global automotive industries

A Deloitte Research and Stanford Global Supply Chain Management ForumGlobal Manufacturing Viewpoint

INTEGRATING DEMAND AND SUPPLY CHAINS IN THE

GLOBAL AUTOMOTIVEINDUSTRY

Building a Digital Loyalty Network at General Motors

STANFORD GLOBAL SUPPLYCHAIN MANAGEMENT FORUMDeloitte Research

30 Deloitte Research – Integrating Demand and Supply Chains in the Global Automotive Industry

TABLE OF CONTENTS

Executive Summary ........................................................................... 1

The Effect of Automotive Digital Loyalty Networks .......................... 4

Demand and Supply Chain Challenges in theGlobal Automotive Industry .............................................................. 7

Challenges Met: Building a Digital LoyaltyNetwork at General Motors ............................................................. 11

Laying the Foundation ............................................................. 11

Customer Relationship Management Initiatives ......................... 13

Supply Chain Management Initiatives ...................................... 16

Conclusion ...................................................................................... 21

About Deloitte Research .................................................................. 25

About the Stanford Global Supply ChainManagement Forum ........................................................................ 25

1Deloitte Research – Integrating Demand and Supply Chains in the Global Automotive Industry

Executive Summary

Automotive executives are all too familiar with the issues troubling their industrythese days: From globalization and economic uncertainty to new technologiesand increasing consumer demands, they are facing major challenges that oftenstand in the way of profitability and higher shareholder value. Industry expertshave gone so far as to proclaim that the business model for the automobileindustry is broken. As one leading industry insider put it in early 2002: “If youdon’t have a different business model going forward, you’re probably notneeded.”1

In response, beleaguered automakers around the world have scrambled to cutcosts while focusing on improved product quality and design. Moving quicklyand nimbly is imperative, yet the web of complexity in the industry, with its vastnetworks of suppliers and distribution channels, as well as a long history ofbureaucracy, make it difficult for automakers to turn on a dime. They alsorecognize the need to build stronger strategic relationships with suppliers, dealers,and even competitors to get to market more quickly with the right product forconsumers at the right price.

While there is no quick fix, nor a panacea that will cure all of the industry’s ills,one area in particular goes a long way toward building a sustainable, value-creating business model that will lead to increased efficiency and profitability.Called a digital loyalty network (DLN), this model leverages the latest digitaltechnologies to integrate the demand and supply sides of the business. A DLNallows automakers to recognize what customers want, identify customers byvalue, and closely collaborate with suppliers to serve customers more profitably.A recent study by Deloitte Research found that the 13 percent of manufacturingcompanies that are pursuing a DLN strategy are up to 70 percent more profitablethan other companies (Figure 1). The study also shows that those same companies,a group that we call Loyalty Networkers, excel in other areas of businessperformance as well, including sales growth, market share, return on assets, andreturn to shareholders.


For the past few years, the automotive industry overall has been putting a numberof measures in place to respond to increased customer demands. For example,by leveraging new Web-based communication and transaction technologies,automakers have been building the capabilities for a business model that supportsbuild-to-order (BTO) processes in addition to the traditional build-to-stock(BTS) model. This allows automakers to respond better to customers who areincreasingly more knowledgeable and demanding about their preferred vehicleconfigurations. But while BTO helps automakers to differentiate products andmeet specific customer needs, it does not help identify levels of customerprofitability that lead to the increased value that automakers are striving for.

With its added focus on customer profitability, a DLN goes further than theBTO model. A DLN lowers costs and boosts efficiency for each member of theautomotive value network by integrating the supply chain and aligning itspriorities with the needs, wants, and value of each customer. Indeed, allparticipants in the value chain – automakers, suppliers, dealers, and customers– reap the rewards of a DLN strategy through what we call the “network effect.”This means that each member provides more value to – and receives more benefitfrom — the network than could be found by a competitive source outside thenetwork.

FIGURE 1. DIGITAL LOYALTY NETWORKS QUADRANT

Market Takers Loyalist

Collaborators Loyalty Networkers

Note: Size of circle represents share of 850+ companies surveyed globally

SOURCE: DELOITTE RESEARCH

Customer Loyalty HighLow

Supply ChainCollaboration

High

100 =base

54% moreprofitable

10%more

profitable

70% moreprofitable

(46% ofRespondents)

(26%)(13%)

(15%)


One of the U.S. Big Three automakers, General Motors, has already made greatstrides in building a DLN. Endorsed by Rick Wagoner, GM’s CEO, and drivenby leaders from the technology, customer, and supply chain sides of the company,the DLN initiative is helping GM deliver new levels of value to customers, supplychain partners, and, ultimately, shareholders. As its name implies, a DLN includesthe three components GM is focusing on: “digital” for technology-enabled;“loyalty” for a focus on customers and on increasing their loyalty and lifetimevalue to GM; and “network” for coordinating and leveraging all supply anddistribution chain partners to serve those customers.

On the customer side, GM has implemented GM BuyPower and GM OwnerCenter, two Web-based portals that, respectively, improve the buying experienceand serve as an ongoing resource for vehicle owners. Further increasing its touchpoints with customers is OnStar, a telematics service that offers safety, security,and convenience features at the touch of a button.

On the supply chain side, GM’s initiatives include GM SupplyPower, its onlineprocurement portal, and its Order-To-Delivery program, designed to reduceinventory and increase customer satisfaction and loyalty by delivering vehiclesfaster and more reliably. The company is also making major headway incollaboration efforts for supply chain management and product design anddevelopment, as well as further improvements in CRM and logistics. GM isintegrating such initiatives to take advantage of the benefits of a DLN.

As our research shows and as GM’s transformation is beginning to demonstrate,an integrated, differentiated value chain can go a long way toward improvingthe overall performance of the automotive industry.


