The Impact of E-Commerce in the automotive industry

The innovation of the web marked the dawn of a new era known as the information age. Nowadays, information has become a powerful tool and is highly valued in many organizations. Through information, it is possible to increase one’s competitive edge in addition to significantly reducing overheads. Apart from providing information, the web is being used to conduct trade. The concept of electronic market place has made it easy for companies to expand their customer base as they can make orders without being physically at the company’s premises.

The automotive industry has not been left behind either. Automotive companies are now able to sell cars on line as well as make orders from their suppliers. There is also the concept of build to order where companies are integrating individual customer’s needs in the design of the vehicle. To better understand the impact of E- commerce in the automotive industry we will look at how the leading motor corporations are using the Information Technology to gain competitive advantage.

We start with Ford Motor Company which has started a campaign where it will use the Internet to give consumers total choice. This will enable the customers find the vehicle they want from the dealers’ yards or have cars built to their specification upon request. In order to achieve this vision, the company is embarking on establishing a build-to-order framework in addition to maintaining a commanding online presence.  (Kirsner 1999). Achieving, a build-to order status is not going to be easy though. Manufacturing an ordinary vehicle from the production line takes approximately 30 hours. However a custom made vehicle may take around 55 days. The lead time therefore has to be minimized to support mass production. Build-to order cars will create value for both the customer and car manufacturer as they will reduce the amount of capital tied in slow moving ordinary vehicles.

Ford recently tried out this concept by collaborating with the women’s site iVillage.com by allowing the site’s users to assist in the design of Mercury Villager minivan. Ford has also introduced e Price, which in addition to offering customers the manufacturer’s suggested retail price also reveals the average price in their local market. This will make their vehicles more affordable by maintaining a uniform retail price across the different dealers. This information will accessible to customers from the company’s website. This is just an example of how E-commerce can be successfully used to empower customers  (Kirsner, 1999).

Toyota is another example of a company in the automotive industry that is using technology to enhance certain aspects of its operations. Toyota’s focus is on business-to-business, not business-to-consumer as in the case of Ford. Toyota is involved in automating its interactions with suppliers, distributors, dealers and business partners. In addition, Toyota has developed My Car Universe, a prototype 3-D Web under the banner of Project Revelation, which is a partnership between Toyota, Intel, Hewlett-Packard, Compaq, and Spike Australia as the design agency. My Car Universe entails installing internet into the vehicle which will be used for various functions. It will notify the driver of any mechanical faults and book for service at Toyota dealers in customer’s location. In addition it also notifies the driver of any up coming events which he might be interested in for example shows, concerts and exhibitions.

The automotive industry has also incorporated B2B as they embrace E-commerce in their operations. B2B relates to business-to-business e-commerce whereby the traditional corporate boundaries are broken and the business is able to share information and conduct trade with its suppliers through an electronic supply chain (Cunningham, 2005). B2B has resulted in great benefits to the automotive industry in terms of cost saving and increased efficiencies in key business processes. For instance, automating the procurement process has resulted in the reduction in paperwork thereby bringing down the costs per purchase order from $75-$150.

B2B has also made communication better among multiple users as it is facilitated by the Internet and XML. This promises to make e-market communication even more standardized. Business can now benefit from reduced prices through online auctions where a majority of suppliers compete for contracts. There is also the issue of collaborative planning where the suppliers and retailers are able to view each others’ inventory levels and production schedule and plan accordingly. This also results in major savings. Collaborative design is also achieved where designers in the same firm or different firms are able to work in parallel.

Current savings for the automotive B2B are estimated by Goldman Sachs to be in the tune of $2,000 per vehicle.  GM, Ford and Chrysler established their industry-wide B2B exchange known as Covisint, in 2000. In the first six months of 2001, Covisint managed transactions worth more than $33 billion representing 13% of the $240 billion that Ford, GM and DaimlerChrysler buy annually. The main equity partners report that they are already seeing results from their investment for example in July, Ford announced that it had saved $70 million in reduced paperwork and lower supplier prices, which greatly exceeds the cost of its investment in Covisint.

B2B in the automotive industry is facilitated through EDI (Electronic Data Interchange).EDI is the standard data format used in E-commerce and thereby allowing computer systems using different applications to read the sent data. EDI documents are stored at a Value Added Network (VAN), which acts as a virtual storage house in addition to transmitting messages to the receiver (Sokol, 1989). The VAN is unique in that it has the ability to resend the messages to the receiver if they do not go through. The EDI increases efficiency in the business environment due to minimal human intervention, making it ideal for automated services. EDI simplifies the manufacturing process by providing one time data entry; reducing errors; on line data storage; better management reporting and automatic reconciliation.

