Main Takeaways



General Motors: Building a Digital Loyalty network Through Demand and Supply Chain Integration

Main Takeaways

Although GM had experienced record sales in recent years, the stock underperformed the S&P 500 index by 48 percent, which was an indication to Rick Wagoner (CEO) that something needed to be done. Although GM saw incredible cost savings and improved productivity, I feel that they have not retained any sustained competitive advantage with respect to the competition (Honda and Toyota), in fact, one might say that they have just caught up to the competition. I believe GM is on the right path since they now have the infrastructure needed to succeed in such a competitive market but have a long way to go to excel not just at operations but as a product leader.

Value Proposition

Operational Excellence (arguably still not as good as foreign competition)

Product Innovation (very limited to investments in OnStar and XM Satellite Radio)

Customer Intimacy (best of the 3, increase in loyalty and online tools show Customer Intimacy)

More in-depth Summary

American Auto industry problems

• GM decides to strengthen and integrate GM’s demand and supply chain systems to build the Digital Loyalty Network (DLN). It addressed 3 components

o “digital” for integrating technology

o “loyalty” for a focus on customers and increasing their lifetime value to GM

o “network” for coordinating and leveraging all supply and distribution chain partners to serve those customers.

• Current supply chain for the US auto industry in the early 2000s was extremely complex, with a global network of suppliers, long development cycles, extensive production and assembly processes, and an expansive sales distribution network of independent dealers. Several automakers experimented with additional vehicle inventory and distribution points to improve vehicle availability and proximity for consumers and to reduce overall delivery times.

• Automakers realized that strategy of plan consolidation and closings was not enough to provide for the needed cost savings. Using web based communication and transaction technologies, automakers were beginning to switch over to the Build-to-order (BTO) business model in addition to the Build –to-stock (BTS) business model.

• Some issues to consider were Consumer demand was uncertain and variable, fixed plant assets, unionized workforce, and fixed parts supply schedules – all of these caused slow responses to changes in the marketplace. Foreign competition was gaining more ground due to these problems with the American auto manufacturers.

GM’s Problems

• GM is the world’s largest manufacturer. Sold vehicles in over 200 countries, employed 355,500 people, affiliated with 14,000 dealers, and had manufacturing facilities in over 30 countries

• GM had two operating segments. The first was auto-related business for the design, manufacture, and marketing; in-vehicle telematics (OnStar), and financing. The second segment included non-auto related business such as Hughes Electronics Corporation and financial services such as insurance and mortgages.

• GM realized that developing “hot” products wont be enough…they had to understand their customer better. Although the internet allowed GM’s multiple brands and businesses to integrate technology in their daily business processes, lots of work was duplicated as none of the 150 websites, 63 call centers, 23 databases, and dealers with their own communication tools and databases were integrated with each other. Basically, GM lacked an efficient view of the customer that could lead to cross-selling, up-selling, and increased loyalty and profitability.

• Due to long lead times (12-16 weeks) many dealers kept huge inventories since they had no good information in being able to predict customer demand. GM wanted to work closely with dealerships to produce a win-win solution instead of going against them simply by investing in new sales channels such as the internet.

• Other issues related to the supply chain was a lack of collaboration in product development, leading to product development cycle times of more than 48 months. Internal capabilities were not aligned to support the build-to-order/build-to-stock model that was emerging in the industry.

• GM spent $6 billion annually on logistics (shipping raw materials, shipping finished products, etc) but was not able to see acceptable payback on that money.

• Design engineering used 22 different engineering systems and had 7,000 discrete information systems. (i.e. no collaboration)

GM’s Initiatives

• In collaboration with dealers, GM created GM BuyPower, an online portal that offered personalized offline dealer experience, unbiased third-party comparisons, incentive information, dealer’s best price, and application for online financing.

• GM BuyPower was designed to also serve as a link between the customer and supply sides of GM. This helped them reduce costs and time in developing BTO vehicles (from $3600 to $1000)

• GM also created GM Owner Center allowing owners to create personalized profiles of all GM vehicles they owned thus providing vehicle information, maintenance reminders, service history, owner’s manuals, and service center locations

• To switch from the BTS business model to a combination of BTS/BTO business model, GM created a new department with over 5000 employees called Order to Delivery. Their goals were to iron out problems and bottlenecks in the supply chain. Average lead times reduced by 50% to about 40 days and delivery reliability jumped from 68% to 90%. They also strengthened the link between engineering, manufacturing, dealers, and customers to allow GM to work more collaboratively with suppliers.

• GM created SupplyPower, which was a portal between GM and its suppliers allowing them to complete transactions and share information related to purchasing, sourcing of materials, quality and production control, logistics, engineering, and manufacturing. GM SupplyPower helped reduce operation costs, contributed to Vehicle Development Process via engineering collaboration, improved supplier quality, and improved supplier communication relative to product schedules and capacity plans.