The Effect of Automotive Digital Loyalty Networks

For many years, the automotive industry has been described as an industry thathas destroyed, rather than created, value. Facing such issues as slow time tomarket, costly inventories, overcapacity, and low customer satisfaction and loyalty,automakers have launched numerous initiatives in attempts to boost profitabilityand shareholder value. From product innovation and new services, to leanmanufacturing and customer relationship management, these efforts havetouched on many of the problems, but have yet to provide an overall answer onhow to enhance value.

One answer lies in the integration of these disparate efforts; namely, in integratingthe demand and supply chain sides of the business. Achieved through a modelknown as a digital loyalty network (DLN), this approach uses digital technologiesto optimize an automaker’s supply network based on customer value and loyalty.On the supply chain side, what this means is flawless execution for a company’smost valuable customers, the ability to manage inventory across all types ofcustomers, and short- and long-term capacity planning that is responsive tocustomer priorities. On the customer side, it means working with dealers tounderstand “true” customer value based on their real requirements and totalsupply chain costs to serve them.

To identify the benefits of a DLN strategy, Deloitte Research recently conducteda study of more than 850 manufacturing executives in 35 countries to measuretheir companies’ levels of supply chain collaboration and customer loyalty. Thestandout results of this study involved a group we call Loyalty Networkers –those companies that have integrated their collaborative supply chains with astrong focus on customer loyalty. Our results show that Loyalty Networkers areup to 70 percent more profitable than other companies in the study (Figure 2).The results also show that Loyalty Networkers are up to three times more likelyto show superior sales growth, market share, return on assets, and shareholdervalue as companies that do not combine supply chain collaboration with acustomer loyalty focus (Figure 3).

The study also highlighted a powerful result of a DLN: by combining supplychain and customer loyalty efforts, all participants in the network will realizeincreased value – what we call the “network effect.” This phenomenon means


positive results for each member of the automotive value chain as they collaborateto offer the right vehicle to the right customers at the right price, in the rightplace, and in the right amount of time.

For automakers, the network effect delivers higher profitability through quickertime-to-market, more appropriate vehicle content, and better-targetedinventories. At the same time, there is less need for open price competition, andautomakers are able to upsell more profitable options and cut back on unwantedand unprofitable ones. Automakers also work jointly with dealers to establishlong-term customer relationships, which results in a more loyal and profitablecustomer base.

FIGURE 2. PROFITABILITY AND LOYALTY NETWORKS

Customer Loyalty HighLow

Supply ChainCollaboration

High

Market Takers Loyalist

Collaborators Loyalty Networkers

Note: Average profitability of market takers = 100


145

110

170

100

FIGURE 3. BUSINESS PERFORMANCE AND LOYALTY NETWORKERS

Percentage of Companies with ExceptionalPerformance on Goals

302520151050

Return toShareholders

Return to Assets(Pretax)

Market Share ofPrimary Products in

Target Markets

Sales Growth


Loyalty Networkers

Loyalists

Collaborators

Market Takers


Suppliers in the network benefit from reduced order-to-delivery times due tocustomer-focused product innovation and development. A DLN also allowssuppliers to collaboratively align production planning and execution and to betterutilize their capacity.

Dealers realize the benefits of the network effect in a number of ways. First,better information about customer loyalty allows them to identify profitablecross-selling and service enhancement opportunities. Their marketing and salesefforts, now loyalty-focused, are more efficient and less costly. And they see betterand more profitable product available from OEMs and suppliers. With demandand supply chain integration, dealers can match more profitably differentcustomer demands with appropriate product — whether the product is inventoryon-hand, in transit, or built to order.

Customers enjoy greater satisfaction through streamlined and integrated on-lineand off-line sales and marketing channels, more personalized service, andcustomized vehicle options, which means they only pay for the options theyrequest and value. Overall, customers see loyalty for loyalty — loyalty to a brandthat result in a better match of products, services, and price that’s right for thembecause their loyalty matters to the OEM network.

Indeed, the network effect is self-perpetuating in that further value is realized aseach member of the value chain contributes to and enjoys the positive experienceof a DLN. By tightly linking supply chain and customer initiatives, success canbreed further success.


Demand and Supply Chain Challengesin the Global Automotive Industry

By appropriately integrating the demand and supply sides of the automotivevalue chain, a DLN addresses many of the issues automakers face today in dealingwith customers and supply chain partners.

Historically, the imbalance between the supply and demand sides of the autobusiness has been a challenge for all members of the value chain. Consumerdemand for specific vehicles is uncertain and variable. At the same time, manyfactors in supply planning and production—including fixed plant assets, aunionized workforce, and fixed parts supply schedules—are inflexible and slowto respond to changes in demand.

For many years, the industry has been stuck in a vicious cycle in which automakershave focused on maximizing sales in order to optimize the utilization of theircapital-intensive plant assets and unionized labor force. Increasing plantproductivity has only exacerbated the problem for the industry overall. Thishas led to excess dealer inventories and an inventory mix that is not necessarilyaligned with customer preferences, and thus requires higher sales incentives tocompensate for customer compromise. These incentives erode profit margins,which again prompts more production to boost factory sales (Figure 4).

FIGURE 4. THE VICIOUS CYCLE OF THE AUTOMOTIVE INDUSTRY

Challenges of Current of Model– Excessive structural cost– Dissatisfied customers– Slow to respond– Lost revenue opportunities How do we

break the cycle?

Erodemargins

Produce vehicles to maximize factory sales

Push todealers

Build higherinventories

Incentto sell

Customercompro-

mises or walks

away

SOURCE: GENERAL MOTORS


In response, automakers, suppliers, and dealers have tried various approaches tofind a balance between product supply and fluctuating demand—approachessuch as buffer inventory stored throughout the value chain from dealers to tier-N suppliers and deep financial incentives to spur auto sales. However, theseapproaches often have resulted in high inventory carrying costs and lower margins.Today, members of the automotive value chain are looking for cost-effectivesolutions that offer supply-chain-wide visibility to demand information,streamlined information flows, and more efficient and profitable alignment ofthe business model with final consumer demand.

