Global automotive industries

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

INTEGRATING DEMAND AND SUPPLY CHAINS IN THE

GLOBAL AUTOMOTIVE
INDUSTRY
Building a Digital Loyalty Network at General Motors

STANFORD GLOBAL SUPPLY
Deloitte Research CHAIN MANAGEMENT FORUM

TABLE OF CONTENTS

Executive Summary ........................................................................... 1
The Effect of Automotive Digital Loyalty Networks .......................... 4
Demand and Supply Chain Challenges in the
Global Automotive Industry .............................................................. 7
Challenges Met: Building a Digital Loyalty
Network 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 Chain
Management Forum ........................................................................ 25

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

Executive Summary

Automotive executives are all too familiar with the issues troubling their industry
these days: From globalization and economic uncertainty to new technologies
and increasing consumer demands, they are facing major challenges that often
stand in the way of profitability and higher shareholder value. Industry experts
have gone so far as to proclaim that the business model for the automobile
industry is broken. As one leading industry insider put it in early 2002: “If you
don’t have a different business model going forward, you’re probably not
needed.”1
In response, beleaguered automakers around the world have scrambled to cut
costs while focusing on improved product quality and design. Moving quickly
and nimbly is imperative, yet the web of complexity in the industry, with its vast
networks of suppliers and distribution channels, as well as a long history of
bureaucracy, make it difficult for automakers to turn on a dime. They also
recognize the need to build stronger strategic relationships with suppliers, dealers,
and even competitors to get to market more quickly with the right product for
consumers 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 digital
technologies to integrate the demand and supply sides of the business. A DLN
allows automakers to recognize what customers want, identify customers by
value, and closely collaborate with suppliers to serve customers more profitably.
A recent study by Deloitte Research found that the 13 percent of manufacturing
companies that are pursuing a DLN strategy are up to 70 percent more profitable
than other companies (Figure 1). The study also shows that those same companies,
a group that we call Loyalty Networkers, excel in other areas of business
performance as well, including sales growth, market share, return on assets, and
return to shareholders.

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

FIGURE 1. DIGITAL LOYALTY NETWORKS QUADRANT

High Collaborators Loyalty Networkers

70% more
profitable

10%
(26%) more
profitable (13%)

Supply Chain
Collaboration
Market Takers Loyalist

54% more
(46% of profitable
Respondents)
100 = (15%)
base

Low Customer Loyalty High

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

SOURCE: DELOITTE RESEARCH

For the past few years, the automotive industry overall has been putting a number
of 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 supports
build-to-order (BTO) processes in addition to the traditional build-to-stock
(BTS) model. This allows automakers to respond better to customers who are
increasingly more knowledgeable and demanding about their preferred vehicle
configurations. But while BTO helps automakers to differentiate products and
meet specific customer needs, it does not help identify levels of customer
profitability that lead to the increased value that automakers are striving for.
With its added focus on customer profitability, a DLN goes further than the
BTO model. A DLN lowers costs and boosts efficiency for each member of the
automotive value network by integrating the supply chain and aligning its
priorities with the needs, wants, and value of each customer. Indeed, all
participants 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 benefit
from — the network than could be found by a competitive source outside the
network.


One of the U.S. Big Three automakers, General Motors, has already made great
strides in building a DLN. Endorsed by Rick Wagoner, GM’s CEO, and driven
by 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, supply
chain partners, and, ultimately, shareholders. As its name implies, a DLN includes
the three components GM is focusing on: “digital” for technology-enabled;
“loyalty” for a focus on customers and on increasing their loyalty and lifetime
value to GM; and “network” for coordinating and leveraging all supply and
distribution chain partners to serve those customers.
On the customer side, GM has implemented GM BuyPower and GM Owner
Center, two Web-based portals that, respectively, improve the buying experience
and serve as an ongoing resource for vehicle owners. Further increasing its touch
points 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 online
procurement portal, and its Order-To-Delivery program, designed to reduce
inventory and increase customer satisfaction and loyalty by delivering vehicles
faster and more reliably. The company is also making major headway in
collaboration efforts for supply chain management and product design and
development, as well as further improvements in CRM and logistics. GM is
integrating 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 improving
the 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 that
has destroyed, rather than created, value. Facing such issues as slow time to
market, costly inventories, overcapacity, and low customer satisfaction and loyalty,
automakers have launched numerous initiatives in attempts to boost profitability
and shareholder value. From product innovation and new services, to lean
manufacturing and customer relationship management, these efforts have
touched on many of the problems, but have yet to provide an overall answer on
how to enhance value.
One answer lies in the integration of these disparate efforts; namely, in integrating
the demand and supply chain sides of the business. Achieved through a model
known as a digital loyalty network (DLN), this approach uses digital technologies
to 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’s
most valuable customers, the ability to manage inventory across all types of
customers, and short- and long-term capacity planning that is responsive to
customer priorities. On the customer side, it means working with dealers to
understand “true” customer value based on their real requirements and total
supply chain costs to serve them.
To identify the benefits of a DLN strategy, Deloitte Research recently conducted
a study of more than 850 manufacturing executives in 35 countries to measure
their companies’ levels of supply chain collaboration and customer loyalty. The
standout results of this study involved a group we call Loyalty Networkers –
those companies that have integrated their collaborative supply chains with a
strong focus on customer loyalty. Our results show that Loyalty Networkers are
up 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 likely
to show superior sales growth, market share, return on assets, and shareholder
value as companies that do not combine supply chain collaboration with a
customer loyalty focus (Figure 3).
The study also highlighted a powerful result of a DLN: by combining supply
chain and customer loyalty efforts, all participants in the network will realize
increased value – what we call the “network effect.” This phenomenon means


