Automotive Enterprise Transformation_Build to Order as a Sustainable and Innovative Strategy for the Automotive Industry

7/23/2019 Automotive Enterprise Transformation_Build to Order as a Sustainable and Innovative Strategy for the Automotive

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Automotive Enterprise Transformation: Build to Order as a sustainable and innovative

strategy for the automotive industry?

Abstract

Lean has benefited the automotive industry, but the original vision of building cars at the rate and

variety demanded by the customer has yet to be achieved. Innovations in new product development

and collaborative supply can facilitate the production and delivery of a vehicle within days of order.

Through addressing wastes such as overproduction, unnecessary transportation and inventory, the

Build to Order approach outlined may allow automotive firms to be fully sustainable, achieving the

triple bottom line of economic, environmental and societal prosperity. Research shows that enterprise

transformation needs to be realied to successfully implement a sustainable future build to order

strategy in the automotive industry.

ey !ords

!nterprise Transformation, Innovation, "ew Product #evelopment, Build to Order, Lean, $utomotive

Industry

"ntroduction

$ Build to Order %BTO& strategy offers automotive manufacturers the opportunity to develop a

sustainable future, re'uiring innovation and collaboration throughout the automotive enterprise and

facilitating rapid and more cost effective new product development. In order to realie a BTO

strategy, enterprise transformation is pivotal to drive change and strategic ob(ectives. Transformation

calls for radical changes to organiational relationships across )ey sta)eholders, new value


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propositions for product and service delivery and re*organiation of the enterprise, %"ightingale,

+- Purchase et al., +//&.

Implementation of such a strategy will challenge convention and disrupt established practice, but the

financial crisis of +0 revealed the wea)ness of the industry. 1uch financial stress may facilitate the

adoption of a BTO strategy. 2inancial crises have precedence as a driver for change in the automotive

industry. The Toyota Production 1ystem was created through necessity following the 1econd 3orld

3ar when 4apanese companies could not raise the capital necessary to build automobiles using the

mass production processes developed in the 51 %Ohno, /-00&. Lean was a result of necessary

innovation in vehicle production, minimising waste and hence cost. 6ontrasting the approach of mass

production developed by 7enry 2ord and providing a challenge to manufacturing convention, central

to Ohno8s vision was the building of vehicles at the rate and variety demanded by the customer 9

building to customer order 9 such that each vehicle was paid for before it was built %:onden, /-0;&.

Ianni %+//& outlines the steps needed to successfully realise lean as an enterprise transformation

e


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$ean and Build to Order

The automotive industry has a history of recovery from crisis through adoption of leading innovative

practice in product design and manufacture %7olweg, +0&. @Lean production8 was documented and

the auto industry in the 3est set out to employ 4apanese best practice and close the productivity gap

%3omac) et al., /--&. Lean efforts have delivered improvements in manufacturing efficiency, but

they have been largely ineffective in increasing profitability due to a myopic focus on factory

processes. Through rigorous application of lean thin)ing 3estern automotive companies have now

significantly reduced the productivity gap identified by 3omac) et al. %:erlis et al., +/&, but have

not as yet delivered on its heralded promise of ero inventory or (ust*in*time approach to customer

orders %1tone et al., +A&. :any car companies are losing money. The mass*production business

model of the automotive industry is flawed and perhaps becoming dysfunctional. The industry suffers

from global overcapacity and rising stoc) levels and e


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%$utomotive "ews,+AFG&. This enabled them to find a @best match8 from across their stoc) to meet

the purchaser8s re'uirement. 7owever, customers fre'uently do not receive what they really want

when incentivised by manufacturer discounts they purchase a vehicle that is a compromise, whilst

manufacturers erode their own profits %7olweg and Pil, +/&. The model for the industry is self

defeating and the automotive industry creating grounds for their own failure through their vehicle

product model cycle, as illustrated in !


