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Reading Matters
Second
Century Argues for New Customer Focus in the Auto Industry
The
Second Century: Reconnecting Customer and Value Chain Through Build-to-Order
By Matthias
Holweg and Frits
Pil
International
Motor Vehicle Program Principal Investigators
The MIT Press, 2004
The global
automobile industry's focus on improving manufacturing in the past decade
has created lean and efficient production operations. Yet, a mismatch
between the gleaming lines of new cars rolling out of leaner factories
and what customers want has contributed to low profit margins and the
proliferation of costly inventories and sales incentives. The Second
Century describes how this critical issue is hampering the industry
and outlines ways to reshape the value chain for sustainable competitiveness.
The
book, by Matthias Holweg, university lecturer at the Judge Institute of
Management, University of Cambridge, and Frits Pil, associate professor
at the Katz Graduate School of Business, University of Pittsburgh, is
based on their latest research. The authors build on recent data gathered
from the global assembly plant study – the same benchmarking work
that formed the basis of IMVP's seminal work on lean manufacturing: The
Machine that Changed the World. Moving beyond the factory, The
Second Century highlights information collected on suppliers, design,
logistics providers, dealers, and customers to create a holistic picture
of the entire value chain. Using this data-driven approach, Holweg and
Pil provide insight on what it will take to move lean beyond the shop
floor.
As the
auto industry moves into its second century, systematic and sustained
efforts to implement lean have resulted in dramatic improvements in labor
efficiency. Today the average Japanese plant takes only 13 labor hours
to build a standardized vehicle. In parallel, labor utilization rates
have also dropped dramatically in the plants across North America and
Europe. Similar strides have been made on the quality front. The message
from The Machine that Changed the World was heard globally, the
authors acknowledge.
Despite
these improvements, the auto industry remains under pressure. Months of
inventory back up in dealer lots and distribution centers while dealers
lure buyers through costly incentives. The challenges are rooted in legacy
value streams from Henry Ford's mass production model from the early 1900s.
This system does not deliver the strategic flexibility needed in today’s
increasingly competitive and demanding market, the authors say. Although
the industry can produce billions of product variations, most customers
still can't get what they want. Usually they compromise by selecting from
a limited number of finished products sitting on lots. Customers who insist
on a specific variation wait weeks and pay extra.
The
Second Century provides a comprehensive look at the dysfunctional
nature of current value-chain strategies drawing on data they collected
from car factories, suppliers, logistics providers, customers, and other
significant players in the value chain. They systematically discuss the
product and process changes needed to bring about responsiveness to customer
needs through build-to-order. They move beyond the dealer, the factory,
and the design studio, to understand the web of relationships and the
dynamics that prevent firms from maximizing system-wide performance. These
ideas are applicable to firms in many industries.
Holweg
and Pil argue that the winners in this century will not be those who search
for larger and larger scale or those who run efficient factories and squeeze
the last drop of profitability from their suppliers. The winners, they
say, will be those who managed their value chains as if customers mattered.
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