Supply Chain ANX

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Supply Chain Integration in

the Automobile Industry: The Case of ANX

L. Cassivi, L.A. Lefebvre and G. Le Hen

Department of Mathematics and Industrial EngineeringÉcole Polytechnique de Montréal, Canada

P.O. Box 6079, Station Centre-villeMontreal, Canada, H3C 3A7

Abstract:

This paper describes a major undertaking in supply chain integration. By adopting a common

communication platform (ANX), the automotive industry is bridging together major OEMs and

an impressive supplier network all around the world. The ANX platform will ultimately allow

the interconnection of tens of thousands of companies that support different activities along an

automobile’s value chain, i.e. from basic design right up to recuperation. With the advent of the

five-day car, the industry is moving quickly from mass production to mass customization.

Keywords: Supply chain management, information technology, sectorial platforms, automotiveindustry, product data exchange, collaborative development.

1. Introduction

Electronic commerce has received a great deal of attention over the last few years but few peoplehave been able to grasp the full impact of the adoption and use of these emerging communicationtechnologies. E-commerce refers to many different activities, from a teenager buying a book onthe Internet, to a buyer sending a bid through EDI (Electronic Data Interchange), to an engineerexchanging technical drawings through a virtual private network. The technical requirementsand the competencies required to carry out these activities are obviously very different, yet allqualify as e-commerce applications. In this paper, we will discuss one dominant kind of business-to-business (B2B) e-commerce, which we shall refer to as a “sectorial platform”.Sectorial platforms are industry-led information platforms where stakeholders can exchangevarious electronic documents (bids, contracts, CAD files, videoconferencing, etc). We willaddress issues related to the creation, implementation and application of B2B e-commercethrough sectorial information platforms. As a case in point, we will use the Automotive NetworkExchange (ANX) platform to describe and define the functioning and requirements of such aplatform.

Article publié dans Proceedings at the 8th InternationalConference on Management of Technology, Elsevier Advanced

Technology, Oxford, Uk, Février 2000.



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2. The why and how of sectorial platforms

It is no secret that the diffusion of new technologies is often at the heart of innovations inproducts and processes. These new technologies can greatly affect an industry’s product valuechain activities, from R&D, to design, to manufacturing, to distribution, to customer service.

Hence, in order to maintain an edge, major players adopt these new technologies and integratethem into critical activities along their product value chains. Too often, basic activities such asIT maintenance or MRO (Maintenance, Repair, Operations) procurement are overlooked,although significant savings could be realized if some of the processes or ways of doing thingswere optimized. Sectorial platforms are just one of the means by which savings can be obtained,albeit an important one.

The automobile industry has not experienced a significant innovation in many years. Since Fordmanufactured its first Model T, innovations have generally been driven by incremental changesin engineering and manufacturing systems. Yet, major changes are expected in the industry,changes brought about by the information revolution. In fact, the Info-mobile is just around the

corner. In the summer of the year 2000, GM will commercialize the first Cadillac with anInternet connection.

This information, entertainment and communication vehicle will redefine the automobileindustry by changing the way business is carried out, as well as by the significant leaps forwardin the technologies involved in designing, building, commercializing, distributing and ultimatelyusing the products. In fact, customers may perceive this automobile as providing very differentfunctionalities and thus as a very different product. Whether reading an e-mail at a red light orreceiving a signal suggesting an alternative route due to an accident, the driver interact more withthe car and with its systems.

The ANX sectorial platform, acommon network infrastructurefor the automotive industry, willmake these functionalities andothers possible, including lo-cating the nearest or most cost-efficient dealership in the region.

The technologies required tosupport the Info-mobile arealmost here, yet some questions

remain unanswered. Is everyoneinvolved in the product ready?How will the suppliers react? Canthey give real-time answers tomanufacturers, customers anddealerships?

Europe: end of pilotprojects

Japan: MOU (March 1999)

Mexico: end of 1999

Australia: pilot projects

Brazil and Argentina: under discussion

United States and Canada: 1998

Objectives of ANX:

• Develop a common workingplatform for a global industry

• Connect 50,000 partners in

North America

• Connect 107,000 partnersin Europe

Mission of ANX: ″ To provide the automotive

industry with a robust, global

network infrastructure that enables

an emerging set of electronic

communication services″

State of ANX and ENX projects in the world

Figure 1 - ANX and ENX project: Global communicationinfrastructure in the automotive industry



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One thing is quite obvious: stakeholders will have to undergo a major restructuring of theircommunication infrastructure, IT competencies, and, basically, the whole way they conductbusiness.

