NATIONAL UNIVERSITY OF SINGAPORE

SCHOOL OF COMPUTING

IS1105 TERM PAPER

Impact of Information Systems on theAutomobile Industry

Authors:TEH Chien Hui, Alvin (A0069232)

GAN Soon Bing (A0073817Y)

YE Mei (A0078119)

ZHU Shunpeng (A0077830)

Tutor:YI Cheng

Tutorial Group 3 Team D

Submitted in partial fulfillment towards credit forIS1105: Strategic IT Applications

Sunday, 13 March 2011

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Contents

1 Introduction 3

2 Changing the nature of competition in the automobile industry 3

2.1 Strengthening brand differentiation . . . . . . . . . . . . . . . . . . . . . 3

2.2 Enabling new business models . . . . . . . . . . . . . . . . . . . . . . . 4

2.3 BTO enabling new avenues of interactions with customers . . . . . . . . 5

3 IS improving Operations 6

3.1 Improvement in Design and Manufacturing . . . . . . . . . . . . . . . . 6

3.2 Managing and improving supplier quality in procurement . . . . . . . . . 7

3.3 Improving Inventory management . . . . . . . . . . . . . . . . . . . . . 8

4 Challenges to IS 9

4.1 Fragmentation of Systems . . . . . . . . . . . . . . . . . . . . . . . . . 9

5 Conclusion 10

Bibliography 11

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Chapter 1

Introduction

Information systems (IS) have created new opportunities and provided solutions for cer-

tain issues facing automobile companies. Companies have taken advantage of this to

improve operations, enhance value to their products and to their customers, as well as

enable new business models.

In this paper, we explore the use of Information Systems in vehicles, the deployment

of Information Systems to support business operations of manufacturers, and the impact

of doing so on automobile companies.

Chapter 2

Changing the nature of competition inthe automobile industry

On-board systems inside vehicles have become a point of differentiation to discerning

customers looking for cars with more than just the ability to transport people from one

point to another. The introduction of information systems inside cars have enabled manu-

facturers to provide their customers with extra functionality, thereby improving the desir-

ability of the product towards customers, and at the same time enable new business models

through the provision of services to consumers. This changes the nature of competition

in the industry.

2.1 Strengthening brand differentiation

With rapid growth comes increased competition; similarities in products across manufac-

turers have reduced brand differentiation across the board. This problem is exacerbated

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with the rise of copycat manufacturers, whom copy designs and specifications of vehicles,

and proceed to undercut the original manufacturer’s profit margins. Thus, to improve their

brand standing, individual manufacturers have resorted to the inclusion of exclusive fea-

tures to heighten customers’ brand awareness. Information systems are extremely useful

in this aspect, as the customised software-hardware combination is harder for competitors

to duplicate.

Each manufacturer has its unique approach to strengthening their in-vehicle informa-

tion systems. For example, Ford’s Sync system allows drivers to do online search for their

desired destination and then direct drivers to reach their destinations with the assistance

of a GPS-guided direction system. BMW’s auto parking assistant system help drivers

to park their car automatically. With the help of these information systems, these com-

panies differentiate their products from the competition and improved their brand value

(Colias 2010). According to Ford’s Vice-President of Product Derek Kuzak, a third of the

company’s 14 percent increase in revenue, or about $1,000 per car, was due to application

of newly available technology. As can be seen, technological improvements have enabled

the companies to be more competitive in this traditional industry, and serve to accelerate

the companies’ growth.

This competition of value-added Information Systems may be characterised as in-

tense. Many features once considered proprietary reach feature parity across manufactur-

ers quickly. Information Systems that provide GPS navigation are now common in cars

across manufacturers. This demonstrates that the use of IS in vehicles has become a core

value-added area in the industry, and poses new challenges as well as opportunities for

manufacturers in the industry.

2.2 Enabling new business models

On-board information systems have allowed manufacturers to explore and invest in new

business models, and thus create new streams of income for them. This was not possible

before the existence of Information Technology, when much of their revenue came mostly

from the sale of vehicles.

OnStar, General Motors (GM)’s on board vehicle system, provides their customers

with a set of safety, security, and convenience features such as Automatic Crash Response,

Stolen Vehicle Assistant, and remote control smart-phone application MyLink and so on,

all of which require customers to pay a monthly recurring subscription fee of US$28.90

per month. This presents a new stream of recurring income for General Motors. In fact,

GM is planning to pursue this services market by providing the OnStar service for other

non-GM vehicles on the retail market (Korzeniewski 2011).

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2.3 BTO enabling new avenues of interactions with customers

The fast changing demand and stiff competition into the automobile industry forces firms

to seek new channels and ways to stay competitive. While some look into product and

service differentiation, others look into the possibility of customisable Build-To-Order

(BTO) cars. This approach stems from the idea of mass customisation, with promise of

offering customers greater satisfaction and flexibility in their automobile purchase expe-

rience.