Customer Side ChallengesIn today’s highly competitive and technology-driven manufacturing environment,the industry-wide generic, one-size-fits-all supply chain model with similar leadtimes and service levels to all customers is no longer adequate. Not only doesthis model create inefficiencies along the value chain, but competitive pressuresand changing customer expectations are forcing automakers to look for ways toimprove how vehicles are designed, manufactured, and sold. Leading automakerssuch as GM are pursuing a DLN strategy to help build the capabilities to bettersense different customer demands, shifting preferences, and target dealerrequirements, and then respond by making and delivering a vehicle to orderwithin a shorter and more reliable timeframe than competitors. At the sametime, this approach helps ensure that the inventory in the dealer network, intransit, and in plant is aligned most effectively with customers’ requirementsand profitable sales opportunities.

Indeed, to succeed in the automotive industry today, it is becoming increasinglyimportant for a company to align itself closer to the customer and develop one-to-one relationships to better understand customer needs—as well as the capabilityto quickly translate customer requirements to the shop floor. According to RalphSzygenda, CIO of GM, “The first, and perhaps the most fundamental issue, isthat traditional automotive processes [still] do not fully meet customer-drivenrequirements. [From a supply chain perspective,] products are too complex, anddesign cycle times too long, to properly respond to the marketplace. Customersshould be able to configure their own vehicles, add options, select colors, andunderstand how these decisions impact price and financing.”

The advent of the Internet has enabled OEMs to have a more direct relationshipwith customers. Unlike the traditional model through which automobile dealerswere primarily responsible for managing customer relationships, this direct linkto customers opens doors to new marketing and sales opportunities for OEMsand introduces speed in all operations. The Internet also has created significantlydifferent shopping and buying behaviors, giving customers more informationand, as a result, changing their expectations. The customer-focused approach ofa DLN helps OEMs respond to those increased demands and expectations –and do so more profitably.


Also on the customer side of building a DLN, automakers need to address anumber of issues relating to dealers’ inventory levels and the need to work withdealers to develop new sales and distribution channels. Many large dealershipshave long preferred to maintain large inventory levels because they view inventoryas a competitive advantage that provides a buffer against demand uncertaintyand long replenishment lead times. Dealers and automakers alike have assumedfor some time that holding inventory would provide customers with themaximum available choices immediately, letting potential buyers “touch, feel,and engage with” a vehicle and thus make it unlikely a potential sale would walkout the door. The “price” of dealer inventory, however, includes the financing ofexcess inventory, maintenance costs, incentives to move unwanted inventory,compromised customer choice, and inefficiency in the ability of the supply chainto sense and respond.

New marketing, sales, and distribution channels such as the Internet and autosupermarkets also are important avenues to explore, although automakers mustwork closely with dealers to produce a win-win situation.

Supply Chain ChallengesOne of the key supply chain issues facing automakers today involves long order-to-delivery lead times and unreliable production schedules that lead to excessinventory throughout the value chain. Lengthy demand planning cycles andlack of visibility to supplier, material, and production constraints cause schedulingdelays and short-term production changes. These problems drive automakersand suppliers to build up buffer inventory and limit their ability to flexibly reactto changes in customer demand. Under these conditions, suppliers are unable tosense customer orders and manufacture solely on schedules with 12-16 weeks oflead time. Constrained, inflexible production and assembly capacities and longdelivery lead times also contribute to high dealer inventory levels in the form ofsafety stock.

Another supply chain issue that automaker face, especially in the U.S., relates tovehicle content. Over the years, foreign automakers, primarily those from Asia,entered global markets with higher-content vehicles (i.e., with many optionsincluded as standard equipment) as one way of overcoming the customizationconstraint imposed by the lead time of shipping product overseas. In response,U.S. automakers increased their standard vehicle content and features. Today,however, consumers prefer to select vehicle content that’s right for them – ratherthan pay for “standard” options they don’t need – and the entire automotivesupply chain is trying to respond to this shift.

Other supply chain issues that the automotive industry is working to addressinclude a lack of collaboration in product development, which can lead to productdevelopment cycle times of more than 48 months. Communication channelsbetween OEMs and other supply chain partners remain manual in many cases.This is especially true with small suppliers unable to afford an investment inelectronic data interchange (EDI) technology that is used between OEMs andtheir larger suppliers.


Logistics operations in the automotive supply chain are complex and represent amajor expense and opportunity for improvement. For example, management ofinbound logistics often involve a global network of more than 10,000 suppliersfor a single automaker. What’s more, the overall lack of communication andcoordination of inbound and outbound logistics operations often preventsautomakers from optimizing their supply chains, reducing inventories, andaccurately forecasting and responding to customer demands.


General Motors is making great strides in building a DLN to deliver new levels ofvalue to customers, suppliers, and shareholders. GM is focusing on the three areasthat make up a “digital loyalty network”: “digital” for a focus on IT; “loyalty” for afocus on customers and on increasing their loyalty and lifetime value to GM; and“network” for a focus on the entire supply chain from suppliers to distributionchain partners, dealers, and final customers.

Laying the FoundationIn efforts to improve and integrate its demand and supply chains, GM has madesignificant progress in streamlining its IT operations – a feat that laid considerablegroundwork for building a DLN. In the mid-1990s, information systems at GMhad proliferated, but most of them were antiquated, isolated “silos” of informationthat did not integrate data flow across the enterprise. For example, marketing dataresearched by one GM marque was difficult to share with other parts of theorganization. Design engineering used 22 different engineering systems thatthreatened collaboration among the global product development staffs. In all, thecompany had more than 7,000 discrete information systems.

Over time at GM, billions of dollars had been invested in various IT systems andinitiatives. What’s more, value chain partners had systems of their own: dealers hadtheir own dealer management systems (DMS) and suppliers had their own ITsystems to communicate with GM and other customers. Integrating those disparatesystems and building a robust and scalable architecture was indeed a challenge.