2.1 Supplier concentration

The automotive supply chain integrates four groups of players: original equipment manufacturers(OEMs), first-tier suppliers, sub-tier suppliers, and infrastructure suppliers. Traditionally,different types of technologies were used to establish the links between these groups.

For instance, DaimlerChrysler uses e-mail, EDI, Supply Partner Information Network (SPIN)and Electronic Funds Transfer (EFT) to contact its suppliers. All of these e-commercetransactional methods can be integrated into ANX, along with others (CAD, videoconferencing,etc.). DaimlerChrysler has identified ANX as the core communication platform of its ExtendedEnterprise strategy.

The complexity of designing andproducing a motor vehicle is forcingOEMs to identify key first-tier suppliersand give them more responsibilities. Atypical motor vehicle consists of approximately 15,000 parts andaccessories that must be designed to becompatible and integrated. Hence, insteadof having multiple suppliers for theproduction of a dashboard, OEMs areasking first-tier suppliers to produce andassemble the dashboard (sub-assembly) tocertain specifications. In 1998, companiesoutsourced 15% of all of their

manufacturing activities. Next year, this amount should reach more than 40%. Once again,these “responsibility shifts” require changes in the (informational) communication infrastructure.

ANX is a web-based network infrastructure designed to improve communication acrossautomotive business partners. It is less complex and expensive than the proprietary systems inuse and more reliable than the public Internet. DaimlerChrysler, Ford and General Motors viewthis technology as a preferred method for future automotive business and the only network linkrequired for conducting commerce electronically within the automotive industry.

In the eyes of OEMs, ANX is an accessible platform for suppliers and customers. With theimplementation of ANX in North America last year, results are now beginning to come in. In1995, it took four weeks for a fourth-tier supplier to receive and make an engineering changerequired by an OEM. It now takes four days. The benefits of sectorial platforms are maximizedwhen all members involved in the life cycle of a product/service are linked to a commonplatform.

Top ten reasons why companies outsource

q Reduce and control operating costsq Improve company focusq Gain access to world-class capabilitiesq Free internal resources for other purposesq Resources not available internallyq Accelerate reengineering benefitsq Function difficult to manage or out of controlq Make capital funds availableq Share risksq Cash infusion

Source: Automotive Manufacturing and Production



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2.2 Electronic transactions

One OEM estimates that as many as 453,000exchanges of product data occur each year withinthe company and its suppliers. With that much

information navigating through the system, arobust global network is required.

This global $1.5 trillion industry has many areaswhere the Internet, extranets, private networksand sectorial platforms could improve existingprocesses and create new ones to improvecompetitiveness. Two of the major activitiesbeing worked on are:

q Collaborative product development through the Internet;q Web-based procurement (GM and its 30,000 MRO (Maintenance, Repair, Operations)

suppliers will cut administrative costs by using Ariba’s software on 75,000 of its desktopsby the end of 1999).

2.3 Customer expectations

With the effervescent growth of e-commerce, customers have been given the possibility of customizing products to their liking. This form of commerce is called direct-selling through theweb and has been most publicized by Dell's computer sales model. The automotive companiesare now following the same path, but as Mark T. Hogan, head of GM’s new online division(e-GM), puts it: “Direct-selling involves moving at Internet speed in the back end of the

business.” In this area, North America and Europe are way behind the Japanese and have someserious catching up to do.

Toyota and other Japanese car-makers have pioneered the five-day car concept, which letscustomers choose from a menu of onscreen options and then send specifications for theirpreferred customized vehicle directly to the factory. For this to be possible, dealers need toadjust: for example, Internet terminals have been in Toyota’s showrooms in Japan since 1995.

