A new order?

There's much excitement over the auto industry's fledging Internet-based “to-order” business models. They're touted as systems that ultimately can streamline the building and ordering of vehicles.

But some of those models seem to challenge the industry's much-hallowed efficiency gains.

For example, Build-to-Order (BTO) increases variability in assembly and does so far upstream. Some observers even suggest that auto manufacturers will increase component inventory levels to engage BTO. As more parts are outsourced — including entire modules, not just components — this implies that suppliers also will need to stockpile.

All this could wreak havoc on just-in-time delivery, lean inventories, batch jobs and plant management. Havoc means higher costs and eroding already thin margins. Henry Ford must be rolling over. Will BTO have a measurable impact on imported vehicles? And how will BTO handle options that are only available through a dealer?

Yet the industry is fully cognizant that consumer expectations are rising. The need to leverage the web and technology is a response to those expectations. So what's to be done? Keep tailoring to customers' desires, but move the impact as far downstream as possible — where it can do the least damage to efficiencies. How about out of the factory entirely and into dealerships through Dealer Equip to Order (DETO)?

Upstream, automakers make vehicles as consistent as possible. Some of the remaining choices and options will remain factory-based (such as color and engine choice), but the majority will be installed at dealerships.

DETO at maximum integration would work as follows:

Consumers search dealer inventory for a vehicle and trim online. They then add the desired options (the as-configured price includes parts and labor costs for the dealer adds). The system also automatically displays the time when the vehicle will be ready based on the availability of service bay time and parts.

For out-of-stock parts, the system would look at expected parts delivery dates or the ability to borrow parts from a nearby dealer. You could even comparison shop based on delivery time. If the consumer accepts the configured vehicle and price, the system automatically:

So imagine this: At 8 a.m. you go online and within an hour find the trim level and color your want. You pop on the dealer-added options and the system tells you which dealers can deliver that vehicle and when. You find a dealer that can have your vehicle ready that evening, but you stop in a few hours before to work through financing and trade-in.

(Remember: one of the things that make our online industry different is the trade-in.)

DETO actually builds on industry trends, like the emergence of “stoptions.” This is my own term for “standard options” and refers to the trend toward items once optional becoming standard, such as power windows and cruise control.

Moving to stoptions can produce great upstream efficiencies by decreasing assembly line variability (tasks and part types) and decreasing unit component prices (more parts purchased typically means a lower unit cost). Stoptions also build on the understanding that there is a huge difference between getting less than you wanted (poor) and more than you wanted (neutral to good).

DETO builds on the stronghold that dealers enjoy today. Until viable replacements are implemented, dealers probably will have to be involved somewhere in the process — such as for trade-in valuation, test drives, obtaining financing, installing dealer-added options, etc.

Some major components are already installed by dealers, such as air conditioning on the base 2001 Honda Civic.

Further, modular assembly means that vehicles are being designed to facilitate “plug-and-play” contenting. With DETO, the dealers do the final plugging. As DETO gains ground, automakers and/or dealers may create regional completion centers. This low-tech option complements experiments by OEMs in making large, service-only facilities. Completion center staff could be OEM-based, dealer-based, outsourced, or a combination.

The accompanying chart shows the “chaos factor,” a relative measure of the extent to which a change in the system can create havoc. The further downstream, the less likely the total incidence of disruption elsewhere. BTO would interfere in the parts, systems, and modules zones, while DETO would come into play at the far right in the dealer zone.

As the industry seeks to create hybrid models that marry the needs of OEM's, dealers, the Internet, portals, and third-party technologies, it all seems to point toward DETO.

DETO keeps industry efficiencies at the forefront; continues stoptions; leverages the Internet, data, and tool; and keeps dealers as part of the process.

But it also keeps consumer choice paramount and has the potential to offer delivery in one business day — even for imported vehicles. Now maybe Henry can rest easy.

Lincoln Merrihew is vice president of corporate strategy for the Automotive Information Center, a division of Autobytel Inc., an online referral site.