3P is more than a design solution. It represents a departure from a history of home-grown engineering software solutions. "In going with commercial vendors we gave up the internal development of CAD/CAM and data-management systems that Ford had developed over a 20-year period," notes Blumburg. (Ford's vendor list for C3P includes Structural Research Dynamics Corp. (SDRC) for the CAD/CAM/CAE software, SDRC's Metaphase Technology Div. for the PIM segment, animation and viewing products from Engineering Animation Inc., and factory simulation from Tecnomatix Technologies Ltd.) "Not only had the outside vendors caught up with our early efforts, they surpassed them, and we don't have to bear the entire cost. And not originating the software is not the real issue. The competitive advantage is in the implementation." Supply-chain changes Another way IT is transforming the automotive industry is by presenting the opportunity to integrate its complex supply chain. In a May 1998 report on supply-chain management, AMR Research Inc., Boston, poses the rhetorical question: Are we moving from buyers and sellers to collaborators? Although it concludes by admitting that such partnering is still in its infancy, AMR cites an industry adage well worth remembering: "Most people overestimate the speed of technology, but understate its impact." In terms of numbers, the task is formidable, notes Jeff Trimmer, director of operations and strategy for Chrysler Corp.'s procurement and supply group, Auburn Hills, Mich. Among those that supply production, he counts 960 that are in turn supported by several hundred thousand second-tier and third-tier suppliers. Yet a substantial reward awaits those who conquer the value-chain inefficiencies that span the distance from parts suppliers to the auto customer. For example, if a vehicle takes only two weeks to build, why does it take six to eight weeks to put it in your driveway, asks John Waraniak, automotive industry director, Benchmarking Partners Inc., Detroit. He makes the assertion "that while production techniques like JIT, kanban, and QFD have made the manufacturing element of the supply chain 80% efficient, the demand chain -- the sequence of events that brings the car to the end user -- is only 20% efficient at best." His metric: 30% of the retail cost of an average vehicle occurs after the vehicle leaves the factory. Involved are costs to cover such things as distribution and shipping, marketing incentives, local dealer advertising, and field operations. "In addition, this is an industry that prides itself on having only 60 days of inventory on hand." To improve performance of the supply chain, IT solutions must encompass both demand management (creating, stimulating, and capturing demand) as well as supply management (creating and delivering on that demand), says Waraniak. "The focus needs to be on eliminating waste so that our supply chains can be leaner," adds Chrysler's Trimmer. With SCORE (Supplier Cost Reduction Effort), a program of improving communication between the OEM and component suppliers, Chrysler achieved $2.1 billion in cost savings for the 1998 model year. The automaker shares the savings with suppliers. Trimmer says at least 30% to 40% of the supply-chain savings still await.

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