Other car manufacturers have evaluated the impact of shifting to direct factory sales. E-GM saysit could cut the price of an automobile by 30%, which represents the costs generated from a car’sfinal assembly to its sale (inventory, distribution and dealer costs). DaimlerChrysler estimates

savings of $500 to $1,500 per vehicle just by integrating Internet sales into its existing tools.Ford recently announced that it had changed its focus from being a manufacturing company tobecoming a “consumer company”. As Jacques Nasser, Ford Motor Company’s president andCEO describes it: “There’s a revolution underway in the automobile industry – and the customeris driving it.” Ford has reacted by creating the new CarPoint joint venture with Microsoft(systems architecture) and Trilogy (e-commerce solution). This on-line build-to-order systemwill link consumer order configurations to automotive manufacturers’ systems.

0,2%2%

14,7%

1997 2000 2003

Year

Figure 2 - Percentage of total automotiveindustry revenue from e-commerce

Source: Forrester Research



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The overall goal of OEMs is to create a better interaction with their customers and suppliers.The difference between the two is that customers are pushing OEMs to give better customizedservices (i.e. on-line ordering), but OEMs are not yet organized to give that kind of service. Sothe OEMs are putting pressure on their suppliers to perform tasks quicker and more efficiently.This requires new technologies and, more often than ever before, a new infrastructure to satisfy

customer needs.

3. Success factors for sectorial platforms

One of the OEMs' main objectives is to connect their suppliers to form “communities”. Thesecommunities would exchange commercial data (EDI) or technical data (CAD/CAM files). Inmost cases, communities formed over the last few years have not yet reached, their full potential,mainly because of the rather low level of participation by the supplier base, which mainlycomprises small and medium-sized enterprises (SMEs). A European automobile communitycalled the “Odette project” has not been able to interest SMEs, because of the high cost of

joining it. Nevertheless, firms like Wal-mart and Dell have succeeded in this task, although onemust acknowledge that, in both these cases, we are looking at enterprise-centered communitiesand not industry-centered communities.

3.1 Consortium of industry leaders

3.1.1 Momentum created by car manufacturers

As mentioned earlier, the suppliers of the automotive industry are being shown the way by theOEMs, which specify which technologies (e.g. CAD/CAM systems) and which businesspractices (e.g. Just- in-Time) must be implemented. This is also true of network connections.

Prior to the adoption of the ANX platform, each car manufacturer used its own private networkto communicate with its suppliers and usually had to interface with several networks in order tosupport the multiple applications in the industry. For example, Chicago Rawhide, a first-tiersupplier of elastomeric sealing devices to the Big Three employing 500 workers in Illinois, hadto maintain 12 separate networks. The suppliers, which were faced with the problem of servingdifferent OEMs with different networks, pushed for an agreement between the OEMs to limit thenumber of such networks. ANX is the OEMs' answer to making information exchanges simpler.

Although we may be well aware of theimportance and size of the automobileindustry, we rarely understand the

extent of its reach. In North Americaalone, ANX will connect 1,000 first-tiersuppliers, 9,000 second and third-tiersuppliers and 40,000 other firms.Germany, France, Spain and the UKhave been working on ANX’s sisterplatform, the European networkexchange (ENX).

“DaimlerChrysler understands that this culturaltransformation takes time to implement. However,

it is your responsibility as a supplier to understandDaimlerChrysler’s position with theserequirements. Those suppliers who choose not toparticipate in this new process will eventually falloutside of the information loop; those who do willbecome effective Information Technology partnersand may prosper with DaimlerChrysler in theglobal automotive economy.”

Electronic Commerce Roadmap, DaimlerChrysler, June 1999



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ENX plans to connect 15 car manufacturers, 15 body-work firms1, 450 engineering firms1, 700first-tier suppliers1, 20,000 second and third-tier suppliers, up to 30,000 transport firms and56,000 distributors. Although not as advanced as in North America or Europe, similar initiativeshave been taken in Australia, Japan and Brazil. This fast diffusion has been the result of acommon strategy developed by all the major OEMs to adopt ANX. Suppliers and vendors know

that once an OEM has adopted a technology, it often turns its back on its previous technology,leaving everything behind including organizations that have not adopted the new ways of doingbusiness.

All existing DaimlerChrysler applications will migrate to ANX in the coming months. Ford alsorecently decided to eliminate all of its private networks to ensure that all of its major transactions(EDI, CAD file exchange) would carried out on the ANX platform.

3.1.2 Consortium and creation of communities (including suppliers)

The idea of different partnerships to connect OEMs to their suppliers is not new. EDI has beenused in the automotive industry for several years. DaimlerChrysler is reputed to have developedsolid partnerships with its suppliers through projects like SCORE (Supplier COst ReductionEffort) which has been in place for over 10 years.