One of the first things GM did to tackle this challenge was to educate executivesabout the strategic importance of IT. Each business unit now has a chief informationofficer (CIO) who reports to the business unit president, and process informationofficers (PIOs) have been assigned throughout the organization to quickly assimilatetechnology initiatives into GM’s core business model (Figure 5). PIOs are responsiblefor the design, development, and implementation of major business processes inproduct development; production; sales, service, and marketing; business services;and the supply chain to drive common solutions across those units. The PIOsidentify business, functional, and technical requirements, build key businessprocesses, and integrate them across functional and geographic areas.

Challenges Met: Building a DigitalLoyalty Network At General Motors


In addition to raising the level of awareness of IT throughout the company,GM has significantly improved its existing systems and technology infrastructure.Its worldwide telecommunications infrastructure has been overhauled to gainthree times the bandwidth for wide area networks (WANs) and 30 times forlocal area networks (LANs). Middleware applications are being inserted to makesystems talk to each other and link disparate systems to extract informationfrom formerly mutually incompatible legacy systems. Systems are also beingstandardized. For example, GM now has just one computer-aided design systemworldwide, whereas at one time there were more than 20. The organization’svast numbers of information systems are being consolidated into a few withstandardized inputs and outputs, the same data structures/data formats, standardsoftware and hardware application architectures, and common communicationinterfaces.

Assessing the progress GM has made in IT, Ralph Szygenda, GM’s CIO says,“Leveraging the Internet into the environment was a critical part of the business,and we have built $1.7 billion worth of Internet-based applications, probablymore than any other company in the world. We overlaid those things on top ofthis infrastructure to change the business. By the way, it cost GM nothing. Wefunded all of this transformation with all the e-business movement and stillgave back $2 billion to the company.”


FIGURE 5. GM INFORMATION SYSTEMS & SERVICES (IS&S)

Global TechnologyManagement

Global ServicesDelivery

ApplicationSolution Delivery

TechnologyGlobal Processorsand Systems

Geography

SectorPresident

SectorPresident

SectorPresident

SectorPresident

SectorPresident

GM CIOR. Szygenda

SectorPresident

Asia Pacific IO

GMEIO

NAIO

LAAMIO

e-GMIO

GMAC FSIO

Process Integrationand QualityAssurance

Develop ProductIO

Produce ProductIO

CustomerExperience IO

Supply ChainIO

StrategyPlanning

ContractManagement

Legal

HumanResources

Purchasing

Finance

Business ServicesIO

(Finance, HR, Legal, Comm.,EAG, Public Policy)

LegendGME: GM EuropeLAAM: Latin America, Africa and Middle EastGMAC: General Motors Acceptance CorporationEAG: Enterprise Activities Group


Customer Relationship Management InitiativesGM’s primary focus area on the customer side is to develop stronger one-to-onerelationships with customers. By personalizing interactions and aligning vehiclecontent with expectations, GM’s customer-centric approach offers new levels ofservice and support and, at the same time, reduces distribution and selling costs.GM is working closely with dealers on these efforts as well as exploring alternativesales channels to reach customers in new ways.

One initiative to strengthen customer relationships has been to better gather,manage, and leverage customer data and enhance customer interaction. Byconsolidating its vast enterprise customer management (ECM) databases – notto mention some 150 Web sites and 63 call centers – GM has put into motionits strategy of being able to capture valuable information with each customerinteraction. It then feeds that information back into product improvements,sales and marketing campaigns, and personalization efforts. Such customer-centric capabilities are slated to create a cycle of continuous improvement. Bettercustomer knowledge leads to more profitable customer acquisition and greaterloyalty, which leads to richer customer information, and so on.

This initiative also allows GM to track customers over time as they move acrossbrands, locations, and GM businesses (finance, mortgage, and so on). Trackingcustomer touch points and mapping that to the customer’s age, income, andother factors help GM to anticipate where the customer may be next (Figure 6).


FIGURE 6. AGGREGATING CUSTOMER TOUCH POINTS

GMCustomers

CustomerCare

OutsidePurchasedData andLegacySystem

CustomerInformation Data

Warehouse

CustomerAnalytic Data MartReal-Time

ContactManagement

Data Base

Marketingand Lead

ManagementData Base

Business IntelligencePredictive Modeling

Reports and MeasuresCategory ManagementAnalysis, Data Miningand Insight Creation

Marketing ProgramAutomation

Planning Execution

Marketing Sales

Web

Call Center

Direct MailE-Mail

Fulfillment Centers

Interactive Vehicles

MarketingEvents and Shows

Field and FleetCommercial Sales

Retailers and GMACBranch OfficesService Desk

After Market P&A Service

Direct TV

Dat

a Se

curit

y an

d C

onsu

mer

Priv

acy

Prot

ectio

n


In essence, integrating customer data allows GM to better leverage its broadshelf of brand offerings. By integrating customer data among different businessunits and complementary businesses such as car financing and insurance, GM isbetter able to match customer requirements across the product offerings ofdifferent divisions, which Alfred Sloan, the CEO of GM from 1923 to 1946,had envisioned when he created GM’s multi-divisional structure.

In another move to become more customer-centric, GM also is addressingcustomer demands concerning vehicle delivery. Assuming that customers want“quick delivery,” many automobile companies have begun initiatives to enabletwo- to three-day delivery. However, market research reveals that such a broadassumption is off-base—in fact, customers have widely varying and personalizedexpectations when it comes to such order fulfillment attributes as lead time,delivery reliability, and the importance of getting exactly the desired vehicleconfiguration. What customers really value is that they get the car they want, atthe desired time and desired price. In many instances, customers also have to sellan existing vehicle and get the appropriate financing lined up. Many customerswill wait for a certain amount of time and some even might pay premiums to gettheir preferred vehicle. Most customers’ ideal wait time is somewhere betweenone and eight weeks. So what is really needed is a differentiated value propositionand supply chain response for each customer to build loyalty where it mattersand to maximize long-term revenue potential. This will ensure optimum customersatisfaction as well as the most profitable use of costly and constrained supplychain capabilities.

