Automotive Blog

What are the impacts of product proliferation on lead times and the costs of customer satisfaction?

Bw BLOG

It is a mathematical fact that most possible combinations of powertrain, options, paint and interior trim on a model offered to the customer are never built. Or as one supply expert within a volume manufacturer put it, “the take up levels of offered variety is homeopathic!”

The variety offered per model of car, to the customer, is much higher than generally assumed, due to the exponential nature of configuration of a modular product. Furthermore, this variety offered per model has crept up significantly in the last twenty years, despite attempts by several brands to carefully contain or cut proliferation; the chart shows the variety offering for the benchmarked models and brands from the new vehicle supply survey in 1994 compared with the same for 2012 (the data is UK only, as the data for the four main European markets are to be updated in 2014 to compare with past surveys of EU4 variety offering). The data is grouped for Volume, Japanese and Premium brands building in Europe, categories based on supply system differences, which allows a comparable set of data between 1994 and 2012. The vertical scale is the average of the total possible variety offered per model, on a log 10 scale (where 1 = 10, 2 = 100, etc.). Variety was always high for premium brands, but the offering has crept up significantly for all, including that from Volume and Japanese brands, (the latter historically offering low variety, even when building in Europe). Our research shows that lead times have been increasing in recent years, as have lost sales due to non-availability of product within acceptable lead times. Furthermore, the compromises made by customers on the specification they receive have not improved in twenty years.

There is a link between variety and lead time, as despite order amendment capability, some items are constrained and so actual order to delivery lead times can be much longer for some items than others. As one expert interviewee at a manufacturer stated in a recent discussion, even “a fairly basic model that we offer has 187 variations of steering wheel including electronics”, and variety at this level means that amendments made to individual orders for customer build to order can push build slots back in the production schedule, and have a ripple effect on all other orders in the pipeline. At the same time, some manufacturers have been compelled to pursue earlier invoice dates and end of year zero stock objectives, in order to improve the reporting of working capital, an objective that appears to be in direct conflict with strategies for optimising the variety offering.

Our work in 2014 in this area aims to better understand the impact of variety on the stability of the order pipeline, and how order tagging and invoicing policies impact on variety offerings and customer satisfaction, building on our past research on leading order amendment systems. The output will include recommendations on how lead times can be shortened, via changes to how offered variety is decided. This work will be reported in late 2014 and early 2015, including a workshop in Frankfurt on the 4th December 2014.

 

Written by Ben Waller
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