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Detroit Shifts Its Supply Chain Into i-Gear
A look at how the automobile industry has embraced the Internet--and radically changed the way it does business.
Posted Sep 1, 2000
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The automotive industry has always provided the classic example of the traditional supply chain scenario: supplier to manufacturer, manufacturer to dealer, dealer to customer, supplier to dealer or customer, and on and on. This labyrinth of relationships and transactions is long-standing, acting as the tried-and-true skeleton that supports the entire industry.

The Internet, however, is now reducing this skeleton to a useless pile of bones. Not since Henry Ford invented the assembly line has any technology or process so drastically altered the way the auto industry operates. And it's not confined to much-discussed online auto sellers. To the occasional chagrin of some of the parties involved, it's making interactions between all parties along the supply chain more efficient.

"The Internet affects anything that automobile manufacturers and dealers do and all of the communication that is going back and forth between them," says Scott Crompton, director of automotive practice at SeraNova, a global Internet services firm that counts such major auto makers as Volkswagen (VW) and Audi among its clients.

The New Rules
Recent initiatives by the Big Three (General Motors, Ford and DaimlerChrysler) and other major automakers reflect the extent to which this most traditional of "old economy" industries is now embracing the Internet as a fundamental business process tool.

In a groundbreaking act that raised eyebrows among anti-trust watchdogs, General Motors, Ford and DaimlerChrysler recently agreed to form a single online business-to-business (B2B) trading network. The new exchange will link more than 30,000 suppliers, representing hundreds of thousands of online transactions each year. Smaller auto companies, such as Hyundai, also moved many business processes online (see "Objet Part," this article).

Despite a recent damning report from Consumer Reports on the current state of online auto sales, Web-based auto traders like Cars.com, AutoNation.com and AutoDirect.com report a steadily increasing shift of sales from the showroom to the desktop computer. Forrester Research estimates that by 2003, nearly 8 million new-car purchases will be influenced by the Internet; of these, half a million will be transacted entirely online.

The major automakers take steps toward selling directly to customers via the Web, bypassing the traditional manufacturer-dealer relationship. Auto dealers counter by forming their own online selling exchange through the National Automobile Dealers Association at NADAdealers.com. The NADA also fights a state-by-state battle to keep auto manufacturers from cutting out car dealer middlemen.

As one might expect, these and other Internet-related initiatives heavily impact the entire supply chain. Because of the efficiency and affordability of online B2B tools and processes, the traditional processes become streamlined, which in theory benefits everyone--particularly the customer.

The Branding Chain
Audi of America found that a Web distribution tool connecting dealers with headquarters solved a major problem it had distributing consistent marketing materials to dealers in time for fall deadlines."We had this archaic distribution system," says Jim Bourdganis, regional advertising manager, "We first contacted our ad agency to get the materials, then burned them onto CD-ROMs, packaged them and finally put them in the mail for distribution to our dealers. Every time we updated the materials, we had to repeat the process."

The new tool designed by SeraNova, a global Internet professional services firm, lets the company upload new advertising materials to a secured place on its Web site, where dealers may then access and download them. Dealers can only add pricing, leasing, dealer location and other information specific to their individual needs. Because no other parts of the ads can be altered, Audi maintains consistent brand messaging.

Something for Everyone
Whether that customer is a dealer working with a manufacturer to promote the fall lineup or an individual who wants to avoid driving from lot to lot and shop for a new car online, the Internet delivers efficiency at all points in the process.

Crompton offers Volkswagen's new online system as an example of how the entire supply chain can benefit from the Web. Working with its network of North American dealers, VW designed an Internet tool that facilitates a customers' needs (car selection, financing), as well as the dealer's (qualified leads, inventory management and financing) and the manufacturer's (greater customer loyalty, dealer involvement, manufacturing and supply efficiencies).

Says Crompton, "In the auto industry, the Internet is letting the customer manage the relationship. Instead of CRM, think of 'CMR.'"

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