Information Technology: Technology Strategies
At Ford, E-Commerce Is Job 1
No other manufacturer is pushing so boldly onto the Web
The Rust Belt is approaching Net-speed. It was just last June, when a Ford Motor Co. task force made a presentation to Chief Executive Jacques A. Nasser and his top managers. Originally assigned to study how the Internet could improve manufacturing, the team had gone all out, showing Nasser a computer simulation of the auto company of the future. The vision was breathtaking: factories that built cars to order, dealerships that reported problems instantly so that plants could make adjustments, and suppliers that controlled inventories at Ford factories--much the way retailer Wal-Mart Stores Inc. does when it gives vendors responsibility for stocking its store shelves. "We were mesmerized," says Alice Miles, a veteran Ford purchasing manager. Nasser gave it an instant thumb's-up. "This is nothing short of reinventing the auto industry," he says.
Since then, the old-line Ford has been latching on to the Net like some new dot-com. In January, Ford showed off futuristic "24/7" concept vehicles packed with cybergoodies such as Internet connections and e-mail. Miles now heads auto-xchange, a newly created online trading mart for Ford's 30,000 suppliers that began taking orders in February. And in an effort to wire up its far-flung workforce of 350,000 people, Ford announced on Feb. 3 that it would offer each of them a home computer, a printer, and Internet access for $5 a month.
Some 90 years after Ford led the world into the era of mass manufacturing, the No. 2 auto maker wants to reprise its trailblazing role--and cash in the way it did decades ago. By using the Net to bust up bureaucracy and unleash radically new ways of planning, making, and selling cars, Ford could become a model of efficiency in the Internet Age. Streamlining suppliers and distribution using the Web could amount to savings equal to 25% of the retail price of a car, says analyst Jonathan Lawrence of Dain Rauscher. The auto-xchange mart could generate $3 billion in transaction fees within five years--of which Ford would get a hefty cut. And that doesn't take into account the monthly service fees of $20 to $25 that Ford could collect if drivers should want to hop on to the Net while roaring down the highway. Says David Bovet, an e-commerce expert at Mercer Management Consulting Inc.: "Detroit will be where the rubber hits the road on the Information Highway, a real acid test for the potential of e-business."
Nasser's vision is a sweeping one. He pictures the day when a buyer hits a button to order a custom-configured Ford Mustang online, transmitting a slew of information directly to the dealer who will deliver it, the finance and insurance units who will underwrite it, the factory that will build it, the suppliers that provide its components, and the Ford designers brainstorming future models. To buyers, it will mean getting just what they ordered delivered right to their doorstep in days.OUT IN FRONT. Plenty of old-line manufacturers are moving into cyberspace, but none so boldly or so broadly as Ford. And, with the exception of archrival General Motors Corp., none on such a huge scale. This past summer, GM launched e-GM, an initiative to link its suppliers and dealers and to forge Net ties with consumers at their PCs and in their cars. GM, however, has not yet announced plans to wire up its entire workforce. Still, the two are miles ahead of the rest of auto-dom, says David Cole, director of the University of Michigan's Office for the Study of Automotive Transportation. "They're just scaring the liver out of everyone else," he says.
Or are they? DaimlerChrysler and Toyota Motor Corp. are pursuing online ventures and experiments, but on a much smaller scale. Jurgen Hubbert, a member of DaimlerChrysler's management board, says he's not worried about rushing into grand Internet deals: "Why jump into this sort of business when nobody makes money?" he asks.
So far, Wall Street isn't impressed, either. Despite its bold moves, Ford's stock is down 7.5%, to 46, since its sweeping plan was unveiled on Sept. 15. Analysts wonder if Nasser has bitten off more than he can chew. While tantalized by the potential of e-business, they worry that all the cyberdazzle will distract Ford from its bread-and-butter task of designing and building cars and trucks.
Certainly, there are plenty of risks. Skeptics wonder if consumers really want vehicles loaded with costly gadgetry that may be prone to technical problems and obsolescence. "People want to bring their portable communications devices with them," says DaimlerChrysler Chairman Robert Eaton. "Are we going to embed all those devices in every car? No." And some suppliers fret that the big cost savings Ford says will result from its online bazaar auto-xchange could instead squeeze vendors to the breaking point.
And for all its potential, e-commerce may find itself up against the biggest roadblock of all: a century-old industry with an infrastructure that impedes change. Slick new online ways to sell cars directly to buyers collide with an entrenched dealer base protected by tough state franchise laws. And systems that are capable of building custom cars actually clash with the economics of the high fixed costs that prod plant managers to run factories at full tilt.
It's not just ignorance that has made the Rust Belt slow to imitate such tech idols as Dell Computer Corp. Detroit is saddled with a much more complex manufacturing task than that faced by any computer outfit. Starting from scratch allowed Dell to create a state-of-the-art, direct-sales model. Over a 16-year period it has been able to tune its ordering and manufacturing processes--and update them for the Web. That's how it was able to custom assemble more than 25,000 different computer configurations for buyers last year. The company deals with hundreds of suppliers, but about 90% of its parts and components come from two dozen companies. And it works closely with them to make sure the parts are designed for snap-in assembly and for just-in-time delivery to its factories.