FIGURE 2. PROFITABILITY AND LOYALTY NETWORKS

Collaborators Loyalty Networkers
High
170

110

Supply Chain
Collaboration
Market Takers Loyalist
145

100

Low Customer Loyalty High

Note: Average profitability of market takers = 100


FIGURE 3. BUSINESS PERFORMANCE AND LOYALTY NETWORKERS

Sales Growth

Market Share of
Primary Products in
Target Markets

Return to Assets
(Pretax)
Loyalty Networkers
Loyalists
Collaborators
Return to
Market Takers
Shareholders

0 5 10 15 20 25 30
Percentage of Companies with Exceptional
Performance on Goals

positive results for each member of the automotive value chain as they collaborate
to offer the right vehicle to the right customers at the right price, in the right
place, and in the right amount of time.
For automakers, the network effect delivers higher profitability through quicker
time-to-market, more appropriate vehicle content, and better-targeted
inventories. At the same time, there is less need for open price competition, and
automakers are able to upsell more profitable options and cut back on unwanted
and unprofitable ones. Automakers also work jointly with dealers to establish
long-term customer relationships, which results in a more loyal and profitable
customer base.


Suppliers in the network benefit from reduced order-to-delivery times due to
customer-focused product innovation and development. A DLN also allows
suppliers to collaboratively align production planning and execution and to better
utilize 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 profitable
cross-selling and service enhancement opportunities. Their marketing and sales
efforts, now loyalty-focused, are more efficient and less costly. And they see better
and more profitable product available from OEMs and suppliers. With demand
and supply chain integration, dealers can match more profitably different
customer demands with appropriate product — whether the product is inventory
on-hand, in transit, or built to order.
Customers enjoy greater satisfaction through streamlined and integrated on-line
and off-line sales and marketing channels, more personalized service, and
customized vehicle options, which means they only pay for the options they
request and value. Overall, customers see loyalty for loyalty — loyalty to a brand
that result in a better match of products, services, and price that’s right for them
because their loyalty matters to the OEM network.
Indeed, the network effect is self-perpetuating in that further value is realized as
each member of the value chain contributes to and enjoys the positive experience
of a DLN. By tightly linking supply chain and customer initiatives, success can
breed further success.


Demand and Supply Chain Challenges
in the Global Automotive Industry

By appropriately integrating the demand and supply sides of the automotive
value chain, a DLN addresses many of the issues automakers face today in dealing
with customers and supply chain partners.
Historically, the imbalance between the supply and demand sides of the auto
business has been a challenge for all members of the value chain. Consumer
demand for specific vehicles is uncertain and variable. At the same time, many
factors in supply planning and production—including fixed plant assets, a
unionized workforce, and fixed parts supply schedules—are inflexible and slow
to respond to changes in demand.
For many years, the industry has been stuck in a vicious cycle in which automakers
have focused on maximizing sales in order to optimize the utilization of their
capital-intensive plant assets and unionized labor force. Increasing plant
productivity has only exacerbated the problem for the industry overall. This
has led to excess dealer inventories and an inventory mix that is not necessarily
aligned with customer preferences, and thus requires higher sales incentives to
compensate 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

Erode Produce vehicles
margins to maximize
factory sales

Challenges of Current of Model
– Excessive structural cost
– Dissatisfied customers Customer
– Slow to respond compro-
– Lost revenue opportunities
How do we
mises
or walks
break the cycle?
away
Push to
dealers

