Automakers shift to "pull" strategy

By Staff -- Logistics Management, 1/1/1999

The latest round of mergers, acquisitions, buyouts, and sellouts in the automotive industry may appear to be about size and power, but there is more to it than that, say consultants at PricewaterhouseCoopers.

"What's happening is that the entire automotive supply chain is restructuring from end to end to better respond to consumers' demands for value, choice, and a more satisfying purchase process," says J. Ferron, a partner located in PricewaterhouseCoopers' Detroit office.

Consumer demand is forcing automakers to shift from a supply chain where they "push" inventory to dealerships to one where consumers "pull" product. To compete, manufacturers will need to operate with a lower cost structure and more agility. "[T]he push-to-pull transformation will be led by a few enterprises that learn how to configure their design modules, services, and networks to [respond to] a "rational" consumer whim," says Ferron.

In the area of technology, says Ferron, the automakers will need to go beyond electronic data interchange to find ways to use electronic channels to create customer loyalty for both products and services. E-commerce, moreover, will play a greater role in the automotive supply chain.

"In the traditional retail structure, consumers sometimes have to go from the salesperson to the closing manager, used-car appraiser, and finally to the finance and accessory sales representative," says Dave Nathanson, PricewaterhouseCoopers' director of retail automotive operations. "They don't see much value to this, so the online alternative becomes attractive. Consumers can conduct research and have a virtual shopping experience online."

The auto industry also must deal with overcapacity, a key global concern. "Even if the industry radically attacked global overcapacity right now," says Ferron, "there remains a dangerous potential for new excess just because new factories are more agile."

Automakers across the globe will try to create savings by pressuring their suppliers to absorb costs, says Mike Burwell, automotive transactions services partner at PricewaterhouseCoopers. "Costs are shifting from the original equipment manufacturers to the supplier tiers," he says. "The result is smaller supply chains, with logistics becoming more important."