New Channels: Harnessing the Power of “e”

In collaboration with dealers, GM has developed a Web-based channel that notonly allows customers to search for desired vehicles but also provides GM anddealers with rich customer information. Called GM BuyPower, the portal offersconsumers the best of two worlds – an integrated online channel and theopportunity for a more personalized offline dealer experience (Figure 7). UsingGM BuyPower, customers may search for their nearest or preferred dealer, view“unbiased” third-party comparisons, get incentive information, request the dealer’sbest price, and apply for financing online. Because every customer request from

FIGURE 7. GM BUYPOWER WEBSITE



BuyPower is tagged with customer information, dealers are able to personalizetheir responses with appropriate offerings.

Today, GM BuyPower is the most frequently visited automotive OEM Web sitein the world. Upon completion of global deployment in 2003, GM BuyPower istargeted to reach 3.5 billion of the world’s 6 billion people in a language theyunderstand and with familiar GM products.

GM BuyPower also strengthens the “shopping” and “buying” aspects of the GMpurchase funnel (Figure 8). This funnel includes all of the steps a customertakes in shopping for, buying, and owning a vehicle. GM’s marketing efforts—as well as its Web presence through third parties such as AOL, Edmunds, KellyBlue Book, and NetZero and affinity alliances such as College Club, Black Voices,and iCan—have created a strong awareness of GM brands and have led anincreasing number of customers to consider purchasing GM vehicles. GMBuyPower provides an aid for customers who are close to purchase and is designedfor customers to choose (shop) the dealer as well as the vehicle. It also serves asan ongoing communication link to customers in the ownership phase, afterpurchase, and may lead them to consider GM again when they reenter the market.A key component of the company’s emerging DLN, GM BuyPower also isdesigned to serve as a link between the customer and supply sides of GM. Byusing the click-stream data from GM BuyPower, GM can sense market demandand respond accordingly.

Further leveraging Internet technologies to reach customers in new ways, GMhas also built a Web-based tool for post-purchase customer care called GM OwnerCenter (Figure 9). Using GM Owner Center, customers may create personalizedprofiles of all GM vehicles they own. These profiles provide vehicle information,trigger maintenance reminders, and track service history. Customers also getaccess to digital versions of their owner’s manuals, informative videos ofprocedures outlined in the manuals, and other helpful features such as servicecenter locations—as well as incentives for participating in the site.

FIGURE 8. AUTOMOBILE PURCHASE FUNNEL

Aware Consider Shop BuyOwners

1-6 monthsPost Sale

Owners6 months–X years

OwnersLast 6

months ofownership

ReenterMarket

Purchase Funnel

Ownership Phase



Direct Links to Customers with Telematics

In another effort to establish a direct link with customers, GM envisions everyvehicle to become part of a limitless, wireless telecommunications network.Leveraging its telematics service, OnStar, GM is on the way to making the vehicleanother critical node on the information highway, allowing the company tointeract daily with its customers.

OnStar allows consumers to push a button and receive a wide variety of safety,security, and convenience features. Using OnStar, consumers may make hands-free calls via Personal Calling, or hear the latest news and traffic information viaVirtual Advisor. OnStar subscribers have the ability to remotely unlock a cardoor if the keys were accidentally locked inside, or to summon assistance for adisabled vehicle. With more than 10 million customer interactions in five years’time – and some 5,000 new customers enrolling every day – GM’s OnStar serviceprovides the company another way to improve its customer reach. GM alsocontinues to explore the integration of additional new services, such as XMsatellite radio.

Supply Chain Management InitiativesGM understands that to reap the real benefits of customer side initiatives, theback end of the supply chain has to be robust, flexible, and responsive. Investingin front-end initiatives is not much use if a company does not have strong internalcapabilities and effective supplier networks. To that end, GM has been doingplenty of work on the supply side, especially in supporting and enabling initiativesthat allow vehicles to be built to order, and in improving and supportingcommunications and collaboration capabilities across GM’s vast network ofsuppliers, distributors, and dealers.

In response to increasing customer demands and moves toward increasedprofitability, the automobile industry overall has begun to migrate from beingprimarily a build-to-stock model to a more balanced build-to-stock and build-to-order model. One of GM’s initiatives on the supply side is called Order-to-Delivery (OTD), which is designed to transform the supply chain to meet the

FIGURE 9. GM OWNER CENTER



increasing demands of customers in the growing digital environment. As a resultof this initiative, a new department called Order-to-Delivery has been formedto address GM’s supply chain issues. The OTD organization has more than5,000 employees and is divided into three cross-functional groups – orderfulfillment, supply operations, and logistics. Together, these groups are responsiblefor all OTD processes, whether the underlying vehicle was built-to-stock orbuilt-to-order. The order fulfillment team is responsible for working on customerfacing, “sense and respond,” and planning activities. The supply operationsgroup focuses on internal plant activities and the movement of materials, materialcommunication, and visibility with suppliers. The logistics team is responsiblefor transportation and delivery of vehicles.

The OTD capabilities at GM are designed to provide dealers and customerswith the right vehicle, at the right place, the right time, and at the right price.OTD aims to reduce inventory and increase customer satisfaction and loyaltyby delivering vehicles faster and more reliably. GM has made tremendous stridesin meeting those goals around the globe. Average delivery lead times for all GMvehicles have been reduced by 50 percent in just two years – from more than 80days prior to 2000 to just over 40 days. At the same time, delivery reliability hasjumped from 68 percent to 90 percent. As another key component of GM’sDLN, OTD is strengthening the link between engineering, manufacturing,dealers, and customers and to allow GM to work more collaboratively withsuppliers.

Shoring Up Communication in the Supply Chain

The Internet is replacing most conventional modes of communication, allowingcompanies to collaborate and link up with their suppliers as never before. GMexecutives estimate that about 68 percent of direct materials procurement willbe done via the Internet by 2004. OEMs are using the Internet to connect totheir multiple tier suppliers and communicate more effectively.