Incent
to sell
Build higher
inventories

SOURCE: GENERAL MOTORS


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

Customer Side Challenges
In today’s highly competitive and technology-driven manufacturing environment,
the industry-wide generic, one-size-fits-all supply chain model with similar lead
times and service levels to all customers is no longer adequate. Not only does
this model create inefficiencies along the value chain, but competitive pressures
and changing customer expectations are forcing automakers to look for ways to
improve how vehicles are designed, manufactured, and sold. Leading automakers
such as GM are pursuing a DLN strategy to help build the capabilities to better
sense different customer demands, shifting preferences, and target dealer
requirements, and then respond by making and delivering a vehicle to order
within a shorter and more reliable timeframe than competitors. At the same
time, this approach helps ensure that the inventory in the dealer network, in
transit, and in plant is aligned most effectively with customers’ requirements
and profitable sales opportunities.
Indeed, to succeed in the automotive industry today, it is becoming increasingly
important 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 capability
to quickly translate customer requirements to the shop floor. According to Ralph
Szygenda, CIO of GM, “The first, and perhaps the most fundamental issue, is
that traditional automotive processes [still] do not fully meet customer-driven
requirements. [From a supply chain perspective,] products are too complex, and
design cycle times too long, to properly respond to the marketplace. Customers
should be able to configure their own vehicles, add options, select colors, and
understand how these decisions impact price and financing.”
The advent of the Internet has enabled OEMs to have a more direct relationship
with customers. Unlike the traditional model through which automobile dealers
were primarily responsible for managing customer relationships, this direct link
to customers opens doors to new marketing and sales opportunities for OEMs
and introduces speed in all operations. The Internet also has created significantly
different shopping and buying behaviors, giving customers more information
and, as a result, changing their expectations. The customer-focused approach of
a 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 a
number of issues relating to dealers’ inventory levels and the need to work with
dealers to develop new sales and distribution channels. Many large dealerships
have long preferred to maintain large inventory levels because they view inventory
as a competitive advantage that provides a buffer against demand uncertainty
and long replenishment lead times. Dealers and automakers alike have assumed
for some time that holding inventory would provide customers with the
maximum available choices immediately, letting potential buyers “touch, feel,
and engage with” a vehicle and thus make it unlikely a potential sale would walk
out the door. The “price” of dealer inventory, however, includes the financing of
excess inventory, maintenance costs, incentives to move unwanted inventory,
compromised customer choice, and inefficiency in the ability of the supply chain
to sense and respond.
New marketing, sales, and distribution channels such as the Internet and auto
supermarkets also are important avenues to explore, although automakers must
work closely with dealers to produce a win-win situation.

Supply Chain Challenges
One of the key supply chain issues facing automakers today involves long order-
to-delivery lead times and unreliable production schedules that lead to excess
inventory throughout the value chain. Lengthy demand planning cycles and
lack of visibility to supplier, material, and production constraints cause scheduling
delays and short-term production changes. These problems drive automakers
and suppliers to build up buffer inventory and limit their ability to flexibly react
to changes in customer demand. Under these conditions, suppliers are unable to
sense customer orders and manufacture solely on schedules with 12-16 weeks of
lead time. Constrained, inflexible production and assembly capacities and long
delivery lead times also contribute to high dealer inventory levels in the form of
safety stock.
Another supply chain issue that automaker face, especially in the U.S., relates to
vehicle content. Over the years, foreign automakers, primarily those from Asia,
entered global markets with higher-content vehicles (i.e., with many options
included as standard equipment) as one way of overcoming the customization
constraint 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 – rather
than pay for “standard” options they don’t need – and the entire automotive
supply chain is trying to respond to this shift.
Other supply chain issues that the automotive industry is working to address
include a lack of collaboration in product development, which can lead to product
development cycle times of more than 48 months. Communication channels
between OEMs and other supply chain partners remain manual in many cases.
This is especially true with small suppliers unable to afford an investment in
electronic data interchange (EDI) technology that is used between OEMs and
their larger suppliers.


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


Challenges Met: Building a Digital
Loyalty Network At General Motors

General Motors is making great strides in building a DLN to deliver new levels of
value to customers, suppliers, and shareholders. GM is focusing on the three areas
that make up a “digital loyalty network”: “digital” for a focus on IT; “loyalty” for a
focus 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 distribution
chain partners, dealers, and final customers.

Laying the Foundation
In efforts to improve and integrate its demand and supply chains, GM has made
significant progress in streamlining its IT operations – a feat that laid considerable
groundwork for building a DLN. In the mid-1990s, information systems at GM
had proliferated, but most of them were antiquated, isolated “silos” of information
that did not integrate data flow across the enterprise. For example, marketing data
researched by one GM marque was difficult to share with other parts of the
organization. Design engineering used 22 different engineering systems that
threatened collaboration among the global product development staffs. In all, the
company had more than 7,000 discrete information systems.
Over time at GM, billions of dollars had been invested in various IT systems and
initiatives. What’s more, value chain partners had systems of their own: dealers had
their own dealer management systems (DMS) and suppliers had their own IT
systems to communicate with GM and other customers. Integrating those disparate
systems 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 executives
about the strategic importance of IT. Each business unit now has a chief information
officer (CIO) who reports to the business unit president, and process information
officers (PIOs) have been assigned throughout the organization to quickly assimilate
technology initiatives into GM’s core business model (Figure 5). PIOs are responsible
for the design, development, and implementation of major business processes in
product development; production; sales, service, and marketing; business services;
and the supply chain to drive common solutions across those units. The PIOs
identify business, functional, and technical requirements, build key business
processes, and integrate them across functional and geographic areas.


