Lean Thinking: Creating a No Fear Value Chain Based on Collaboration

John Waraniak
Director, E-Business Speed
Johnson Controls, Inc.

Competition today is no longer just between products and services, but between business models and value chains. Pushing the envelope of manufacturing enterprise performance and going to the next level of lean thinking takes risk, courage and collaboration. And value chain collaboration has emerged as the defining concept in these very early years of the automotive second century.

Winning today's e-race for automotive leadership requires flawless execution and an obsession for speed. Automakers and suppliers that can best manage and exploit E-business and collaborative tools, technologies, and business practices will lead the industry. Just as in motor racing, you've got to process information faster than your competition, and have the courage to turn your knowledge into action, profits and results. A "no fear" value chain is not about recklessness. It's about facing the fears and challenges of collaboration and using those fears as a catalyst to energize, not paralyze business model innovation. In today's automotive business environment, the biggest risk is not taking one.

Collaborative commerce, or C-commerce, is fundamentally the transformation to new business models that focus on the intersection of collaborative value chain practices and Internet technologies. Value chain performance is a function of both operational effectiveness and strategic positioning. Operational effectiveness is about adapting, achieving and extending best practices and lean thinking - it's running the same race faster. Strategic positioning is about creating unique competitive advantages through product and process differentiation, master planning, modularity and mass customization. It's knowing where and when to commonize and where and when to differentiate - it's running a different race.

The Internet is the single most important driver of operational effectiveness and collaborative commerce. It represents an opportunity, as well as a threat because it has the ability to make a big company fast, and a small company look big. The Internet and buy-sell, transaction-based exchanges will force competitive convergence in operational effectiveness, that is, everyone will eventually have access to the same business practices for commodity products and services. However, as markets and transaction exchanges become more self-service, consumers and businesses will rely more on brands, differentiation, and collaborative exchanges. Traditional sources of competitive advantage, such as proprietary content, intellectual capital, product and process knowledge, and personal relationships will re-emerge as Internet penetration increases and collaborative exchanges for on-line product design and development are deployed.

Automotive C-Commerce
As the auto industry shifts from a vertical-integrated industry and product and structure to a horizontal-modular value chain model, the focus is on mass customization and build-to-order production strategies. Mass customization is the ability to design and manufacture personalized products and services at mass production efficiency and speed. It is the ultimate measurement of manufacturing enterprise performance and responsiveness.

Web-native collaborative technologies are based on federated architectures, which loosely couple integration of data and application functionality and do not require common data models or IT platforms. This is significant because a 1999 study conducted by the National Institute of Standards and Technology showed that interoperability problems due to data quality within the automotive supply chain alone costs as much as $1 billion a year. Managing disparate CAD/CAM, PDM systems, and complex interfaces between content and organizations, coupled with significant responsibility and risk factors, are often cited as major reasons why auto companies have not moved quickly to adopt C-commerce strategies.

As leading automakers and suppliers move closer to C-commerce they realize that collaboration, not contractual obligation, is the key to profitable partnerships. Collaboration is a driving force behind Johnson Controls' NexCommerce™ business model and Peer Partnering™ strategy. With Peer Partnering, Johnson Controls gets the expertise it needs without having to make costly acquisitions and additional capital investment by leveraging the technology expertise of each company. Early adopters of C-commerce in automotive will achieve first-mover advantages, much like their counterparts Cisco, Celestica, and others have already achieved in high-tech by using their supply and netbatsu partners to achieve profitable scalability and growth.

Automotive Exchange Evolution
Collaborative workflow and value chain practices in the automotive industry are being accelerated by the development of three types of B2B Exchanges. The first are the vertical, semi-private marketplace exchanges for real-time purchasing, procurement and on-line auctions, quotes, and Internet requisitioning. These types of exchanges are already well underway in North America and Europe. The second wave of B2B exchanges is focused on design and engineering for collaborative product and process development, sourcing and program execution. The third area of exchanges being developed for automotive comprehends the entire networked enterprise value chain to provide real-time visibility and decision velocity for interactive buying-and-selling, conceiving-and-building, as well as ordering-and-fulfilling business processes.

While most E-business hype and attention over the past year has focused on indirect purchasing, procurement exchanges alone cannot achieve operational excellence, let alone strategic positioning. Therefore, public exchanges, as well as more-private exchanges will coexist as collaborative practices evolve in the auto industry. Of the 40% to 70% vehicle content outsourced to suppliers, 80% of that work is for engineer-to-order content that requires intellectual capital collaboration and sharing of proprietary content. And no competitive automaker or supplier would want to put that type of information on a public marketplace exchange where security will be compromised.

Private B2B exchanges are becoming increasingly important because they enable interactive vehicle systems engineering, vehicle module Integration, and collaborative production techniques based on configuration postponement - making the quest toward the 5-day car and 12-month product development cycle profitable realities and competitive differentiators. Postponement is not procrastination. It's postponing the point of product differentiation and moving the customization point closer to the consumer by de-coupling the final configuration or logistics point. The need to get closer to the consumer, and where true demand is actually created, is what differentiates collaborative value chain thinking from traditional supply chain management.

In summary, C-commerce is all about getting innovative products to market faster and more profitably by using the Internet to achieve real-time value chain collaboration across the entire enterprise. Manufacturers that do not know how to apply collaborative value chain practices and technologies will be beaten by those who do. To paraphrase the great American philosopher Yogi Bera, if you don't want to collaborate, no one will stop you.

John Waraniak
Director, E-Business Speed
Johnson Controls, Inc.