The industry's chronic inability to accurately gauge customer demand for styles and option packages, particularly among domestic mainstream imprints, is leading to frustration.
Posted Jul 26, 2004
A new paper from AMR Research, "Applying DDSN Correctly Can Shift Companies From Laggard to Braggart," examines how leaving the customer out of the loop when making manufacturing decisions can lead to disastrous inefficiencies, a scenario now being played out in the automotive industry. Huge incentives are not cutting down vast unsold inventories running billions of dollars over average. The industry's chronic inability to accurately gauge customer demand for styles and option packages, particularly among domestic mainstream imprints, is leading to frustration everywhere, from Detroit to the dealer floor. According to AMR findings, up to one in 20 buyers simply do not find a car they would wish to purchase at any price.
Manufacturing decisions are often made inefficiently, the report says, because supply chain partners spend too much effort trying to forecast the demand of their immediate downstream customer, rather than focusing on the "true demand": the end customer whose purchasing decisions ultimately drive the entire manufacturing operation. That level of understanding requires the ability to accurately and completely share customer-demand data throughout the supply chain, a capability that was meant to become easier with the integration of front-office CRM and back-office ERP systems, but still remains elusive.
"People [in the car industry] treat CRM as a dealer-services segment," says Kevin Mixer, research director at AMR Research. "It is not necessarily being fully integrated into the product life cycle." That imbalance is at least as much a problem of attitude as it is one of technology, Mixer says, as dealers tend to resist sharing customer information upstream. "This starts impacting the supply chain when you don't have a real good, solid model of what the true demand is," he says. Among those companies that have built closer collaboration with dealers, such as Honda, Toyota, and Nissan, the rate of mismatches between customers and vehicles is as much as five times lower.
AMR's DDSN (demand-driven supply networks) researchers largely tailor their message to executives focused on supply chain operations, but the lesson from the automotive industry resounds for other manufacturers as well: Understanding customer behavior is the critical first step to improving the speed, accuracy, and dexterity of meeting customer needs.
"The ability to estimate what demand will be helps to shape or restructure your profitability on a particular product," Mixer says. "Those companies that can profile that customer much more accurately than their competitors have a much higher probability of meeting demand than their competitors."
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