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Program
Management

Joel Moses
Acting Director

Institute Professor
Professor of Electrical Engineering
and Computer Science

CTPID Facts

45 faculty, researchers, staff, graduate students

$8 million in annual research volume

25 industry sponsors

15 government agencies

Established in 1985

I M P A C T
Emerging Work from CTPID

Impact Spring 2003: Faces of Research

Interview | 3DayCar Programme | Holweg in Profile

Streamlining the Way for Custom-Built Cars, from Order to Delivery: An Interview with Sloan Industry Center Research Fellow Matthias Holweg

By Patricia Proven

Car buyers who customize a vehicle often wait two months from the time of order to delivery. Matthias Holweg, a principal investigator for MIT's International Motor Vehicle Program (IMVP), makes it his prerogative to find out why.

He hopes that his findings - to be published in a forthcoming book co-authored with University of Pittsburgh Assistant Professor and IMVP Research Scientist Frits Pil - will help catalyze a streamlined, build-to-order model for production and distribution across the entire automotive supply chain.

They draw their conclusions from IMVP's ongoing Global Assembly Plant Study and a range of process-maps, surveys, and interviews conducted at assembly plants, suppliers, and logistics companies worldwide.

Holweg and Pil recently published on this topic in two MIT Sloan Management Review articles, "Exploring Scale: The Advantages of Thinking Small" (Winter 2003) and "Successful Build-to-Order Strategies Start with the Customer" (Fall 2001).

What Do Customers Want?
"When you think about how much you spend on a car, why shouldn't you get exactly what you want?" said Holweg, who holds a PhD in Supply Chain Management from the UK's Cardiff Business School.

Holweg's investigation of car makers began in 1999 with the 3DayCar Programme in Europe. Since last May, as one of five national recipients of an Alfred P. Sloan Foundation fellowship, he's continued this research in the United States. A recent second-year extension of the fellowship gives him the chance to expand study to Japan.

Ideally, Holweg said, a buyer could get a customized car within 10 days.

Holweg's research pinpoints major obstacles that include long order processing times, factories' inability to adapt to variations, overly complex products, organizational culture, and current incentive structures. "Car companies have optimized the factory at the expense of customer fulfillment and large inventory in the marketplace," said Holweg.

Assembly lines, for instance, cannot accommodate much variability in demand. Production schedules rely upon a rigid workload balance, in which labor-intensive vehicles, like station wagons, must be followed by one or several less intensive ones, like sedans, to make up for the time.

Under a build-to-order (BTO) model, buyers get satisfaction fast while carmakers save money. Automotive News reported in 2002 the U.S. industry spent about $1,800 per car sold, or $30.9 billion total, on incentives that include zero percent financing, alternative specifications discounts, stock clearances, and free options. Such incentives are meant to compensate customers' settling for less.
"It's just a very costly business," Holweg said.

Taking a Holistic View
Holweg's work is notable for its holistic, rather than reductionist approach to the automotive industry. Trained as an industrial engineer, he embraces the principles of general systems theory, which holds that studying a subsystem in isolation yields limited understanding of its functioning in its environment.

In the automotive industry, he said, there's a tendency to perfect units of production while neglecting the overall order-fulfillment process. "It's like looking at how muscle tissue works without understanding the network of nerves that makes it move," he said.

The BTO model, first proposed in the 1993 Manufacturing for the 21st Century Report as a key challenge for the Japanese motor industry, allows customers to specify car configurations for rapid delivery. Automakers worldwide contend with the same challenge, he said.

"In North America, only one out of every two car customers gets the specifications they want," he said. "And in Europe, it's still only one out of every four."

Car Buyers Benefit
Car buyers would gain from a streamlined process. "Cars built to order are much cheaper to make - no stock holding, incentives, or discount," he said, estimating savings of $1,500 per US car purchase.

Car companies hesitate to adopt build-to-order, Holweg conceded, because it requires drastic change and carries risks. "You might not fill up your facility capacity as easily," he said. "You have to work very hard to manage demand. That's something car companies have missed so far."

While European markets have shown signs of accommodating demand-driven manufacture, he said, the transition is generally slow and has yet to transform the United States motor industry. Noting that the UK's ratio of build-to-order cars increased from 10 to 40 percent since 1992, he predicted similar change in the US to take at least five to ten years.

"Changing the computer systems is one thing," he said, "but changing the underlying 'stock-push' mindset is quite a different beast."

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What is the 3DayCar Programme?

The 3DayCar Programme, a joint venture between three UK universities and 21 industrial sponsors, aimed to develop a framework for fulfilling a customer's need for a vehicle in three days, from order placement and manufacture to delivery.

"How we make and sell cars hasn't changed much since Henry Ford," Holweg said. Ford maintained a 60-day inventory; today's inventories are only down to 59 days.
Through 3DayCar, Holweg was responsible for systems research, one of the project's six research streams. His initial approach through survey instruments failed, he said. "Few people understand the whole process and the data I needed were simply not available." So he opted for value-stream mapping, 'stapling' himself to an order and following the process through. This enabled him to measure each step and explore why delays occur.

3DayCar, a three-year project, has become the benchmark for the implementation of BTO. Several major vehicle manufacturers have begun adopting short, specific lead times.

See more information at http://www.3daycar.com/.

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Holweg in Profile

Matthias Holweg's career has always been on wheels. Through years of research in logistics and supply chain, he's simply changed lanes.

Before college, Holweg drove ambulances for the Red Cross near his native Hamburg, Germany. Over five years, while training as an industrial engineer at the University of Applied Sciences Wedel, his service as a paramedic evolved into a career drive toward product management of emergency medical equipment.

His course was altered in 1998 when he began graduate work at University at Buckingham, UK. His supervisor, who also directs the MSc in lean operations at Cardiff Business School, sparked his interest in a project on the auto sector.

"I looked at the steel supply chain and found that most of the problems I had to deal with were originating elsewhere in the system and causing problems upstream," said Holweg.

After graduating in 1999 with a MSc in Operations Management, Holweg continued his supply chain research in Europe's 3DayCar Programme in a more holistic way. "I tried to see the system as a whole, beyond mere manufacturing or the steel supply chain. Considering only subsets of a system yields limited results," said Holweg, who earned a PhD in Supply Chain Management from Cardiff Business School in Wales last spring.

His dissertation, "The Three-Day Car Challenge: Investigating the Inhibitor of Responsive Order in New Vehicle Supply Systems," elaborated factors that keep the supply chain from turning out custom vehicles more swiftly. Last September, amid his continued auto research at MIT, the dissertation won the 2002 James Cooper Memorial Cup for Best PhD from the UK's Institute of Logistics and Transportation.

Since securing an Alfred P. Sloan Foundation Research Fellowship last May, Holweg has focused on the implementation of build-to-order strategies, which could help transform the automotive supply chain globally. "The idea of the fellowship was to investigate not only the US, but also Japan, and I am only getting started on this," he said. "I figured that IMVP was the perfect fit for pursuing this international research agenda."

Even in his leisure pursuits, Holweg is in motion. He often bikes from home in Cambridge, Mass. to Kendall Square, where he works as principal investigator of MIT's International Motor Vehicle Program (IMVP). In winters, he takes breaks to ski the mountains of Massachusetts. And, Holweg recently earned a 'big-boat' skipper license at Boston Harbor Sailing Club. So, this spring he'll cruise the Charles River in one of MIT's Rhodes 19s.

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