But even Dell's level of complexity is mere child's play compared with the challenges in the build-to-order auto business. Cars can contain 10,000 parts and, across Ford's entire line, some 1 million possible variations. Ford's F-150 full-size pickup truck, alone, is offered in well over 1,000 possible combinations of engine, transmission, body style, and color--without counting the truck's optional features.
To pull off the monumental task, Nasser has created a business group called ConsumerConnect that is driving the e-business efforts across company lines. He also went outside the company to find the team he wanted to lead it. Brian P. Kelley, 39, a former General Electric Co. appliance sales boss who was known there for championing customer communications and launching a GE Web site, was named to head ConsumerConnect last September. Since then, the boyish Kelley has recruited dozens of other Net whizzes from the likes of Whirlpool, Booz, Allen & Hamilton, and Procter & Gamble. Says Michelle Guswiler, director of corporate initiatives: "We see ourselves as a kind of Alpha squad, here to lead change and help make the cultural difference required to bring Ford into the 21st century."
One of ConsumerConnect's most promising efforts is auto-xchange, an online trading site where its 30,000 suppliers can be linked to Ford for quicker communication, better prices, and faster delivery. Analysts say auto-xchange could save Ford $8 billion in procurement prices, and nearly $1 billion more from reduced overhead, paperwork, and other transaction efficiencies each year. Ford owns a majority of auto-xchange, with Silicon Valley giants Oracle Corp. and Cisco Systems Inc. each having a stake.
The troika's plans for auto-xchange are much dreamier yet. They hope it will become so popular that everyone in the auto industry will use it to barter for parts and office supplies. Indeed, Wall Street is expecting that Ford will take auto-xchange public by 2001, when it would have estimated revenues of more than $500 million.BIRD'S-EYE VIEW. To make Ford's e-commerce ventures robust, there's a lot that must go on under the hood. Oracle is doing the heavy lifting on the software and databases needed to swap information and conduct transactions seamlessly. Cisco, which signed on as a partner on Feb. 9, will provide much-needed networking expertise. And Microsoft Corp.'s CarPoint, an auto sales and information Web site, will help Ford develop a build-to-order service. Internet service provider UUNet, PC maker Hewlett-Packard, and middleman PeoplePC signed on to put Ford's sprawling workforce online, starting in April.
Other tech partners are helping Ford get closer to its customers. Online powerhouses Yahoo! and Priceline.com, along with Denver-based call-center wizard TeleTech, will design systems that deliver highly personalized warranty, loan, repair, and customized services based on more detailed knowledge of driver lifestyles and buying habits. "It could give us a bird's-eye view of what consumers want out of a car before we build it," says Ford design chief J Mays.
Meanwhile, ConsumerConnect and Ford's Visteon auto-parts unit are teaming up to wire future Fords for e-mail and news, voice-recognition systems, and satellite phone services that will, says Kelley, "turn the family car into a Web portal on four wheels." The payoff: a whole array of new services in a marketplace where basic car prices are declining. Better yet, Web services and phones can be sold on a subscription basis, generating monthly fees that keep cash flowing into Ford's coffers for the life of the car.
Given the risks, why does Nasser chance it--especially since Ford is already the most profitable player in the global auto industry? The Net offers a chance to reinvent manufacturing. Forget marginal efficiency improvements. At stake here is the holy grail of carbuilding: Changing from the century-old "push" model to a streamlined "pull" system would save auto makers billions of dollars. Traditionally, an auto plant cranks at full capacity--building a predetermined mix of cars--and ships them to dealers who then rely on strong-arm tactics or fat rebates to move the ones customers don't want.PINPOINT TAILORING. In a pull model, customers decide what they want built. That could shorten the current 64-day average time from customer order to delivery, freeing a good chunk of the $60 billion now tied up in U.S. completed-vehicle inventories, say Ernst & Young auto consultant Lee A. Sage.
To do this, carmakers would need to deliver those cars swiftly. And they would need to tailor vehicles and pricing with pinpoint accuracy, or high-overhead factories would sit idle. Kelley says Ford hopes to deliver its first high-volume built-to-order vehicles within two years. The company would probably first offer certain popular combinations for quick delivery, taking more time for unusual configurations. Ford hopes to see the results in its bottom line within five years. By then, Kelley says, Ford's Net initiatives could save the company billions in waste.
Reinventing manufacturing while juggling high-tech alliances may be a Herculean task, but Nasser figures he has no choice. Still, Nasser is determined to forge ahead. "We're going to turn the old ways on their ears," he says. "It might not happen right away, but change is inevitable." Judging by Ford's progress since last June, Nasser intends to make sure the company wastes no time making it happen.
For a profile of Ford's Brian Kelley, see the Movers & Shakers section
at ebiz.businessweek.comBy Kathleen Kerwin in Detroit and Marcia Stepanek in New York, with David Welch in DetroitReturn to top