However, as a common platform, ANX will minimize all technological barriers to entry. Tier-2and tier-3 suppliers are now able to work with first-tier suppliers much more easily. Furthermore,first-tier suppliers and OEMs can easily go from one supplier to another without redefiningcommunication specifications. To date, ANX has primarily been used in the automotive supplychains, which include raw material suppliers and dealers. However, in a pilot project, GMconnected all Saturn dealers, office suppliers and customer services such as insurance andfinance.

The use of ANX will eventually expand to other sectors which are confronted with similar needs.For example, a steel supplier who now promotes ANX to its non-automotive customers.Whirlpool, which shares several suppliers with automobile OEMs, is expected to join ANX andis now carrying out feasibility studies. The health industry has also identified different servicesit can offer through the ANX platform and its members.

3.2 Technologies

ANX supports critical business processes and yet needs to be easy to use, affordable and

adaptable in terms of bandwidth to attract SMEs. ANX will foster the development of a newgeneration of advanced business and engineering applications (open protocol). The goal of ANXis to mix the best features of the public Internet, extranets and private networks. Thecharacteristics of the different types of networks are presented in table 1. Some of thesecharacteristics are discussed in greater detail in the following paragraphs.

1 France and Germany only.



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Table 1 - Characteristics of different types of networks

Internet Extranet Privatenetwork

ANX

Reliability Low Low to high High HighNetwork management No Yes Yes YesSecurity Low Low to high High HighFlexibility Medium to high Low to high Low HighCost Low Medium to high High MediumOpenness Low High Low High

Sources: Verband der Automobilindustrie (http://www.enx.de/nav/enx-merkm.htm) and Automotive Industry ActionGroup (http://www.anxo.com/TP_SP/papers/TEL-3.pdf)

3.2.1 Reliability and network management

Reliability is defined in terms of bothavailability (99.9%) and speed (performance).To certify the reliability of ANX, theAutomotive Industry Action Group (AIAG)chose Telcordia Technologies, a telecom entity,to certify service providers, namely softwareproviders and trading partners. The certificationprocess for Certified Service Providers (CSP)contains 120 metrics (reliability and security of systems, etc). With such certification, CSPs canthen connect trading partners to ANX,exchange data on a CEPO (Certified ExchangePoint Operator) and route the data to theappropriate partner (see figure 3).

3.2.2 Security

To identify the sender, the IPsec exchange protocol is used. It also allows the certification of thedata content (in terms of integrity and confidentiality through 128-bit encryption). This sort of security includes other applications such as disaster recovery (by the CSP).

3.2.3 Flexibility

Different bandwidths are required by trading partners depending on the type of data exchanged.For example, CAD files are large and require a great deal of bandwidth. Due to the differentapplications running on ANX, it has the flexibility to provide bandwidth of from 56 kbps to 45Mbps. Renault’s requirement, for example, is a 34-Mbps connection to ENX.

Subscriber 1 LAN(trading partner)

Subscriber 2 LAN(trading partner)

Subscriber n LAN

(trading partner)

ANXCSP

ANXCSP

ANX

CSP

: IPsec

ANX

CEPO

Figure 3 – ANX Network Architecture



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3.2.4 Costs

Compared to previous solutions and technologies (dedicated lines or Value Added Network(VANs)), ANX is much more affordable. It is a shared infrastructure and thus costs aredistributed among the trading partners. When ANX is fully implemented, working with a new

trading partner in the automotive supply chain will be feasible without adding new infrastructurecosts. Nevertheless, ANX is more expensive than the public Internet (25% to 50% more). InNorth America, a 64-kbps ANX connection costs US$ 3,700 plus US$ 675 per month and a 1.5-Mbps line (T1) costs $3,700 plus $3,400 per month.

3.2.5 Openness

ANX is based on TCP/IP, the same protocol as the Internet. Previously, the protocols wereproprietary. Now a software developer that wants to develop an application for the automobileindustry (deployed over ANX) can offer it to all its customers (OEMs). This promotes the

creation of complementary products and thus product ecologies.

4. Key Applications

One of ANX’s strengths is that it enables the connection of all key players around an industrialvalue chain. The goal is to bring together the best competencies along a given value chain. ANXis an enabler that facilitates the integration of these competencies from different actors orsuppliers anywhere around the world.

