ARC's 1st Law: As a "progressive" online discussion grows longer, the probability of a nefarious reference to Karl Rove approaches one

Wednesday, December 24, 2008

The Dealership Model, the Big Three, & Supply Chain Efficiency

Excellent analysis by Bob Krumm on another unsustainable factor in the US automobile market - the dealership concept.

A picture of the problem
Byline: bob | Category: Economy, Above the Fold | Posted at: 9:35 am

auto.jpg

This picture was above the fold at Drudge earlier today. It accompanied a story about the ever-evolving proposed auto-bailout. The picture, however, illustrates much of the problem, and contra-everything else you’ve read, it’s a problem that has nothing to do with the unions.

I have to say, the Supply Chain currently used by the Big Three - and in use for several decades - has been a traditional Push supply chain strategy: Build it and they will come.

The new mantra is all about transforming your supply chain to be Pull and to combine it with LEAN principles - originally developed by (surprise!) Toyota: Only build what your customer wants, when they want it.

In the go-go 90s, when the internets were just starting to be recognized as the transformational technology that it was, I argued that dealers should be put out of business and replaced with demo rooms with service facilities (owned & operated by the manufacturers). A customer would research their car on the web, select possible models of interest and schedule a test drive with the local demo room. They'd drive the car, kick the tires, etc and then place the order through the web, the Just-In-Time manufacturing process would kick in, and the car would be delivered to the buyer's door within a matter of days.

Benefits to the manufacturer? Control of the customer experience (which has devolved into one of the most painful experiences that people have when shopping) and elimination of an unnecessarily complex distribution system. It would also provide for a more efficient upstream supply chain, as only what is needed to meet actual customer demand is purchased, hired, etc.

Of course, this would hurt the dealers... and the unions, since there would be less labor required for the reduced (in reality, more efficient) demand. And, if one thing is clear from the entire Big Three debacle, it's that the management has a soft spot for the line workers, the dealer networks, and the status quo.

Also, pundits keep saying that there doesn't have to be a Big Three - there could be a Big Two. While their point is that some companies should be allowed to fail and the government shouldn't bail them out (which I agree with), I would counter that instead of a Big Two, there should be a Medium 20.

Innovation is the product of competition - the fiercer the better.

The coopetition that is taking place between the Big Three, Big Labor, and Big Government will doom the entire industry.

Unfortunately, we're going to Labor, Government, and Failed Business Models are all going to get a lot bigger in the near future - at the expense of the individual.

Your Co-Conspirator,
ARC: St Wendeler