Push is on to shorten leadtimes for custom car orders
An employee works on the chassis of a Camry Solaras at Toyota Motor Corp.'s manufacturing plant in Cambridge, Ontario.
By Brian Milligan -- Purchasing, 10/7/1999
Some automakers are trying to pick up the pace when it comes to building a customized vehicle. It's a trend that promises to lower costs in the supply chain but continuously make things more challenging for purchasing professionals and the suppliers they manage."The problem now is with last-minute changes, whereby a supplier gets a production order and then it is changed," says Dennis Virag, president of The Automotive Consulting Group in Michigan. "That causes derailment and havoc in the system. It happens quite frequently now."
Toyota Motor Corp. made headlines recently when a representative said the company is taking steps to quicken the time it takes to build customized Camry Solaras at its manufacturing plant in Canada. Real Tanguay, a vice president of Toyota's manufacturing plant in Cambridge, Ontario, described what he called "Toyota's next-generation just-in-time logistics system." Speaking at an industry conference in Traverse City, Mich., Tanguay said Toyota has developed a way to produce a car within just five days of receiving a custom order. The system depends on sophisticated software that allows designers to create "virtual production lines" 15 days in advance of actual production. This system calculates exactly how many of a particular part will be needed at specific points on a production line to assemble certain cars. The information forms the basis of provisional orders to the plant's suppliers.
In a day and age when it can take four to six weeks to build a customized car, Toyota's assertion was nothing less than startling.
A quick order
The system would make short order-to-manufacture time possible. Tanguay says customers would be able to place an order, then receive the finished car in just five days.
But Greig Mordue, manager of corporate affairs for Toyota Motor Manufacturing in Canada, tempered Tanguay's assertions. He says the company cannot produce a car in that time. "It was perceived as something it wasn't," he says about the new system.
Mordue says that in order for such a system to work, people would be able to walk into a dealership and order a custom-built car. They then would watch as the order would go through Toyota Motor Sales USA and be sent to Canada. Suppliers would then be contacted and told to come up with specific supplies for the car. Those supplies would be shipped to the manufacturing facility, and the car would be built. The finished car would then be loaded onto a train and shipped back to the dealership in the United States. All in five days.
An impossible task
And all impossible to do. "That couldn't happen," Mordue says.
In fact, Mordue says Toyota's system will take much longer than five days. But it still will represent a shortened leadtime. "We think it's not that big a deal," he says. "It's an interesting accomplishment for us, and it's related to our efforts to reduce the time between when we receive weekly orders from Toyota and start making the car."
The process, called Logistics Continuous Improvement, will allow Toyota to start working on the car five days after an order is made. Mordue says the system is aided by sophisticated software that provides suppliers with expedited information on supply needs. So, according to this scenario, an order is given at a dealership; five days later, the manufacturing facility begins making the car. The finished vehicle is then shipped out.
Toyota is not the only company that wants to put a little speed in its ability to make customized orders. General Motors Corp. recently placed one of its top executives in charge of a drive to cut the time it takes to turn customer orders into vehicles. Harold Kutner, who had headed up GM's global purchasing for several years, will help the company reduce order-to-delivery times.
Difficult improvements
But some automakers now argue that it's getting harder and harder to make any improvements on custom car building leadtime. At the California-based Nissan North America, for example, dealers are offered a Market Allocation Plan. According to the plan, dealers can place orders for fully accessorized cars in a 90-day advanced order. They can make changes to some of these cars and strip away certain options in a limited time period, usually a week.
"But generally, it's getting a little more difficult to quicken the leadtime," says Scott Vazin, corporate manager of public affairs for Nissan North America. "I'm sure you'll see improvements, but I doubt you'll ever see anything in five days."
Michael Suman, group vice president of marketing for the Michigan-based Johnson Controls, agrees that improvements can be made to leadtime systems. But the company, which pumps out supplies for some 22 million vehicles each year, also is realistic.
"The fact is, we need to speed up as an industry, not only as an OEM but also as a supply base," he says. "But we can only go so fast. It takes so much time to do a car, with federal mandates regarding emission, fuel economy, crash."