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

Sector Sector Sector Sector Sector GM CIO Sector
President President President President President R. Szygenda President

Geography

Asia Pacific GME NA LAAM e-GM GMAC FS
IO IO IO IO IO IO

Global Processors Technology
and Systems
Application
Process Integration Solution Delivery
and Quality
Assurance

Global Services
Develop Product Delivery
IO
Strategy
Planning
Global Technology
Human
Produce Product Management
Resources
IO
Contract
Management
Customer Purchasing
Experience IO
Legal

Supply Chain Finance
IO

Business Services Legend
IO GME: GM Europe
(Finance, HR, Legal, Comm., LAAM: Latin America, Africa and Middle East
EAG, Public Policy) GMAC: General Motors Acceptance Corporation
EAG: Enterprise Activities Group


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 gain
three times the bandwidth for wide area networks (WANs) and 30 times for
local area networks (LANs). Middleware applications are being inserted to make
systems talk to each other and link disparate systems to extract information
from formerly mutually incompatible legacy systems. Systems are also being
standardized. For example, GM now has just one computer-aided design system
worldwide, whereas at one time there were more than 20. The organization’s
vast numbers of information systems are being consolidated into a few with
standardized inputs and outputs, the same data structures/data formats, standard
software and hardware application architectures, and common communication
interfaces.
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, probably
more than any other company in the world. We overlaid those things on top of
this infrastructure to change the business. By the way, it cost GM nothing. We
funded all of this transformation with all the e-business movement and still
gave back $2 billion to the company.”


Customer Relationship Management Initiatives
GM’s primary focus area on the customer side is to develop stronger one-to-one
relationships with customers. By personalizing interactions and aligning vehicle
content with expectations, GM’s customer-centric approach offers new levels of
service 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 alternative
sales 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. By
consolidating its vast enterprise customer management (ECM) databases – not
to mention some 150 Web sites and 63 call centers – GM has put into motion
its strategy of being able to capture valuable information with each customer
interaction. 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. Better
customer knowledge leads to more profitable customer acquisition and greater
loyalty, which leads to richer customer information, and so on.
This initiative also allows GM to track customers over time as they move across
brands, locations, and GM businesses (finance, mortgage, and so on). Tracking
customer touch points and mapping that to the customer’s age, income, and
other factors help GM to anticipate where the customer may be next (Figure 6).

FIGURE 6. AGGREGATING CUSTOMER TOUCH POINTS

Customer Outside
Care Purchased
Data and
Web Legacy
System
Call Center
Data Security and Consumer Privacy Protection

Direct Mail
E-Mail Customer
Fulfillment Centers Information Data
Warehouse
Interactive Vehicles Customer
Real-Time Analytic Data Mart Marketing
Marketing Contact and Lead
GM Events and Shows Management Management
Customers Data Base Data Base
Field and Fleet
Commercial Sales
Business Intelligence
Retailers and GMAC Marketing Program
Predictive Modeling
Branch Offices Automation
Reports and Measures
Service Desk
Category Management
After Market P&A Service Planning Execution
Analysis, Data Mining
and Insight Creation
Direct TV

Marketing Sales



In essence, integrating customer data allows GM to better leverage its broad
shelf of brand offerings. By integrating customer data among different business
units and complementary businesses such as car financing and insurance, GM is
better able to match customer requirements across the product offerings of
different 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 addressing
customer demands concerning vehicle delivery. Assuming that customers want
“quick delivery,” many automobile companies have begun initiatives to enable
two- to three-day delivery. However, market research reveals that such a broad
assumption is off-base—in fact, customers have widely varying and personalized
expectations when it comes to such order fulfillment attributes as lead time,
delivery reliability, and the importance of getting exactly the desired vehicle
configuration. What customers really value is that they get the car they want, at
the desired time and desired price. In many instances, customers also have to sell
an existing vehicle and get the appropriate financing lined up. Many customers
will wait for a certain amount of time and some even might pay premiums to get
their preferred vehicle. Most customers’ ideal wait time is somewhere between
one and eight weeks. So what is really needed is a differentiated value proposition
and supply chain response for each customer to build loyalty where it matters
and to maximize long-term revenue potential. This will ensure optimum customer
satisfaction as well as the most profitable use of costly and constrained supply
chain capabilities.