• The “Big Three” American automakers launched Covisint: an online exchange allowing automakers to cross shop and for suppliers to bid on contracts for supplying parts to the manufacturers. Covisint promised to reduce inventory and more dynamically respond to the market and was expected to eventually speed up vehicle development times.

• GM integrated all third party logistic providers into one information system and contracted with Vector SCM to manage GM’s vast logistics network. GM now had the ability to track raw materials, empty racks, finished vehicles, service parts, and to locate all carriers resulting in improved service to dealers and car buyers.

• GM increased spending on IT and hired more than 200 information officers and business experts that were responsible for design, development, and implementation of major business processes in product development; product production; sales, service, and marketing; business services; and the supply chain to drive common solutions across those units.

• GM increased WAN bandwidth by 300% and increased LAN bandwidth by 3000%. GM began using only 1 CAD system worldwide, installed middleware applications to talk to each other, consolidated 40 call centers into 3, 19 databases into 3 global databases, and installed standardized software and hardware application architectures.

Results

• Costs of implementing IT was $1.7 billion, savings to the company were $2 billion. 62.5% of GM vehicle owners returned to GM making it the most loyal brand. 50% reduction in delivery lead times and 32% improvement in delivery reliability over the last two years were furthers signals of progress.

Case Discussion / Digest Questions

1. GM wants to create digital loyalty. What do you see are the company’s efforts so far that would achieve this?

GM focused on creating a digital loyalty network (DLN) by focusing on three components: “digital” – integrate IT into their business; “loyalty” – focus on the customer to increase their loyalty to GM; and “network” for working with GM’s suppliers to improve the supply chain. Besides standardizing computer systems and engineering systems, GM created online web portals such as GM BuyPower and GM SupplyPower. GM BuyPower offered customers an integrated online website that allowed customers to view availability of models at dealerships, view third party auto comparisons, get incentive info, request dealer’s best price, and apply for online financing. A natural extension of the BuyPower portal was the GM Owner Center which allowed existing customers to create personalized profiles, receive maintenance reminders, track service history, gain access to owner’s manuals, view informative videos of procedures in manuals, and locate service centers. This allowed GM to maintain relationships with exiting customers while gaining better customer knowledge to help develop “hot” products. GM also invested in telematics, such as OnStar which allowed them to interact with customer daily to strengthen “shopping” and “buying” aspects and serve as an ongoing communication link to customers in the ownership phase as well. GM further leveraged IT by consolidating 19 databases into 3 to better track customers’ preferences and to help anticipate their future dealings with GM by tracking their move across brands, locations, and other GM businesses.

GM SupplyPower created avenues for dealerships and suppliers to view the new and improved supply chain management system in real time so that they could mange the Build-To-Order and Build-To-Stock car inventories with much greater accuracy. To further facilitate communication between suppliers and automakers, the Big Three created Covisint. This open infrastructure allowed large and small suppliers to communicate with each other as well as the automakers in addition to providing GM with real-time inventory levels and forecasts.

2. Do you think GM should change its business to be based on a BTO model? What are the potential advantages and disadvantages of implementing such a model, compared to the current BTS approach?

GM should use a balanced approach to BTO and BTS. Many customers don’t really care for the exact features in their cars and are willing to buy whatever vehicle is available in stock. Some of the disadvantages for BTO are the lead times. If all vehicles were built to order, variation in the vehicles will severely impair the assembly line causing longer lead times than the BTS model. This will also cause costs to increase. Advantage is that the customer gets what he wants.

3. What are the advantages and disadvantages of a public market exchange like Covisint, compared with a private exchange? How should GM use both GM SupplyPower and Covisint in parallel?

A public exchange allows for suppliers to compete against each other giving GM the best price. GM and other automakers also have the opportunity to see which supplier is working with which automaker. This information could be used as a competitive advantage by other suppliers and automakers. GM should use Covisint to gauge industry pricing and should use SupplyPower to actually acquire raw materials.

4. Give a critical review of GM's three program areas so far. How well are they developed? Are they deep enough? What implementation steps would you recommend?

Digital – consolidation of IT systems as mentioned in the above summary shows their success in “digitizing” their business processes

Loyalty – GM was ranked as the most loyal brand in 2002, 11% above the closest competitor. This shows that loyalty is on the upswing

Network – Consolidated systems between suppliers, dealers, and customers. GM created SupplyPower, BuyPower, Owner Center, and Covisint to establish a vast network improving supply chain management.

They are quite deep. I believe the next steps should be integrating Research and Development into these networks to get a deeper understanding of customer demand

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