When it comes to information technology (IT), today the auto industry is going "back to basics." Some of the major strategies pursued over the last decade either have not panned out or have already been played out. North American-based automakers are back into familiar trenches. The current three criteria for success—(1) quality, (2) cost and (3) fresh products—are indisputably foremost on the minds of upper management. IT in this traditional environment is taking more of a backseat role. This contrasts with the widespread sentiment held until recently that IT could transform the industry. Up until a year ago many believed it would usher in new business models and alter the very basis for competition.
Bold, big, IT experiments, by and large, are not being launched today. Instead smaller, fast-payback projects are getting the green light. A challenge for information systems departments is how to get backing for promising new IT applications in this IT-skeptical climate. Fuel by years of consecutively strong sales, the auto industry had really stretched in the last decade. It very successfully created entirely new product segments, namely the minivan and sport utility vehicle. It pursued changing the rules of the game, for instance, by seeking extremely fast, order-to-delivery systems. It pumped billions of dollars into telematics, all to make vehicles much more high-tech-ish. It similarly spent billions of dollars on supply chain management (SCM) systems, enterprise resource planning (ERP) software, and so forth.
Despite these efforts, the industry finds itself today in about the same situation as 1989. The Big Three today enjoy little product differentiation and face formidable international competition across all product lines. Meanwhile, consumers want trouble-free vehicles, low cost of ownership and a fresh stream of new, exciting models. To win these customers means competing on quality, cost and speedy new vehicle launches. Unfortunately, these are not the strong suits of the Big Three. U.S. companies are still playing catch up with Japanese manufacturers that possess superb systems honed over decades of continuous improvement. Toyota and Honda in particular still lead the pack in operational effectiveness. In manufacturing, for instance, Japan's deep emphasis on perfecting systems and its workforce manifests in extraordinary agility and quickness. Honda alone, for example, can produce seven or eight different types of vehicles on the same production line. And they're quick when it comes to IT, as well. Toyota in Canada brought in an entire SAP ERP system in just three months. In contrast a Peoplesoft ERP system at Ford has taken years to install.
The Big Three's renewed emphasis on improving operational effectiveness certainly has cut into new IT initiatives. Most of the $3 billion a year that GM and Ford each spend on information systems goes to "keeping the lights on," and not on industry-transforming projects. For instance, SCM purchases have almost screeched to a halt. This has badly hurt once high-flying vendors like i2 Technologies. Likewise, the OEMs are in no mood to make $350 million-size bets on innovative IT experiments such as Covisint.
IT in the auto industry is experiencing a double blow in that it is not just the auto industry in dire need of profits. The high-tech industry itself is in the doldrums. Wall Street investors are running, not walking from high-tech companies. This is drying up an important source of capital for IT research and development. Cutbacks and layoffs at firms such as IBM and Sun Microsystems certainly hurt the IT industry's ability to serve the auto industry well.
Typical of the fast-payback, low-cost projects in auto is DaimlerChrysler's installation of a Lotus Notes-based application. It took just one month. Fifty-four component groups now use this Material Cost Management (MCM) application. MCM has 6,000 users from engineering, product planning, finance, and manufacturing, said DCX's chief information officer, Sue Unger. Also getting information systems attention in the auto industry are point solutions. These include software packages such as the computer-aided engineering (CAE) optimization tool, iSIGHT, from Engineous Software.
In contrast, only modest efforts are now underway in the industry as a whole to integrate broad swaths of the enterprise. For instance, FreeMarkets is offering a new application to analyze corporate spending across the enterprise. Rather than first commonizing the data formats and standardizing workflow across the enterprise, FreeMarkets just "cleanses" the raw data; then it is fed into FreeMarkets' spend analyzer. Yesterday's big-ticket, ERP systems were suppose to eliminate these incompatibility problems, but a lack of standards still bedevils most firms.