Given that quick, reliable communication across the supply chain is a requirementof a DLN, GM leverages its private, Web-based portal called GM SupplyPower,which was built in 1999 (Figure 10). The portal links GM and its suppliers,allowing them to complete transactions and share information related topurchasing, sourcing of materials, quality and production control, logistics,engineering, and manufacturing. GM SupplyPower helps GM reduce operationscosts, contributes to speeding up the vehicle development process (VDP) viaengineering collaboration, improves supplier quality and responsiveness, andimproves supplier communication relative to product schedules and capacityplans.

By leveraging long established relationships with supply side partners, privateexchanges like GM SupplyPower enable deep integration with trading partners’back-end systems. And, as a private exchange, GM SupplyPower also maintainsand protects GM’s unique business processes. However, to make procurementof commodity items more efficient, to reach the globally fragmented communityof suppliers with whom GM has intermittent business relations, and to have the


ability to aggregate industry information for better forecasting and planning,GM, together with other large automakers, in early 2000 created the world’slargest Internet-based virtual marketplace. Named Covisint, this business-to-business (B2B) exchange is able to connect automakers with thousands ofsuppliers (Figure 11). By developing an open infrastructure, which eliminatesexpensive point-to-point connections and third-party transaction brokers,Covisint can provide immediate value to large and small suppliers alike. Smallsuppliers can leapfrog over rigid and expensive-to-implement EDI technologyand participate in the marketplace the way big companies do. Covisint alsohelps establish common transaction and communication standards for the auto

FIGURE 10. GM SUPPLYPOWER


GM SupplyPower is GM supplier communication website. It is used as a medium for GM to provide up-to-date information to the supplier community quickly, effectively and conveniently. GM SupplyPower alsoacts as a gateway to supplier applications. Through web-enabled applications, suppliers directly interactwith GM to complete a variety of business transactions. Ultimately, the GM SupplyPower portal will be theprimary means of communication between GM and its suppliers.

GM SupplyPower contains several modules to address the needs of the key processes:• Purchase Power: To communicate and collaborate with GM’s supplier base in the area of

purchasing and sourcing materials.• Quality Power: To provide and exchange information on quality and supplier development with

GM’s suppliers.• Engineering Power: To establish a data and automation environment that enables the highest level

of electronic digital data exchange and collaboration between General Motor’s vehicle programsand their suppliers.

• Material Power: To communicate and collaborate with GM’s supply base in the area of productioncontrol and logistics.

• Finance Power: To communicate and collaborate with GM’s suppliers in the area of finance.• Manufacturing Power: To provide GM’s suppliers relevant information on manufacturing’s technical

specifications and procedures.•Logistics Power: To communicate and collaborate with GM’s logistics suppliers.

Each module features content and applications that enable two way communication and collaborationbetween GM and its suppliers. The content library includes over five hundred useful documents to assistsuppliers in business planning and execution. Some examples of content include standard terms and con-ditions, APQP manuals, production schedules, shipping manuals and training courses. GM SupplyPoweralso hosts several web-enabled applications that can be accessed by suppliers.

FIGURE 11. COVISINT SOLUTIONS

Procurement Supply Chain

Collaborative ProductDevelopment

Value AddedServices

Covisint

Covisint's solutions are targeted at transforming all key business processes within the automotive industry.Covisint's solutions allow companies to harness the power of the Internet to unlock significant value andefficiency through collaboration, visibility, and integration. Following are the solution suites offered byCovisint (www.Covisint.com):

• Collaboration – Collaboration Manager, Quote Manager, Engineering Manager• Procurement – Auctions, Catalogs, Quote Manager, Asset Control• Supply Chain – Fulfillment, Supplier Connection• Quality – Advanced Quality Planner, Problem Solver• Corporate – Portal, Integration, Financial Services



industry. The biggest selling point may be that Covisint provides a single exchangewith one protocol, so suppliers that go through the exchange do not have to dealwith different standards and different systems while dealing with each automobileOEM.

Covisint’s architecture and language are enabling GM, other OEMs, and suppliersto move away from a complex one-to-one relationship model to more of a “hub-and-spoke” public exchange design (Figure 12). The Covisint marketplace beganas a central procurement hub, connecting hundreds of customers to thousandsof suppliers, but now offers supply chain and product development collaborationsolutions as well.

GM and other major worldwide automakers have been effectively using Covisintfor direct and indirect material procurement, calling for supplier requests forquotes (RFQs), forward and reverse auction of machinery and equipment, andputting product catalogs online. In 2001, GM alone procured about $25 billionworth of material via Covisint. Using Covisint, GM and other major automakershave linked directly to thousands of suppliers on the exchange and significantlyreduced the number of paper and EDI transactions.

GM is also initiating a pilot program at GM assembly plants in North Americathat uses Covisint fulfillment functionality to provide simultaneous real-timeconnectivity with multiple tiers of critical supply chain partners. This allowsreal-time visibility of inventory levels (raw materials, work-in-process, finishedgoods at partner and OEM sites), parts usage history, forecasts, in-transitinventories, receipts, and other relevant information between manufacturers andsuppliers. Covisint’s product development solution, with its virtual projectworkspace, allows members of the network to exchange and work collaborativelyon computer-aided design (CAD) drawings and designs. Overall, Covisintpromises to help reduce inventory, allow automakers to respond faster to marketdynamics, and speed up vehicle development times. And, together with GMSupplyPower, Covisint provides GM with strong and flexible capabilities acrossa range of sourcing, procurement, and product development areas.