New Channels: Harnessing the Power of “e”
In collaboration with dealers, GM has developed a Web-based channel that not
only allows customers to search for desired vehicles but also provides GM and
dealers with rich customer information. Called GM BuyPower, the portal offers
consumers the best of two worlds – an integrated online channel and the
opportunity for a more personalized offline dealer experience (Figure 7). Using
GM BuyPower, customers may search for their nearest or preferred dealer, view
“unbiased” third-party comparisons, get incentive information, request the dealer’s
best 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 personalize
their responses with appropriate offerings.
Today, GM BuyPower is the most frequently visited automotive OEM Web site
in the world. Upon completion of global deployment in 2003, GM BuyPower is
targeted to reach 3.5 billion of the world’s 6 billion people in a language they
understand and with familiar GM products.
GM BuyPower also strengthens the “shopping” and “buying” aspects of the GM
purchase funnel (Figure 8). This funnel includes all of the steps a customer
takes 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, Kelly
Blue 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 an
increasing number of customers to consider purchasing GM vehicles. GM
BuyPower provides an aid for customers who are close to purchase and is designed
for customers to choose (shop) the dealer as well as the vehicle. It also serves as
an ongoing communication link to customers in the ownership phase, after
purchase, 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 is
designed to serve as a link between the customer and supply sides of GM. By
using the click-stream data from GM BuyPower, GM can sense market demand
and respond accordingly.
Further leveraging Internet technologies to reach customers in new ways, GM
has also built a Web-based tool for post-purchase customer care called GM Owner
Center (Figure 9). Using GM Owner Center, customers may create personalized
profiles of all GM vehicles they own. These profiles provide vehicle information,
trigger maintenance reminders, and track service history. Customers also get
access to digital versions of their owner’s manuals, informative videos of
procedures outlined in the manuals, and other helpful features such as service
center locations—as well as incentives for participating in the site.

FIGURE 8. AUTOMOBILE PURCHASE FUNNEL

Purchase Funnel

Ownership Phase

Owners
Owners Owners Last 6
Aware Consider Shop Buy 1-6 months 6 months months of
Post Sale –X years ownership Reenter
Market



FIGURE 9. GM OWNER CENTER


Direct Links to Customers with Telematics
In another effort to establish a direct link with customers, GM envisions every
vehicle to become part of a limitless, wireless telecommunications network.
Leveraging its telematics service, OnStar, GM is on the way to making the vehicle
another critical node on the information highway, allowing the company to
interact 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 via
Virtual Advisor. OnStar subscribers have the ability to remotely unlock a car
door if the keys were accidentally locked inside, or to summon assistance for a
disabled vehicle. With more than 10 million customer interactions in five years’
time – and some 5,000 new customers enrolling every day – GM’s OnStar service
provides the company another way to improve its customer reach. GM also
continues to explore the integration of additional new services, such as XM
satellite radio.

Supply Chain Management Initiatives
GM understands that to reap the real benefits of customer side initiatives, the
back end of the supply chain has to be robust, flexible, and responsive. Investing
in front-end initiatives is not much use if a company does not have strong internal
capabilities and effective supplier networks. To that end, GM has been doing
plenty of work on the supply side, especially in supporting and enabling initiatives
that allow vehicles to be built to order, and in improving and supporting
communications and collaboration capabilities across GM’s vast network of
suppliers, distributors, and dealers.
In response to increasing customer demands and moves toward increased
profitability, the automobile industry overall has begun to migrate from being
primarily 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


increasing demands of customers in the growing digital environment. As a result
of this initiative, a new department called Order-to-Delivery has been formed
to address GM’s supply chain issues. The OTD organization has more than
5,000 employees and is divided into three cross-functional groups – order
fulfillment, supply operations, and logistics. Together, these groups are responsible
for all OTD processes, whether the underlying vehicle was built-to-stock or
built-to-order. The order fulfillment team is responsible for working on customer
facing, “sense and respond,” and planning activities. The supply operations
group focuses on internal plant activities and the movement of materials, material
communication, and visibility with suppliers. The logistics team is responsible
for transportation and delivery of vehicles.
The OTD capabilities at GM are designed to provide dealers and customers
with 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 loyalty
by delivering vehicles faster and more reliably. GM has made tremendous strides
in meeting those goals around the globe. Average delivery lead times for all GM
vehicles have been reduced by 50 percent in just two years – from more than 80
days prior to 2000 to just over 40 days. At the same time, delivery reliability has
jumped from 68 percent to 90 percent. As another key component of GM’s
DLN, OTD is strengthening the link between engineering, manufacturing,
dealers, and customers and to allow GM to work more collaboratively with
suppliers.