BTO has garnered the interest of many automobile producers and a number of them

have already embarked upon this production approach. Ford Motors and General Motors

have already launched sites offering BTO cars, namely FordDirect.com and GMBuy-

Power.com (Agrawal, Kumaresh & Mercer 2001). Both of these sites offer consumers the

opportunity to customise their automobile purchases from a list of available specifications

ranging from vanity choices such as colour, to under-the-hood changes, such as engine

specifications.

This approach is complex and requires the intensive application of IS throughout the

value chain. The use of IS begins even before the order is place, where engineers and

design teams collaboratively design and agree on automobile designs with the use of col-

laborative CAD (Computer Aided Designs) software. These designs then appear on the

e-commerce websites, where customers select their preferences and make orders. The

placed order generates a list of material requirements, which are communicated to suppli-

ers that are seamlessly linked via already established supply chain systems. IS is crucial

in the success of the BTO approach; by minimising lead time, improving supplier agility

and responsiveness to changes in demand.

Through implementing the BTO system, automobile companies are able to offer greater

value and satisfaction to the consumer in contrast to the dealership sales model. This

change in how automobile companies interact with their customers boosts the companies’

competitiveness.

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Chapter 3

IS improving Operations

While the incorporation of Information Systems in the innovation in products are part and

parcel of automobile makers’ strategies, a majority of the IS use may be found within the

direct operations of the manufacturer.

3.1 Improvement in Design and Manufacturing

Designing new automobiles is a very long and complicated process traditionally involving

multiple design iterations and corrections. In this aspect, CAD (Computer-aided Design)

tools ease the design process by boosting the productivity of designers, enabling them to

prepare their drawings and specifications online, where design revisions and error correc-

tions may be made with less effort as compared to hand-drawn designs.

Automobile companies have not stopped at this, however. Manufacturers have added

collaboration capability to their CAD tools, outright transforming it into a full-blown tool

capable of inter-departmental collaboration. With this, companies are able to create a

more inclusive role for personnel across the engineering, design and manufacturing.

Doing so has served to promote cross-departmental design collaboration. Lawrence

(1998) quotes Gene Consolo, engineering director of North American Operations (NAO)

Design & Engineering Operations at the General Motors Technical Center, who described

the company’s CAD system as an all-inclusive system that covers everything from design,

production, marketing, and service.

Collaborative CAD systems have enabled the implementation of new design paradigms,

such as concurrent engineering. Concurrent engineering refers to the involvement of

manufacturing, marketing, and purchasing personnel in the early stages of designing

a new product to co-develop the product with the engineering and marketing depart-

ments (Stevenson 2010). It gives these cross-functional departments a first-hand view

of progress and problems, and enables these departments to plan their department’s pro-

cesses with the new product in mind.

Thus, it is not hard to see that CAD systems also enables the manufacturing person-

nel to plan the manufacturing process design, and as well as point out which areas are

not feasible with current available manufacturing capability (Schroeder 2008); therefore

ensuring the practicality of the product design, and reduces the time it takes to go from

design to production.

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In addition, CAD systems have broadened the reach of corporations, allowing them

to harness talent from across the globe to provide input, and to design the specifications

of new products, 24-hours a day; work is passed on from locations retiring for the current

work-day to locations beginning a new work-day. This idea is also known as the Follow-

the-Sun philosophy, and dramatically cuts down the overall time required to design a new

car. In General Motor’s case, the manufacturer managed to achieve a stunning saving in

design time for the company’s Electric Volt vehicle from 36 months, down to 29 months,

which sharpened the company’s competitive edge (McCafferty 2011).

The process improvements, and greater participation of personnel enabled by infor-

mation systems help to make design and manufacturing process smoother, and cut the

design to production time for new products down, enabling companies to iterate more

new products in the same time period as compared to design processes without such sys-

tems.

3.2 Managing and improving supplier quality in procurement

Procurement plays a significant role in manufacturers’ business process. Time and man-

power is wasted with manually checking and handling suppliers who either deliver late, or

deliver incorrect shipments and services. Furthermore, it is not easy to determine whether

a supplier should be dropped for poor reliability. To properly quantify the performance of

their suppliers, automobile companies have deployed information systems that integrate

the functions of purchasing with the ability to assess supplier performance. Such a system

enables them to evaluate their supplier’s performance, quantify and rank them, so as to

make informed decisions on which suppliers to continue sourcing products and services

from.

The BMW Procurement System handles the purchase of supplies and services for its

plant operations (Avery 2008). BMW rates suppliers on a scoring system that is split be-

tween objective measurements of performance metrics such as on-time delivery or com-

pletion, fill rate, invoice accuracy; as well as direct assessments by the end-user within

the company. The complete assessments are then provided to the suppliers to help them

improve their performance.

Managing feedback with the help of the system has been instrumental in assisting the

company’s suppliers to meet performance targets: Avery (2008) cites a marked improve-

ment in all rankings (53 green-rated suppliers to 63, etc.)

In addition, the utilisation of such a feedback channel has enabled BMW to deepen

working relationships with its suppliers to resolve performance issues, where previously

the dominant resolution was by dropping or changing problematic suppliers (Helper &

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MacDuffie 2001).