FIGURE 12. TRANSITION TO HUB AND SPOKE MODEL

Purchase

Tier 1

Tier 2

Tier 1

Tier 2

Tier 1 Covisint Tier 2

Tier 2

OtherExchanges OEM

Tier 2

OEM


Inventing New Practices in Logistics

To further tighten the supply chain, GM is also working to streamline its logisticsoperations. To ship its daily production of 35,000 cars to more than 12,500dealers worldwide, GM in recent years has been spending about $6 billionannually on logistics operations, using multiple third-party logistics providers(3PLs) to manage its inbound and outbound logistics activities. But the companyhasn’t been seeing acceptable payback on that $6 billion: Lack of communicationand coordination between third-party logistics suppliers has often led to unreliableorder fulfillment lead times that could range from an average of 70 to 90 days.Inbound logistics operations are also very complex. A total of 180 million poundsof material is shipped every day from 12,000 suppliers globally. The changingsupplier base makes optimizing delivery routes difficult, and the lack of visibilityinto inventory levels at different locations (such as supplier finished goods andvehicles in-transit) makes materials planning very challenging.

Realizing that it needed a “super-3PL” that could centrally manage multiple3PLs and reduce cost and delivery lead time in each segment of logistics, GMformed an alliance with CNF, a logistics company providing global supply chainservices, and incorporated a new company, Vector SCM, to manage GM’s vastlogistics network.

By integrating all 3PLs into one information system, Vector SCM offers real-time carrier management and improved visibility of all materials and vehiclesmoving within GM’s supply chain. This enables GM to track and trace shipmentsvia the Web and to manage shipments by exception. To better manage GM’sservice provider network, logistics control centers act as command centers. Thesecenters are equipped with and linked together by the latest IT to provide visibilityto track GM’s assets – raw materials, empty racks, finished vehicles, or serviceparts - and to locate all carriers. The resulting improved information flow,reliability, and flexibility of GM’s production and distribution systems lead tobetter service to dealers and car buyers.


Conclusion

By leveraging digital technologies to integrate its demand and supply chains –supported by an inclusive view of its business model from the perspective ofcustomers through end suppliers – GM has made great progress in building aDLN. Recognizing the power of such integration, GM is weaving the strategythroughout the entire GM business web, a vast infrastructure of all of thecompany’s constituencies: suppliers, dealers, employees, alliance partners, andcustomers (Figure 13).

FIGURE 13. GM’S BUSINESS WEB

CustomerHome/Office

CustomerAuto

SupplierDealer

Employee GM ValueChain

As GM has seen, a major capability on the demand side of its efforts – capturingand sharing customer demand information across the network – brings newefficiencies throughout the entire value chain. According to Brad Ross, GM’sexecutive in charge of OTD, “All members of the network are able to makemodifications to their plans to support what the market really wants as opposedto what we had thought they wanted.”

A better understanding of customer demands is one side of GM’s success inbuilding a DLN. Better communications and teamwork with suppliers is another.To that end, GM’s efforts in building a DLN support the philosophy recentlyoutlined by Bob Lutz, GM’s chairman of North American operations. Lutzsays, “Our philosophy is to encourage and challenge all of our suppliers to help



Putting the Model to Work: The Chevrolet Celta

One example of where GM has put the DLN model to work is itsSeptember 2000 launch of the Chevrolet Celta in Brazil. The launch ofthe Celta, a sub-economy car produced at the Gravatai assembly plantin Brazil, presents one of the first high-volume, Internet-based salesmodels in the industry. Consumers may access the Celta’s Web site fromtheir own PCs or from a kiosk at one of more than 470 Brazilian Chevroletdealers. From the site, customers can configure the Celta of their choice,select a payment option, make the purchase, and confirm delivery oftheir vehicle.

Using digital technologies, the network integrates all aspects of thedemand and supply chains: customers, dealers, distribution, production,and suppliers. With fewer than 100 build configurations for the Celta,manufacturing facilities are more flexible and can rapidly change schedulesto match end-customer demands. Also, with production and distributionfacilities receiving real-time information via the Web, they can speed updelivery and better forecast production needs.

Customers receive the car of their choice, in just 11 days on average, andat a lower price because of the tax benefits of purchasing online. Dealersare highly satisfied as well. They see lower costs through lower inventorylevels and the potential for further sales through accessorization of thevehicles at the dealerships. Indeed, inventory pooling between the factoryand dealers optimizes vehicle availability and minimizes inventory costs,including capital and depreciation costs. Dealers also continue to seehigh levels of customer traffic, with 90 percent of online Celta transactionscompleted at dealership kiosks – ensuring face-to-face communicationwith the customer and opportunities for dealers to further build customerrelationships.

Just 16 months after its launch, more than 110,000 Celtas had beensold, with 70 percent of those vehicles sold online. The streamlinedprocesses of the DLN model have not only lowered costs through lowerinventory and taxes, but also allow GM to more accurately predict profitmargins. This model shows the network effect of a DLN in action, withall members of the network – customers, dealers, distribution partners,manufacturers, and suppliers – realizing the benefits. As Mark Hogan,former head of e-GM says, “The Celta program has taught us how touse technology to create a better retail experience, and the learnings fromCelta could be applied worldwide.”


us get to the point where we can see a visible improvement in the…quality ofour products. To do that, we have to encourage frequent and opencommunications.” Frequent and open communications with suppliers is indeedone more capability enabled by GM’s initiatives.

Combined with initiatives underway in other parts of the organization such asproduct development and manufacturing, GM’s demand and supply chainintegration efforts are leading to quantifiable results, most notably in the areasof higher customer loyalty, reduced delivery lead times, and higher deliveryreliability, while maintaining or increasing market share in a fiercely competitiveglobal automotive industry.

The latest standings for R.L. Polk & Co.’s Automotive Loyalty Awards2 showedthat more customers returned to GM to buy and lease vehicles than any otherautomaker. According to Polk’s findings, 65.2 percent of GM vehicle ownersthat returned to market in 2001 repurchased a GM vehicle, the highest loyaltypercentage in the industry and 11 points higher than the industry average. Onthe supply chain side, a 50 percent reduction in delivery lead times and 32percent improvement in delivery reliability over the last two years are furthersignals of progress. As GM continues its launch and roll-out of new, innovativecars and trucks and builds on the business model it is putting together, itsperformance is likely to improve further. While some of the initiatives GM hastaken yield immediate benefit (see Box “Putting the Model to Work: TheChevrolet Celta”), many of the results from the overall move toward strengtheningthe customer experience, enhancing customer satisfaction, and building customerloyalty through better — and better-integrated — CRM and SCM capabilities,and enhancing the product line-up will arrive over the long haul. For example,the time between purchases for the average customer in the automotive industrycan be three years or longer, suggesting that many benefits will take at least thatlong to materialize.

