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Solution Providers Drive Efficiencies At Automakers

Detroit's facing a midlife crisis -- and IT solution providers are poised to help them out of it.

"We're having conversations with some auto companies about complexity management -- eliminating low-leverage products and focusing on product 'winners' to grow profits, streamline manufacturing, reduce supply chain complexity and improve resource utilization," said Jenna Furdon, marketing manager at Kalypso, a high-tech consultancy.

The challenge for automakers, strapped for cash and innovation, is how to maintain profitability or become profitable. That requires studying their current portfolio mix and slashing unprofitable areas. To make improvements, car companies must take stock of their businesses with brutal honesty. "In times like this, [automakers] don't have the dollars to invest and need to find fuel for growth elsewhere," Furdon said. "Complexity management can drive up to five percent points of profit growth. In turn, the savings delivered can be reinvested into innovation efforts."

Benchmarking can also help companies form an honest picture of themselves, and can assist in identifying areas to be cut, said Tom Swennes, vice president of planning and administration at ICL Systems, a logistics/supply chain system provider for a number of North American automotive manufacturers.

"We are in the process of rolling out our 'Benchmarking Initiative,' a collaborative effort between ICL and our customers that will allow companies to not only compare their performance vs. their competitors, but once fully implemented, also allow them to identify origins and lanes where two or more manufacturers can potentially 'co-load' shipments on the same equipment. Co-loading not only helps move product faster, but improves utilization of the transportation equipment [i.e., trucks, rail cars] and reduces fuel consumption," Swennes said.

All the different standards among the companies hurt efficiency as well. ICL is active in the nonprofit Automotive Industry Action Group (AIAG), which recently launched a new initiative to promote standardization of the FVL transportation process across the industry. The current process supports several different standards; streamlining the process could yield substantial savings.

"As an example, a truck company moving product for five different manufacturers typically has to support a different data exchange format for each manufacturer," Swennes said. "Creating a common transaction set will greatly reduce their IT support costs and improve the quality and timeliness of data for each of their customers."

Swennes also said ICL offers customers a Web application that provides extensive, detailed metrics on manufacturers' supply chains, which helps them identify and correct underperforming routes and vendors. That increases velocity and reduces inventory-carrying costs. "Shaving as little as six hours off the transportation process can save a large manufacturer at least $2 million a year in carrying costs," he said.

Suppliers to the automotive industry feel the pinch as the car manufacturers try to squeeze as much out of them as possible.

QAD, which supplies ERP software to the industry's suppliers as well as to Ford Asia Pacific for its assembly facility, is familiar with the complexity involved with managing production requirements, inventory, labor costing, shipping costs, logistics, accounting and purchasing. Getting a handle on all those pieces of the puzzle is crucial, noted Charlie Eggerding, VP of automotive marketing at QAD (2008 VARBusiness 500 rank 187).

"The industry is showing a lot of constraint; there is a lot of sensitivity to expenditures, but that is a great opportunity for us. Business is in a great state of transition. We got lucky -- 18 months ago we began transitioning our application to deliver it as a service. We started delivering it 12 months ago. Now, there is a tremendous demand," Eggerding said. "There is no capital expenditure on the automakers' part. They don't have to pay for $300,000 to $500,000 implementations. It's very affordable."

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