3.3 Improving Inventory management

Holding parts inventory is an undesirable side-effect of automobile makers’ business pro-

cess in order to produce vehicles, since they need to keep enough parts in a reasonably

reachable location so that production may be uninterrupted; yet at the same time, too

much inventory increases costs and risks related to storing the raw materials (e.g. cost of

rental space, risk of obsolescence). Therefore, a desirable concept in the manufacturing

process is Just-In-Time inventory handling.

Just-In-Time inventory handling requires parts to be delivered by suppliers only at

such a time that it is used almost as soon as it reaches the production facility. Such a

process would require a lot of coordination by hand, and is thus a natural process to be

automated through the use of an information system.

Cami automobile is an example that enabled JIT inventory handling through the au-

tomation of its the part delivery system at its assembly line. Parts from suppliers are

unloaded and injected into the production line with the help of automation systems. In-

formation intelligence within these systems coordinate the flow of materials within the

plant electronically. In contrast with the old system of eyeballing the various part lev-

els at the production line, Cami was able to deliver parts for 190,000 vehicles in a year,

which represents an almost 400% improvement over the previous figure of 50,000 vehi-

cles (Trebilcock 2007).

However, implementing an information systems for the management of inventory does

not mean that manufacturers’ existing systems remain the same forever; the introduction

of new technologies as they appear serve to encourage the evolution or replacement of

their existing information systems.

Hyundai Motors’ subsidary, Glovis, used to stick bar code labels to part boxes. While

information about the parts may be tracked by scanning the bar codes, it is a manual

process, and requires human intervention to scan the bar codes. After modernising the

tracking system, the company can now track cardboard boxes of vehicle parts destined for

Hyundai factories with Radio Frequency Identification (RFID) tags (Anonymous N.d.).

These tags contain information related to the shipment, which are automatically tracked

as each part passes through a special RFID interrogator gate. Workers can then verify the

information in the tags against the actual order information, reducing the risk of human

errors, and improved the traceability of the various parts in the plant.

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Chapter 4

Challenges to IS

While Information Systems (IS) use has been beneficial to automobile companies, the

proper implementation of such systems is important in order to reap the most benefit. A

key consideration would be the potential fragmentation of systems, an undesirable sit-

uation where different departments utilise a non-uniform platform within a company’s

deployment, as well as incompatible data formats with supplier systems.

4.1 Fragmentation of Systems

Segregation of IS causes decreased efficiency in the value chain: the data and software

incompatibility across heterogeneous systems break information flow, and decreases effi-

ciency and flexibility (McAfee & Brynjolfsson 2008). This problem is present both within

internally, between departments, and externally, between supplier and manufacturer. This

lowers the overall efficiency of the value chain. Therefore, there is a need for a standard-

ised system both internally and externally to allow the seamless flow of information.

Internally, the challenges of implementing a standardised IS comes mainly from the

resistance of departments. Moreover, there is a need to handle data redundancy within the

IS; making information available where they are needed and hiding them where they are

not needed. Necessary information enhances the workflow of value chain. For example,

product designs from the design department could be made available to engineering, mar-

keting and procurement department, such that production facilities could be configured,

marketing plans could be drawn and materials could be procured concurrently. Con-

versely, making unnecessary information available where they are not needed leads to

annoyance and decrease in productivity. Therefore, the design of the IS plays an pivotal

role in handling these redundancy and eventually gaining user acceptance, but this is by

no means an easy goal to achieve.

Externally, there is a need to develop partnerships with suppliers and distributers, as

opposed to adversarial relationships (Helper & MacDuffie 2001). To achieve this, au-

tomobile manufacturers have to come out with a value proposition and communicate to

all parties within a value chain, and set clear goals for the supply chain. This goal en-

courages long-term partnership and collaboration between parties, versus an adversarial

relationship where cost is the major determinant to procurement decisions. With secu-

rity in partnership, the value of implementing a standardised system that aligns with the

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automobile firm becomes obvious to the supplier.

Chapter 5

Conclusion

In this paper, we have explored the application of Information Systems, and its impact

in automobile manufacturer’s core business functions. It is evident that augmenting such

systems in their operations have given the manufacturers improved efficiency, savings

and flexibility within their business functions. Furthermore, the arrival of new technolo-

gies enable these manufacturers to consistently innovate new business models, and create

new avenues for them to interact with their customers. From a marketing perspective, in-

corporating custom information systems in the manufacturer’s products create a distinct

branding for companies, and is a main source of competitive edge for them.

We also note the substantial savings achieved from singular applications of Informa-

tion Systems. Stand-alone systems such as Cami’s JIT inventory handling system presents

a huge reduction in inefficiencies. Thus, we estimate that an extension of such stand-alone

systems to encompass more of the manufacturer’s operations would reap higher savings

and efficiency improvements. However, an important key in realising such efficiency is to

maintain an expansion of a standardised system that may be used uniformly throughout

the enterprise’s operations.

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