Shoring Up Communication in the Supply Chain
The Internet is replacing most conventional modes of communication, allowing
companies to collaborate and link up with their suppliers as never before. GM
executives estimate that about 68 percent of direct materials procurement will
be done via the Internet by 2004. OEMs are using the Internet to connect to
their multiple tier suppliers and communicate more effectively.
Given that quick, reliable communication across the supply chain is a requirement
of 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 to
purchasing, sourcing of materials, quality and production control, logistics,
engineering, and manufacturing. GM SupplyPower helps GM reduce operations
costs, contributes to speeding up the vehicle development process (VDP) via
engineering collaboration, improves supplier quality and responsiveness, and
improves supplier communication relative to product schedules and capacity
plans.
By leveraging long established relationships with supply side partners, private
exchanges like GM SupplyPower enable deep integration with trading partners’
back-end systems. And, as a private exchange, GM SupplyPower also maintains
and protects GM’s unique business processes. However, to make procurement
of commodity items more efficient, to reach the globally fragmented community
of suppliers with whom GM has intermittent business relations, and to have the


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 also
acts as a gateway to supplier applications. Through web-enabled applications, suppliers directly interact
with GM to complete a variety of business transactions. Ultimately, the GM SupplyPower portal will be the
primary 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 programs
and their suppliers.
• Material Power: To communicate and collaborate with GM’s supply base in the area of production
control 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 collaboration
between GM and its suppliers. The content library includes over five hundred useful documents to assist
suppliers 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 SupplyPower
also hosts several web-enabled applications that can be accessed by suppliers.

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

FIGURE 11. COVISINT SOLUTIONS

Procurement Supply Chain

Covisint

Collaborative Product Value Added
Development Services

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 and
efficiency through collaboration, visibility, and integration. Following are the solution suites offered by
Covisint (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 exchange
with one protocol, so suppliers that go through the exchange do not have to deal
with different standards and different systems while dealing with each automobile
OEM.
Covisint’s architecture and language are enabling GM, other OEMs, and suppliers
to 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 began
as a central procurement hub, connecting hundreds of customers to thousands
of suppliers, but now offers supply chain and product development collaboration
solutions as well.
GM and other major worldwide automakers have been effectively using Covisint
for direct and indirect material procurement, calling for supplier requests for
quotes (RFQs), forward and reverse auction of machinery and equipment, and
putting product catalogs online. In 2001, GM alone procured about $25 billion
worth of material via Covisint. Using Covisint, GM and other major automakers
have linked directly to thousands of suppliers on the exchange and significantly
reduced the number of paper and EDI transactions.
GM is also initiating a pilot program at GM assembly plants in North America
that uses Covisint fulfillment functionality to provide simultaneous real-time
connectivity with multiple tiers of critical supply chain partners. This allows
real-time visibility of inventory levels (raw materials, work-in-process, finished
goods at partner and OEM sites), parts usage history, forecasts, in-transit
inventories, receipts, and other relevant information between manufacturers and
suppliers. Covisint’s product development solution, with its virtual project
workspace, allows members of the network to exchange and work collaboratively
on computer-aided design (CAD) drawings and designs. Overall, Covisint
promises to help reduce inventory, allow automakers to respond faster to market
dynamics, and speed up vehicle development times. And, together with GM
SupplyPower, Covisint provides GM with strong and flexible capabilities across
a range of sourcing, procurement, and product development areas.

FIGURE 12. TRANSITION TO HUB AND SPOKE MODEL
Tier 2

Tier 1
Tier 1
Tier 2 Tier 2
Purchase

OEM Tier 1 Covisint Tier 2

Other
Exchanges OEM

Tier 2


Inventing New Practices in Logistics
To further tighten the supply chain, GM is also working to streamline its logistics
operations. To ship its daily production of 35,000 cars to more than 12,500
dealers worldwide, GM in recent years has been spending about $6 billion
annually on logistics operations, using multiple third-party logistics providers
(3PLs) to manage its inbound and outbound logistics activities. But the company
hasn’t been seeing acceptable payback on that $6 billion: Lack of communication
and coordination between third-party logistics suppliers has often led to unreliable
order 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 pounds
of material is shipped every day from 12,000 suppliers globally. The changing
supplier base makes optimizing delivery routes difficult, and the lack of visibility
into inventory levels at different locations (such as supplier finished goods and
vehicles in-transit) makes materials planning very challenging.
Realizing that it needed a “super-3PL” that could centrally manage multiple
3PLs and reduce cost and delivery lead time in each segment of logistics, GM
formed an alliance with CNF, a logistics company providing global supply chain
services, and incorporated a new company, Vector SCM, to manage GM’s vast
logistics network.
By integrating all 3PLs into one information system, Vector SCM offers real-
time carrier management and improved visibility of all materials and vehicles
moving within GM’s supply chain. This enables GM to track and trace shipments
via the Web and to manage shipments by exception. To better manage GM’s
service provider network, logistics control centers act as command centers. These
centers are equipped with and linked together by the latest IT to provide visibility
to track GM’s assets – raw materials, empty racks, finished vehicles, or service
parts - and to locate all carriers. The resulting improved information flow,
reliability, and flexibility of GM’s production and distribution systems lead to
better 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 of
customers through end suppliers – GM has made great progress in building a
DLN. Recognizing the power of such integration, GM is weaving the strategy
throughout the entire GM business web, a vast infrastructure of all of the
company’s constituencies: suppliers, dealers, employees, alliance partners, and
customers (Figure 13).

