Push to pull

9/12/00 Copyrighted 2000 Mario W. Cardullo, P.E. 1

From Push to Pull: Impact of Internet on Automobile Industry

Mario W. Cardullo, P.E.


Why Push to Pull ?! North American automotive industry and their

networks of supplies and franchised dealers are facing a strategic inflection point.

! Consumers are becoming more comfortable using the Internet as a purchasing source, expectations from the automobile industry are not being fully met for buying vehicles.

! North American automobile industry must resolve the following question: Is it capable of meeting the challengers of the new economy?


Automobile Industry!16.9 million new vehicles were sold in

the U.S. in 1999, $650 billion retail revenues.

!Vehicles sold primarily through 22,400 dealerships.

! New models had little to do with what the customer immediately desired.


Old Economy Industries Meet New Economy! New economy is based upon meeting

customer needs rapidly.! Important to look at the total supply chain

from the basic supplies through manufacturing and delivery.

! Physical products, such as automobiles must produced, delivered and serviced.

! Automobile industry divided between relationships and manufacturing processes.


Make-to-Stock System

Suppliers

Purchasing ProductionControl

ProgramPlanning

Sales

Manufacturer DistributionCenter Dealers Customers Dealers

Physical Flow

Info

rmat

ion

Flow


New Economy = Internet Economy!Change occurs at Internet speed!Products lifetimes measured in months!Customers want immediate fulfillment of

customized products


Old Economy = Automobile Industry = Push!Push system focuses primarily on the

supply chain system.!Manufacturer plans number and type of

vehicles and orders required amount of parts.

!Current supply chain flawed and rigid!Manufacturer develops product and

then finds a market


New Economy = Future Automobile Industry = Pull!Focuses on value chain!Manufacturer identifies need and builds

product to satisfy that need.!Changing system pull requires changing

legacy supply and manufacturing systems, legacy cultures and existing regulatory structures.


Internet Build-to-Order System

ProductionControl Dealer

Suppliers

Manufacturer Dealer

Customer

��

��

��

��

��

Real-time Information Flow

��

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Push versus Pull Automobile System

BuildShip as to

Plan

Build asRequiredShip as

Required

PlanReceive Parts

AssembleShip

Request PartsReceive PartsAssemble to

OrderShip to Order

ReceivePrepareMarket

SellService

Send OrdersPrepareSupply

Information

SupplyInformation

Supply Leads

SupplyInformationSend Orders

SeekInformation

Buy/Sell

SeekInformation

Buy/SellUsed Vehicles

ServiceParts

Internet VehicleServices

Used VehiclesServiceParts

InternetVehicle

Services

PUSH

PULL

AftermarketConsumersE-SellersDealersManufacturersSuppliers

B2B B2C B2V


Automobile industry value chain!Business-to-Business (B2B) !Modular Manufacturing System (MMS) !Business-to-Consumer (B2C) !Business-to-Service (B2S) !Business-to-Vehicle (B2V)


Benefits of Implementing Internet Strategies

Pull Plus Elements Industry Benefits ($ billion annually)

Vehicle Savings ($ per vehicles)

B2B 18.3 1,064 or 5.3%

MMS 18 1,000 or 5%

B2C 44.4 2,579 or 12.9%

B2S Unknown Unknown

B2V Added market of 24 to 48 with operating income potential of 8.2 to 16.3

Additional cost to users of $240 to $480 annually


Business-to-Business (B2B) ! Development of Internet procurement

systems such as Covisint, Auto-Xchange, Trade-Xchange, and supplier initiatives.


Benefits to Suppliers of B2B Implementation

Annual Savings ($ millions)

WIP Procurement Process

Total

Tier 1 390 4,545 4,935

Tier 2-4 764 6,259 7,023

TOTAL 1,154 10,804 11,958


Modular Manufacturing Systems (MMS)

! Development of prototype modular manufacturing facilities in cooperation with Tier 1 suppliers and assemblers.


Business-to-Consumer (B2C) ! Development of information intensive

web sites and cooperative business models with existing dealers and dotcoms. Experimentation in foreign countries of direct manufacturer-consumer relationships.


Savings to North American Automobile Dealers of B2C

Dealer Component Annual Potential Savings ($ million)

Inventory 3,952

Sales Commission 4,916 – 6,554

Overhead 3,236

TOTAL POTENTIAL SAVINGS

12,104 – 13,742


Business-to-Service (B2S) !Movement of dealers and industry to

implement sales and service models using the Internet.


Business-to-Vehicle (B2V) !Lead by GM and their OnStar model,

Ford and other members of the industry are preparing to deliver Internet ready vehicles and services.


We live in automobiles!US consumers spend approximately

500 million passenger hours per year in their vehicles.

!Approximately 210 million vehicles are in use.

! Industry sells annually approximately 17 million


B2V: The Car of the Future !Safety!Security!Productivity/Connectivity!Convenience!Entertainment


Marketspace Potential of B2V

$100,000,000

$1,000,000,000

$10,000,000,000

$100,000,000,000

2000 2002 2004 2006 2008 2010

Mar

ket P

oten

tial f

or B

2V

$20 per month per

$40 per month per vehicle


Will automobile industry capture this potential?!Based on operating margins of 34

percent, can provide operating income of between $8.2 and $16.3 billion to the operators of these B2V systems.

!B2V operating income addition can be eventually of the same order of magnitude.


Economic Savings of Implementation Automobile Industry Internet Strategy

Value Chain Savings per Day

B2B(Business-to-

Business)

$49 million

MMS(Modular

Manufacturing Systems)

$49 million

B2C(Business-to-Consumer)

$121 million

Total Savings $219 million


Range of Implementation Times

Component Implementation Time

(years)

Potential Cost of Delays

B2B 3 to 5 $54 to $90 billion

MMS 4 to 6 $72 to $108 billion

B2C 5 to 10 $220 to $440 billion

From Push to Pull 5 to 10 $400 to $638 billion

Technology

Push to pull