Figure 4 – Example of an automobile supply chain

3rd tier 1st tier2nd tierLog. Log.

Log. Log.Assembly

manufac-turer

DealerParts supplier End

user

Rawmaterial

Dealer 1Car supply

Maintenance

Dealer 2

Dealer 3

Part 1

ANX

Stake-holders

Relatedindustry

Part 2

Logis-tics

LogisticsCustomer

service LogisticsFinancialservice

OEM 3

Sub-assembly

2

OEM 2

OEM 1Sub-

assembly1

Network

Supplychain

Source: Adapted from MITI and McKinsey & Company



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4.1 Product development

The development of complex products requires a great deal of knowledge during the designphase, which is an essential activity in the development of a new car model. Collaborativedevelopment provides a broader choice of options necessary for achieving an optimized design.

In fact, ANX should help reduce product development time from the current 30 months to four tosix months, according to recent estimates from the US Department of Commerce. Moreover, inthe Japanese automotive industry, this reduction in product development time should translateinto R&D savings of as much as 2% (approximately US$ 4 billion) of the total sales of new carsin the next five to ten years.

Collaborative engineering allows for real-time interaction between product developers andproduction engineers. Certain tools are available to create this environment:

q Videoconferencing (real-time video/audio and whiteboarding);q Data visualization to better understand the graphical data from CAD systems, analyze

results and display virtual mock-ups;q Application control and data sharing (no duplication of files);q Messenger (for exchange of office files);q Project review room (design review).

4.2 Manufacturing

Seamless collaboration among supply chain partners is important. Indeed, sharing data allowsthem to reduce the bullwhip effect, i.e. the high variability in orders throughout the productsupply chain (see figure 5). In order to counteract this effect, in 1996 the Automotive IndustryAction Group (AIAG) launched the MAP Project (Manufacturing Assembly Pilot) to deploy EDI

throughout the automotive supply chain. EDI is a way to reduce order costs and speed upconnections, which translates into savings of $71 per car. ANX is the network enabler for thedeployment of EDI in the automobile industry.

Furthermore, the use of CPFR(Collaborative Planning Forecastingand Replacement) based on ANXcould reduce the cost per car by US$1,200. The bullwhip effect will becontrolled by the CPFR method of planning orders. It consists in

planning orders from customer salesall the way through to the last levelof suppliers. Up to now, planningand forecasting were done by eachlevel of the supply chain withouttaking any notice of others upstreamand downstream.With these tools, ANX will reduce

1

1,5

2

2,5

3

1 2 3 4 5 6 7 8 9 10 11 12

Month

O r d e r q

u a n t i t y

Customer salesDealer's ordersOEM's ordersFirst-tier's orders

Figure 5 – Graphical illustrationof the bullwhip effect



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the gaps between the order plans for each member of the supply chain (as seen in figure 5). Thisnew way of planning will help producers shift from mass production to mass customization.Lean manufacturing and the use of appropriate IT (ERP, e-commerce) will enable this shift.

5. Conclusion

Similar initiatives are now being set up in other industrial sectors. Examples include RosettaNetin the electronic industry and AISN in the aeronautics industry. Integrating product value chainactivities and the different firms, which can provide an optimized set of competencies, iscertainly one of the major challenges facing most industries in the coming decade. Although theweb can act as a major facilitator, it is only a partial answer to value chain integration.Systematic and integrative approaches such as those provided by ANX represent majorundertakings which will provide important benefits for customers but which will also requiremajor changes in the way business is conducted.



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Bio – Sketch of Authors:

- Luc Cassivi is a Ph.D. candidate at the École Polytechnique de Montréal and at the ÉcoleCentrale de Paris. His thesis focuses on the integration and functionality of procurementprocesses in a virtual enterprise.

- Louis A. Lefebvre is Professor at the Department of Mathematics and Industrial Engineeringand co-director of the Centre of Expertise in Electronic Commerce at the École Polytechniquede Montréal. Professor Lefebvre is also President of IAMOT.

- Gaël Le Hen is a Ph.D. candidate at the École Polytechnique de Montréal. His thesis focuses onthe product development phase in a virtual collaboration environment.

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Supply Chain ANX