The Automotive Industry Action Group in collaboration with automakers and suppliers has developed an EDI standard for the entire industry. The standardized EDI has been widely used in automated document services including: export/import information for international shipments carrier-to-carrier way bill exchange, shipment tracing information, supply chain management, procurement and payment processing. Through this standard EDI the industry is able to achieve better inventory control and thus reduce inventory costs.

The automotive industry can also use E- commerce to enhance the skill level of its human resource. Currently there is a need to stay updated on new technological developments in the automotive industry. The employers as well as the training institutions should both be involved in this initiative. Service and parts managers should be committed to training objectives as it is their duty to ensure that the technicians are well trained. Training should be designed for both classroom and Internet delivery in order to make the training as broadly accessible as possible in the workplace and in educational settings. The curriculum should be developed in consultation with industry and educational experts.

The Canadian Automotive Repair and Service (CARS) Council is a not-for-profit sector organization that undertakes research and activities to support the professional development in the automotive industry. CARS has developed a 16 hour instructional package which includes course outlines, lesson plans, lists of tools and equipment, PowerPoint presentations, instructors and learners’ guides, as well as tests. The learner’s guide includes schematics, key concepts, diagrams and room to complete instructor led exercises to keep on hand for future reference after the end of the course. A 1/4 of the material is offered in visual format, offering powerful reinforcement of learning concepts through graphics, demos, video clips, PowerPoint presentations and vehicle demos. This training may be best suited for classroom delivery, but can be modified for Internet delivery.

Revenue management focuses on how a firm should set and update pricing and product availability decisions across its various selling channels in order to maximize its profitability. A good example where this has been put into practice is the airline industry, where tickets for the same flight may vary many depending on product restrictions as well the number of seats which have not been sold. (Moussawi, 2005) The use of such strategies has led to the transformation of the transportation and hospitality industries, and is increasingly important in other industries as well such as retail, telecommunications, entertainment, financial services, health care and manufacturing. Pricing and revenue optimization is increasingly becoming popular in consulting services as well as software and IT development, where the revenue management systems are being developed as part of the Supply Chain Management solutions.

 

Revenue management strategies can also be applied in the automotive industry successfully. Research on its applicability in the automotive industry is still not very elaborate. The most outstanding example is Ford Motors which has spearheaded the use of revenue management in its operations. As in the case of the airline industry, unfulfilled capacity in the automotive manufacturing sector results in increased cost of production. If a company is not operating to its maximum factory capacity, the costs as compared to the output escalate as the capital costs still have to be met (Aydin, 2005). In addition the cost of input in terms of labor and materials become higher relative to the output. On the other hand, overproduction may lead to dead stock which forces the company to sell this stock at throw away prices. This minimizes revenue and eventually weighs down heavily on the going concern status of the company. E-commerce coupled with other practices may be utilized in this respect to optimize revenue by matching demand with supply. E- Commerce helps to automate the supply chain such that the manufacturers can place orders based on the demand at the time as opposed to traditional methods where one is forced to make a single order of the required materials which is to be used during the fiscal year.

 

Ford motor has implemented revenue management technology with proper information systems in pricing and capacity control areas. This is in addition to the build-to order system that is currently under implementation. Traditionally most automotive companies operated on a make to stock (MTS) which entails holding inventory to meet demand. However there is a shift to this trend with major players in the industry adopting a make to order (MTO) approach. This is aimed meeting demand by hedging against capacity (Caldentey, 2005). This mode of operation means that they have to collaborate with their suppliers to serve their customers needs fully. E-commerce offers vast opportunities to this end by providing a large number of suppliers from whom goods can be sourced from. The auctions also provide them with an opportunity to buy goods at affordable rates.

 

The automotive industry like all other manufacturing industries is faced with fluctuations in demand, different customers with varying and unique needs and inflexibility in terms of production and or supply. This calls for an automated revenue management system which will go a long way in enhancing decision making. With the world becoming a global village where technology is easily passed on from one region to another leading to new players in the industry competing for the same market with current players, it is no longer viable to peg operations on the rule of thumb. New technological developments present a challenge as well as an opportunity for large corporations. A challenge in that their implementation might be very costly and might slow down operations before they become well accepted in the organization. However the long term benefits surpass these short term limitations in terms of cost saving and increased efficiency. Revenue management is not concerned about the bottom line but rather growth through the existing opportunities in the market.