FIGURE 13. GM’S BUSINESS WEB

Customer
Home/
Office

Employee Customer
GM Auto
Value
Chain

Dealer Supplier


As GM has seen, a major capability on the demand side of its efforts – capturing
and sharing customer demand information across the network – brings new
efficiencies throughout the entire value chain. According to Brad Ross, GM’s
executive in charge of OTD, “All members of the network are able to make
modifications to their plans to support what the market really wants as opposed
to what we had thought they wanted.”
A better understanding of customer demands is one side of GM’s success in
building a DLN. Better communications and teamwork with suppliers is another.
To that end, GM’s efforts in building a DLN support the philosophy recently
outlined by Bob Lutz, GM’s chairman of North American operations. Lutz
says, “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 its
September 2000 launch of the Chevrolet Celta in Brazil. The launch of
the Celta, a sub-economy car produced at the Gravatai assembly plant
in Brazil, presents one of the first high-volume, Internet-based sales
models in the industry. Consumers may access the Celta’s Web site from
their own PCs or from a kiosk at one of more than 470 Brazilian Chevrolet
dealers. From the site, customers can configure the Celta of their choice,
select a payment option, make the purchase, and confirm delivery of
their vehicle.
Using digital technologies, the network integrates all aspects of the
demand 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 schedules
to match end-customer demands. Also, with production and distribution
facilities receiving real-time information via the Web, they can speed up
delivery and better forecast production needs.
Customers receive the car of their choice, in just 11 days on average, and
at a lower price because of the tax benefits of purchasing online. Dealers
are highly satisfied as well. They see lower costs through lower inventory
levels and the potential for further sales through accessorization of the
vehicles at the dealerships. Indeed, inventory pooling between the factory
and dealers optimizes vehicle availability and minimizes inventory costs,
including capital and depreciation costs. Dealers also continue to see
high levels of customer traffic, with 90 percent of online Celta transactions
completed at dealership kiosks – ensuring face-to-face communication
with the customer and opportunities for dealers to further build customer
relationships.
Just 16 months after its launch, more than 110,000 Celtas had been
sold, with 70 percent of those vehicles sold online. The streamlined
processes of the DLN model have not only lowered costs through lower
inventory and taxes, but also allow GM to more accurately predict profit
margins. This model shows the network effect of a DLN in action, with
all 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 to
use technology to create a better retail experience, and the learnings from
Celta could be applied worldwide.”


us get to the point where we can see a visible improvement in the…quality of
our products. To do that, we have to encourage frequent and open
communications.” Frequent and open communications with suppliers is indeed
one more capability enabled by GM’s initiatives.
Combined with initiatives underway in other parts of the organization such as
product development and manufacturing, GM’s demand and supply chain
integration efforts are leading to quantifiable results, most notably in the areas
of higher customer loyalty, reduced delivery lead times, and higher delivery
reliability, while maintaining or increasing market share in a fiercely competitive
global automotive industry.
The latest standings for R.L. Polk & Co.’s Automotive Loyalty Awards2 showed
that more customers returned to GM to buy and lease vehicles than any other
automaker. According to Polk’s findings, 65.2 percent of GM vehicle owners
that returned to market in 2001 repurchased a GM vehicle, the highest loyalty
percentage in the industry and 11 points higher than the industry average. On
the supply chain side, a 50 percent reduction in delivery lead times and 32
percent improvement in delivery reliability over the last two years are further
signals of progress. As GM continues its launch and roll-out of new, innovative
cars and trucks and builds on the business model it is putting together, its
performance is likely to improve further. While some of the initiatives GM has
taken yield immediate benefit (see Box “Putting the Model to Work: The
Chevrolet Celta”), many of the results from the overall move toward strengthening
the customer experience, enhancing customer satisfaction, and building customer
loyalty 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 industry
can be three years or longer, suggesting that many benefits will take at least that
long to materialize.
Fundamentally, a DLN is all about satisfying different customer needs with
differentiated supply chain capabilities, which increases value for all members of
the network. And in helping to improve the automotive industry business model,
a DLN allows automakers to move from the transaction mindset of selling a car
to a relationship mentality based on the desire to offer a customized stream of
products and services to meet customers’ needs over a lifetime. By better
recognizing what customers want, identifying the most valuable current and
prospective customers, developing the right product portfolio, and then closely
collaborating with suppliers and dealers to make the model work, GM can
continually improve the model and reap the benefits of increased loyalty and
bottom-line profitability of an automotive digital loyalty network.