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declare an automotive recession %Thompson, +-&. This caused great damage to the automotive

companies as it highlighted their inefficiencies. The reaction of the vehicle O!:s was to halt

production, with 7onda shutting its 5K base for four months %BB6, +-& and Toyota halting

4apanese production for + months %Ryall, +-&. Dovernment bac)ed pac)ages such as the @cash for

clun)ers8 or @scrappage schemes8 seen in !urope and the 51 has helped the industry turn some of its

capital tied up in stoc) bac) into cash and perhaps saved the industry in the short term. Derman sales

were reported to have risen J as a result of the scheme, but shares in automotive O!:s fell as

investors were unconvinced that the governments rescue measures created sustainable change and

forecast a further slump in +/ %Reuters, +-&. #irect funding has also been called upon or offered

by governments in an attempt to place the industry upon a more sustainable footing. These activities

could simply restart what we perceive to be a failing business model.

The automotive industry cloc)speed %2ine, /---& does not match the e


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re'uired. $chieving this re'uires supply chain innovation and integration which builds upon previous

lean implementations, facilitating the smooth flows of data that control the build activity. This paper

will give details of some of the solutions developed for a Build to Order strategy delivering cars to

customers within E days.

!hat is Build to Order?

Build to Order refers to a demand driven production approach where a product is scheduled and built

in response to a confirmed order received for it from a final customer %Parry and Draves, +0&. The

final customer is a )nown individual purchaser. Our definition e


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#evelopment of innovative Build to Order products and processes re'uires a significant investment in

research and broad access to e


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:anagement of :aterial 2low= radical change in the management of supplies, inventories and

the pic)ing, transportation and monitoring of parts, modules and cars towards a customer

specific treatment and optimisation.

!


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systems or modules which ideally connect through common standard interfaces. !ach module consists

of a number of sub modules, creating a hierarchy. Product variants can be created by changing

different modules, and this set of interchangeable modules creates the product family.

This approach has already been employed e


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the body design= a reduction in production time a simplification of the order and delivery networ)

facilitating logistics and a reduction in the re'uired fi


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wagon and a module for the convertible. Both front and rear modules are fitted with crash bo


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meeting legislative re'uirements for crash and impact protection, as well as lighter wind loads and

general misuse encountered in regular driving %Dude and 7ufenbac), +0&.

The commonality of the body frame meant that significant commonality was carried over into the

styling surfaces. 6areful design was re'uired to ensure that the changes in the modules across the

variants did not loo) aw)ward or impact upon the flow or aesthetic appeal of the vehicle. The front

module was )ept the same in all derivatives. The difference between the three and five door variants is

the position of the B*pillar, leading to a longer front door in the ; door variant. The five door and

wagon variants only differ with regards to the design of the rear panels, with the side panels being

common. The resultant designs are shown in !


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upply chain innovation

Key to delivering the E*day car is the improvement of the fle


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the situation within the conte


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automotive industry, which included= /E O!: plants established in !urope to build the vehicles

Build to Order and build to stoc) suppliers within the locations could deliver the product varieties a

virtual order ban) and information transparency had been implemented successfully across the

enterprise %Toth et al., +0&.

H PL!$1! I"1!RT @2igure . $nalysis of Build to Order methodology8 $BO5T 7!R!

The analysis, !


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development for the firm to continue. $utomotive firms must compete for capital investment to

develop new products and not (ust with other automotive firms. Investment ban)s are )ey suppliers to

the automotive industry, but the current industry8s relatively slow cloc)speed in comparison to

telecommunications and consumer electronics producers leads to uncertainties in future returns %Parry

and Draves, +0c&.

The environmental impact comes from the removal of waste through both unnecessary transport and

in the production of unwanted vehicles %Ohno, /-00&. 3ithin this strategy, vehicles are assembled

locally and ma(or modules and components only made to confirmed order BTO by suppliers near

finally assembly plants. This leads to shorter transportation distances of goods and removes

overproduction, ultimately lowering the 6O+emissions of the enterprise.