Fundamentally, a DLN is all about satisfying different customer needs withdifferentiated supply chain capabilities, which increases value for all members ofthe network. And in helping to improve the automotive industry business model,a DLN allows automakers to move from the transaction mindset of selling a carto a relationship mentality based on the desire to offer a customized stream ofproducts and services to meet customers’ needs over a lifetime. By betterrecognizing what customers want, identifying the most valuable current andprospective customers, developing the right product portfolio, and then closelycollaborating with suppliers and dealers to make the model work, GM cancontinually improve the model and reap the benefits of increased loyalty andbottom-line profitability of an automotive digital loyalty network.


End Notes1 David Stockman, former Director of the Office of Management and Budget;co-founder, Heartland Industrial Partners

2 R.L. Polk Automotive Loyalty rankings and annual awards are based on Polk’sManufacturer Loyalty Excelerator™ report. This report was created to providehousehold loyalty information to manufacturers at many different levels. It isnow used to provide loyalty percentages for the entire automotive industry andallows for cross-industry comparisons of loyalty behavior. R.L Polk collects,compiles, and interprets state vehicle registrations and title information, andsupplies demographic, lifestyle, and other information about consumers. Thereport measures loyalty throughout the entire model year so that manufacturersmay keep abreast of loyalty trends as they occur in the industry.


About Deloitte ResearchDeloitte Research identifies, analyzes, and explains the major issues driving today’s business dynamics and shaping tomorrow’sglobal marketplace. From provocative points of view about strategy and organizational change to straight talk about economics,regulation, and technology, Deloitte Research delivers innovative, practical insights companies can use to improve theirbottom line performance. Operating through a network of dedicated research professionals, senior consulting practitioners,and academic and technology partners, Deloitte Research exhibits deep industry knowledge, functional expertise, and acommitment to thought leadership. In boardrooms and business journals, Deloitte Research is known for bringing newperspective to real-world concerns.

For more information about Deloitte Research, please contact the Global Director, Ann Baxter, at 415 268 1026 or viaemail: [email protected].

Peter Koudal is Director, Deloitte Research—Manufacturing Institute. He leads the global manufacturing research andfocuses on business strategy and performance, supply chain management, customer relationship management, and demand-supply integration and optimization. He is a member of the Academic Steering Council of the Stanford Global SupplyChain Management Forum. Peter Koudal can be reached at Tel: +1 212 492 4275; e-mail: [email protected].

About the Stanford Global Supply Chain Management ForumThe Stanford Global Supply Chain Management Forum is an industry-academic consortium with the mission of advancingthe theory and practice of global supply chain management. The Forum conducts research, develops teaching materials,collaborates with industry, organizes industry seminars and roundtables, and provides a forum for professional networking.For more information, please contact Ms Debbie Newman, Assistant Director, Stanford Global Supply Chain ManagementForum, Graduate School of Business, Stanford University, Stanford, CA 94305-5015; Tel: +1 650 723 4289; e-mail:[email protected].

Hau L. Lee is the Thoma Professor of Operations, Information and Technology in the Graduate School of Business, atStanford University. His research focus is on supply chain management and global logistics. He is currently a co-Directorof the Global Supply Chain Management Forum at Stanford University. He can be reached at Tel: +1 650 723 0514;e-mail: [email protected].

Seungjin Whang is the Jagdeep and Roshni Singh Professor in Operations, Information and Technology at StanfordUniversity’s Graduate School of Business. His research focus is on e-business, information systems and supply chainmanagement. He is currently the co-Director of the Stanford Global Supply Chain Management Forum. Seungjin Whangcan be reached at Tel: +1 650 723 4756; e-mail: [email protected].

Barchi Peleg is the Research Director of the Stanford Global Supply Chain Management Forum. She directs research ine-business, inventory modeling and supply chain management, and teaches global supply chain project coordination atStanford. Barchi Peleg can be reached at Tel: +1 650 736 1831; e-mail: [email protected].

Paresh Rajwat is a doctoral student in the Management Science and Engineering Department at Stanford University, anda research assistant for the Stanford Global Supply Chain Management Forum. His research interests are in supply chainmanagement and new product introduction. Paresh Rajwat can be reached at Tel: +1 650 704 7701; e-mail:[email protected].



©2003 Deloiite Consulting. All rights reserved.ISBN 1-892384-41-1

AcknowledgementsDeloitte Research and the Stanford Global Supply Chain Management Forum gratefully acknowledge the contributions tothis study from Michael Mitterer, Nadine Trinh, Richard Tully, Harry Wisniewski, and a number of other people at Deloitteas well numerous executives at General Motors. The study is part of a multi-year, global research program around demand-supply chain integration and digital loyalty networks by Stanford University and Deloitte Research under the direction ofHau Lee, Jin Whang, Barchi Peleg and Peter Koudal.

For Further Information, Please Contact

GLOBAL AUTOMOTIVE PRACTICE

PAUL WELLENER WIM VAESSEN KEVIN GROMLEYTel: +1 216 706 0281 Tel: +49 211 6211 0411 Tel: +81 3 4288 5005e-mail: [email protected] e-mail: [email protected] e-mail: [email protected]

RICHARD GABRYS KEES VAN DORP ALAN FLANDERSTel: +1 313 396 3250 Tel: +31 33 479 2726 Tel: +65 6530 5574e-mail: [email protected] e-mail: [email protected] e-mail: [email protected]

MICHAEL J. FRADETTE BILL FORSYTHE LARRY KOCHTel: +1 617 850 2040 Tel: +1 216 706 0212 Tel: +1 313 396 3234e-mail: [email protected] e-mail: [email protected] e-mail: [email protected]

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