InformationWeek

nternational Truck and Engine Corp. is uniquely positioned to offer two perspectives on collaborative manufacturing, a process automakers are poised to embrace as they push to build customized vehicles on a massive scale and move to increasingly lean inventory systems.

As one of the largest (or tier one) engine suppliers to Ford Motor Co., International knows how hard suppliers have to struggle to get up-to-date information on what components to build and when they should build them. As the manufacturer of its own brand of heavy trucks and school buses, the company already uses the kind of just-in-time inventory-management system automakers long for: International builds every truck and bus to order and can promise a delivery date within 24 hours of a customer's order inquiry.

If automakers want to get where International is, they have to take real-time collaboration seriously. "The only way we've been successful with mass customization and just-in-time inventory is by having visibility into our suppliers' capabilities, and by giving them visibility into our actual demand and production schedules," says Art Data, International's VP of IT. International built its supplier-collaboration system using electronic data interchange and two proprietary Internet applications. Data hopes the auto manufacturer-led exchange Covisint--backed by DaimlerChrysler, Ford, and General Motors--will soon provide similar capabilities for automakers to collaborate with their suppliers.

But automakers haven't always trusted suppliers to use the information they collect on what models are selling to make good decisions on what parts to build, AMR Research auto industry analyst Kevin Prouty says. A key fear has been that suppliers might underestimate what needs to be built and a parts shortage could halt a production line.

"We're just starting to see the automakers beginning to trust suppliers to take over a significant part of the process of matching parts production to demand," he says. The new attitude comes in response to suppliers' concerns that automakers want to reduce inventory at the same time they're pressing to custom-manufacture cars. Prouty says suppliers worry that without access to automakers' real-time demand and production data, they'll be forced to build and store more parts, thus running a bigger risk that some parts will never be used in cars. "If I'm a supplier, and I don't have the ability to decide what to build based on demand, I have to build and hold more inventory," Prouty says. "If car sales don't go the way a manufacturer expects, I'm stuck with that inventory."

Automakers' hesitancy to share data with suppliers is typical of the manufacturing industry, from small suppliers to the producers of the most sophisticated engineered products. InformationWeek Research's survey of information sharing and collaboration shows that only 12% of manufacturers share information electronically with their suppliers most often, ranking business partners and customers as higher priorities. In contrast, 31% of retail and travel companies and 15% of health-care organizations put suppliers as their top priority for sharing information.

However, the manufacturers that do share data with suppliers are on the right track. They provide their suppliers with critical information that can speed efforts to develop lean inventory systems. Sixty-seven percent of manufacturing companies that share information with their suppliers provide data on customer orders in one form or another, a rate that easily surpassed all other industries in the survey. Fifty-nine percent of manufacturers provided inventory information to suppliers, an indication that some level of vendor-managed inventory is being adopted.

Moving forward on Covisint is key to the auto industry, says Ralph Szygenda, GM's VP and CIO. "We need to link suppliers to [automakers] in a way that will enable automakers to manage the phenomenal complexity of build-to-order cars," he says. Part of that complexity is pushing real-time information on demand and production scheduling to suppliers.

But International, as a Ford supplier, knows all too well that this isn't happening now. Instead of receiving information directly from Ford on exactly what cars it has sold and the date and time they'll be built, International must decide how many engines to build for Ford. It bases that on three pieces of information: Ford's long- and medium-term forecasts, which are based on market conditions and historical sales data; Ford's inventory of trucks, which International breaks down by model and engine configuration; and publicly available industry data on Ford's truck sales.

When there's a difference between Ford's forecasts and what the existing inventory of its trucks and industry sales data show, International has to get on the phone to clear up the confusion. That just makes things harder for everyone, Data says. And many suppliers won't buy into the just-in-time model until they have up-to-date demand data and production schedules. "Whether we're talking about our business selling engines to Ford or our truck- manufacturing business and our suppliers, build-to-order and lean inventory requires real collaboration," Data says.

Some of the largest auto-industry suppliers agree, and they didn't wait for Covisint to go live to establish close collaboration links with the lower-tier suppliers they manage. Dana Corp., a tier-one supplier of chassis, engines, and other major automotive components in Toledo, Ohio, is building a supply-chain management system that will provide information on demand to its own suppliers. Prouty calls Dana's supply-chain system the most extensive in the industry.

Dana will use Covisint as its interface to automakers that are members of the exchange, but will rely on its own system to work with its suppliers and with other automakers that aren't members of Covisint. With software vendors i2 Technologies Inc. and Ariba Inc., Dana is tying together its 320 manufacturing plants worldwide for procurement of certain supplies. It recently said it will use supply-chain software from SupplySolution Inc. to connect its own operations with those of its suppliers.

Dana's goal is to have the same kind of real-time inventory data flow between itself and its suppliers that Toyota has with Dana. Each time a Dana-made part is installed in a Toyota anywhere in the world, a light is lit up on what is called a Kan Ban (just-in-time) board for a particular assembly. When all the lights on the board are lit, it's time for Dana to send another shipment to the carmaker.

Another dream of automakers that's also tied to collaboration is to cut the time needed to design a new car model to 12 months from 48 months. According to the InformationWeek Research survey, 67% of manufacturers that share information electronically with suppliers also share product design and engineering information.

International's Data says that such tools will prove just as valuable as collaborative supply-chain tools in the long term because business processes that are now done sequentially will be done more or less simultaneously. Already, collaborating up front on parts design helps cut the amount of reengineering that must be done as a proposed design nears the production stage.

Compass, an Internet-based design collaboration tool that International developed internally to manage reengineering of parts in existing trucks, has already saved the company $40 million, and is expected to save $160 million in the next four years. Says Data: "If you reduce the design cycle by 50%, what's the value of that? We think it's worth millions."

It may be a difficult cultural change for automakers to open a window on what they're actually selling, and perhaps even more difficult to open a window on what they're planning to build. But it seems clear that if they want to reduce development time, move toward a leaner inventory, and offer mass customization with a promised delivery date, they have little choice but to develop trusting relationships with their suppliers. They have a long way to go, but a journey of a thousand miles begins by starting up the engine.