The societal impact is more difficult to assess as there is little 'uantitative data available. The

automotive industry is an integral part of the !uropean economy. It is estimated that the industry

provides more than /+ million s)illed (obs and generates E0 billion in ta< revenues across !urope

%$6!$, +-&. The Build to Order approach re'uires that the vehicles are manufactured close to the

customer, which would mean that this approach would maintain production and assembly within the

ma(or mar)ets, protecting employment and ta< revenues and hence bringing benefit to society.

7owever, adopting new practices is highly comple< and li)ely to be confronted with a variety of

obstructions. :uch of the comple


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,onclusion

This paper presents a strategy for a potentially more sustainable future for automotive production

through Build to Order transformation. The original lean vision of building vehicles at the rate and

variety demanded by the customer has not yet been achieved. Lean has improved productivity, but

not yet achieved a full BTO enterprise. 1imilar to the lean approach, the implementation of BTO is

e


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paper. 2inally, we would li)e to ac)nowledge the support of 1pringer publications, in particular 6laire

Protherough and $nthony #oyle for their continued support.


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6eferences

;#ay6ar, %/---*+/&. $vailable online= http=FFwww.;daycar.comF

$6!$, !uropean $utomobile :anufacturers $ssociation. $vailable online=

http=FFwww.acea.beFinde


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7enshaw, :. 4. 6., :orcos, :. 1., 1iemieniuch, 6. C 1inclair, :. $. %+//& Identification of Induced

6omple


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:iemcy), 4. and 7olweg, :. %+& Building cars to customer order*what does it mean for inbound

logistics operations.ournal of Business 0ogisti&s +E%+&, /G/9/-G.

:onden, . %/-0;& )oyota produ&tion system pra&ti&al approa&h to produ&tion management,

Industrial !ngineering and :anagement Press.

"ightingale #. %+-&. Principles of !nterprise 1ystems. Se&ond ,nternational Symposium on

$ngineering Systems5:IT, 6ambridge, :assachusetts.

Ohno, T. %/-00& )oyota !rodu&tion System, Productivity Press.

Ost, 1.and :andel, 4. %+0& :odelled 1cenario e


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Ryall, 4. %+-& Toyota to halt 4apanese production in 2ebruary and :arch, )elegraph5&o5uk,

%Tuesday 4anuary Ath +-&. $vailable online=

http=FFwww.telegraph.co.u)FfinanceFnewsbysectorFtransportF/;-0AEFToyota*to*halt*4apanese*

production*in*2ebruary*and*:arch.html

1cavarda, L.2., 1chaffer, 4., 1cavarda, $.4., Reis, $.d6. 7einrich, 1., %+-& Product variety= an auto

industry analysis and a benchmar)ing study.Ben&hmarking( %n ,nternational ournal, /A%;&, ;0G*

1chaffer, 4., 7einrich, 1. %+0& 6omple


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3ebster, 1. $. %+A& Top dealer says there are more unsold cars than reported, .etroit ?ree !ress

%Online&, %+A& +Ath October.

3omac), 4. P., 4ones, #. R. and Roos, #. %/--& )he Ma&hine )hat Changed the +orld, Rawson

$ssociates.

3omac), 4. P. and 4ones, #. T. %/--A&0ean )hinking( Banish +aste and Create +ealth for Dour

Corporation, 1imon C 1chuster.


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2igures

2igure /. $utomotive product cycle %$dapted from 7olweg and Pil, +/&


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2igure +. Illustration of commonality between variants %5ntiedt, +-&


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2igure ;. 1tyling variants of the :od6ar %$dapted from Dude and 7ufenbac), +0&.


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2igure . $nalysis of Build to Order methodology %Toth et al., +0&

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Automotive Enterprise Transformation_Build to Order as a Sustainable and Innovative Strategy for the Automotive Industry