Still, Mordue says Toyota's streamlined leadtime is definitely an accomplishment. "Anything you can do to streamline this system is major," he says.
Mordue says Toyota has implemented several "kaizens," a Japanese term for small, incremental improvements. "We tend not to make major, wholesale changes, but to make minor adjustments and improvements and tweak the system as we go," he says. "Any small improvement can add up to major cost savings."
The kaizens, other than the logistics software, include improvements to Toyota's distribution system, reduced supply inventory, and increased pickup frequency at cross docks. It presently takes seven to 10 days to ship a finished vehicle to a customer. Mordue says these improvements will help Toyota's process. "But I can't give the exact number of days this will save on leadtime."
He also says Toyota fully expects the competition to take note of the system, even if it is not as dramatic as originally thought.
"We're all competitive," he says. "We'd be surprised if all our competitors weren't seeking improvement. If we do this, we fully expect our customers to seek that."
Instant gratification
Bill Windle, vice president of the Chicago-based A.T. Kearney, a consulting firm, agrees that the ongoing effort to shorten leadtime is a natural direction in this age of instant gratification. From computers to cars, people want things built their way quickly.
"The electronic age is just increasing the pace of communication and custom service," he says. "The whole idea of responsiveness is raising the ante, the hurdle, and creating a quicker pace in everything we do. I think all this is fundamentally an extension of that."
And Windle says it should be relatively easy for Toyota to pick up the pace of the Camry customizing.
"They are doing so much customization near the end of production, they know a basic model mix, two-door or four-door," says Windle. "They will sell 250,000 Camrys a year, build x number a day. It's just a matter of customizing them, making them unique."
Competitive advantages
Windle also notes that the automaker that can come up with the shortest leadtime has a definite competitive advantage. Such an automaker satisfies the customer, and because there is less need for inventory, lowers the total cost in the supply chain. "There's better price realization," he says. "People get the car they want, and may be willing to pay a little more for it."
But Windle agrees that as automakers lean more and more in this direction, they are going to face more and more challenges. The computer component of it alone is staggering. Automakers must be able to transfer information almost instantaneously throughout the supply chain. Once customers make their orders, in order to live up to their promises, the companies must be able make fast connections that lead all the way back to tier-one suppliers. Top this off with the need to have an extremely reliable assembly process. "It's not one of those things where you can just flick a switch," he says.
And the biggest challenge will come to the suppliers. "It is rocking their world. It is absolutely rocking their world," says Edward Sprock, director of logistics for DaimlerChrysler AG in Michigan.
Getting them to properly manage their supplies, and then become positioned to follow accelerated leadtime disciplines can be tricky, at best.
"This means accuracy in responding to and executing Toyota's request," he says. "They need the right part of the right quality at the right place, not early, not late, no more, no less."
Frequent changes
Virag of The Automotive Consulting Group says the speeded up manufacturing process is made more complicated by frequent changes in the production mix. As companies constantly monitor what models and versions are selling, changes in the process become more and more frequent. This means changes in accessory packages and color schemes, all of which may be more popular during different times of the year. "It's an ever-changing landscape in the marketplace," he says.
The process becomes even more challenging as automakers try to apply it to extremely popular vehicles. In such situations, the possibility of backed up orders and scheduling conflicts become increasingly dicey.
"If a car is sought after by hundreds of thousands of people, you don't have the capacity to make that many vehicles," says Bruce Belzowski, senior research associate for the University of Michigan's Office for the Study of Automotive Transportation. "You can't build that in a five-day deadline."
But Virag says automakers can overcome the problems by adopting better methodologies for production scheduling. Toyota's plan, he says, should be a good one because it will be a standardized process where orders are not changed or revised once they are processed.
Virag says other companies can learn a valuable lesson by following Toyota's example.
"If a manufacturer could give a supplier a production schedule for four days from today and hold that production schedule, it helps everyone," he says. "If a day later, they change it again, the supplier has difficulty determining what he needs to produce."
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