End Notes
1
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’s
Manufacturer Loyalty Excelerator™ report. This report was created to provide
household loyalty information to manufacturers at many different levels. It is
now used to provide loyalty percentages for the entire automotive industry and
allows for cross-industry comparisons of loyalty behavior. R.L Polk collects,
compiles, and interprets state vehicle registrations and title information, and
supplies demographic, lifestyle, and other information about consumers. The
report measures loyalty throughout the entire model year so that manufacturers
may keep abreast of loyalty trends as they occur in the industry.


About Deloitte Research
Deloitte Research identifies, analyzes, and explains the major issues driving today’s business dynamics and shaping tomorrow’s
global 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 their
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perspective to real-world concerns.
For more information about Deloitte Research, please contact the Global Director, Ann Baxter, at 415 268 1026 or via
email: abaxter@dc.com.
Peter Koudal is Director, Deloitte Research—Manufacturing Institute. He leads the global manufacturing research and
focuses 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 Supply
Chain Management Forum. Peter Koudal can be reached at Tel: +1 212 492 4275; e-mail: pkoudal@dc.com.

About the Stanford Global Supply Chain Management Forum
The Stanford Global Supply Chain Management Forum is an industry-academic consortium with the mission of advancing
the 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 Management
Forum, Graduate School of Business, Stanford University, Stanford, CA 94305-5015; Tel: +1 650 723 4289; e-mail:
newman@cdr.stanford.edu.
Hau L. Lee is the Thoma Professor of Operations, Information and Technology in the Graduate School of Business, at
Stanford University. His research focus is on supply chain management and global logistics. He is currently a co-Director
of the Global Supply Chain Management Forum at Stanford University. He can be reached at Tel: +1 650 723 0514;
e-mail: haulee@leland.stanford.edu.
Seungjin Whang is the Jagdeep and Roshni Singh Professor in Operations, Information and Technology at Stanford
University’s Graduate School of Business. His research focus is on e-business, information systems and supply chain
management. He is currently the co-Director of the Stanford Global Supply Chain Management Forum. Seungjin Whang
can be reached at Tel: +1 650 723 4756; e-mail: whang_jin@gsb.stanford.edu.
Barchi Peleg is the Research Director of the Stanford Global Supply Chain Management Forum. She directs research in
e-business, inventory modeling and supply chain management, and teaches global supply chain project coordination at
Stanford. Barchi Peleg can be reached at Tel: +1 650 736 1831; e-mail: barchi@stanford.edu.
Paresh Rajwat is a doctoral student in the Management Science and Engineering Department at Stanford University, and
a research assistant for the Stanford Global Supply Chain Management Forum. His research interests are in supply chain
management and new product introduction. Paresh Rajwat can be reached at Tel: +1 650 704 7701; e-mail:
prajwat@stanford.edu.


Acknowledgements
Deloitte Research and the Stanford Global Supply Chain Management Forum gratefully acknowledge the contributions to
this study from Michael Mitterer, Nadine Trinh, Richard Tully, Harry Wisniewski, and a number of other people at Deloitte
as 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 of
Hau Lee, Jin Whang, Barchi Peleg and Peter Koudal.

For Further Information, Please Contact
GLOBAL AUTOMOTIVE PRACTICE
PAUL WELLENER WIM VAESSEN KEVIN GROMLEY
Tel: +1 216 706 0281 Tel: +49 211 6211 0411 Tel: +81 3 4288 5005
e-mail: pwellener@dc.com e-mail: wvaessen@dc.com e-mail: kgromley@dc.com

RICHARD GABRYS KEES VAN DORP ALAN FLANDERS
Tel: +1 313 396 3250 Tel: +31 33 479 2726 Tel: +65 6530 5574
e-mail: rgabrys@deloitte.com e-mail: KvanDorp@deloitte.com e-mail: aflanders@deloitte.com

MICHAEL J. FRADETTE BILL FORSYTHE LARRY KOCH
Tel: +1 617 850 2040 Tel: +1 216 706 0212 Tel: +1 313 396 3234
e-mail: mfradette@dc.com e-mail: wforsythe@dc.com e-mail: lkoch@deloitte.com

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

26 Deloitte Research – Integrating Demand and Supply Chains in the Global Automotive Industr y
Deloitte Research – Integrating Demand and Supply Chains in the Global Automotive Industry

Global automotive industries

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