Executives used to imagine their companies as the centre of a solar system orbited by suppliers and customers. But the Internet is changing all that dramatically: the customer is becoming the centre of the business universe. Every manufacturer is surrounded by rings of suppliers and distributors. To become customer-centric in the Internet age, they will all have to perform complex, synchronised movements. The solution: also the Internet, which is forging links between customers and factories so buyers can tailor products the way they want them. Online consumers can flex just as much muscle as corporate customers. Already, Dell and others are encouraging shoppers to customise PCs on their web sites. General Motors (GM) and Ford will soon join Toyota in giving the same power to car buyers. The customer will be able to configure the vehicle over the Internet, and climb behind the wheel within a few days, declares Mark Hogan, the manufacturing executive named to head GM's online division, e-GM. Today, it takes weeks to get a customised car, because assembly lines are geared to standard models. To fill orders in Internet time, the mass production model pioneered by Detroit will have to be revamped, and, perhaps, eventually scrapped. Where the car makers go, other manufacturers are sure to follow. Soon, consumers may be able to personalise almost any product, from mobile phones to kitchen appliances. Pulling this off requires vast networks of computers. 'With Internet commerce, you're dealing in lots of "eaches", not a truckload of identical products,' says Michael Schmitt, senior vice president of software vendor JD Edwards. Each order can require a slightly different mix of parts, which triggers dozens or even hundreds of purchase orders to parts and materials suppliers. 'If you tried to handle all this on paper and over the phone, it would never get done,' says Schmitt. Companies have tried to automate such transactions with private networks. Detroit's big three and retailers such as Wal-Mart Stores, Sears and Dayton Hudson have electronic data interchange (EDI) systems that zip information around the supply chain. However, EDI systems are costly to install and operate. 'No company ever connected with more than the top 20% of its trading partners,' says John Fontanella, director of supply chain research at market-watcher AMR Research in Boston. In contrast, the Internet is cheap enough for even small job shops. As a result, 90% of manufacturing will move to the Internet in short order, predicts Fontanella. The Net is bringing about a pivotal change: custom manufacturing can be cheaper than mass production. If that is hard to imagine, take a look at Cisco Systems, which outsources most production to contract manufacturers that operate 37 factories, all linked by the Net. Suppliers make all the components, perform 90% of the sub-assembly work, and even handle 55% of the final assembly. Suppliers regularly ship finished Cisco computers to customers without a Cisco employee ever touching the gear. The result is savings of between $500 million (£312m) and $800 million (£500m) this year, says Carl Redfield, Cisco's senior vice president for manufacturing. In addition, roughly 80% of Cisco's sales are generated on its web site. Customers use a program that walks them through the task of configuring a system to fit their needs. Once the software has double-checked them, the orders zip straight to Cisco's producers. 'We can go from quote to cash without ever touching a physical asset or a piece of paper,' says Donald Listwin, executive vice president of Cisco. 'You've heard of just-in-time manufacturing? Well, this is known as not-at-all manufacturing.' Heavy outsourcing can mean losing the expertise that contributes to continuing product improvements. To preclude that, Cisco designs the production methods and uses the Internet to monitor operations at its contract producers. 'We develop the entire process and we know what every supplier is doing every moment,' says Redfield. 'The source code for all this is developed and maintained here.' Owning a factory is increasingly regarded as a liability. IBM, Silicon Graphics, Hewlett-Packard and others have sold plants to contract producers such as Solectron, SCI Systems, Flextronics and Celestica - and then signed them up as suppliers. Some experts predict many organisations will become tripartite virtual partnerships. One arm will handle product development and engineering, another will take care of marketing, and the third will do the production chores. In theory, even the auto industry could switch to not-at-all manufacturing. Hogan has long advocated more outsourcing largely in vain because of union opposition. But GM could still get its factories in better tune with car buyers. 'We'll get to the five-day car very quickly,' says Hogan. The five-day car is a revolutionary concept pioneered by Toyota and other Japanese car-makers in the early 1990s. They envisioned the Cisco and Dell approach: customers would pick and choose from a menu of on-screen options, then hit a button to send the order straight to the factory. Toyota has been equipping showrooms in Japan with Internet terminals since 1995. Japan's vision ignited a flurry of me-too projects in the US and Europe. Already, Ford's Volvo subsidiary is testing factory-direct sales via the Internet in Belgium. Auto makers aren't planning to customise cars just to make customers happy; they also want some of the savings that the likes of Cisco have achieved. All those cars sitting in dealer lots represent a huge investment that yields no return until a buyer comes along. Studies indicate that shifting from mass production to direct factory sales could slash car prices by up to 30%. 'Trimming that inventory would take out a lot of cost,' Hogan says. 'But it will require moving at Internet speed in the back end of the business.' Since 1978, companies have been putting in software systems to boost manufacturing efficiency. Enterprise resource planning (ERP) software from vendors such as SAP, PeopleSoft, Oracle, JD Edwards and Baan ties factory operations to other departments, such as purchasing, so parts can be ordered for just-in-time delivery. Until recently, however, ERP systems didn't know what was happening on the shop floor. Newer software such as manufacturing execution system (MES) is bridging this gap, co-ordinating shop floor operations in real time. JD Edwards teamed up with MES specialist Camstar Systems in California to help Lexmark slash production cycles for printers by 90%. A printer that used to take four hours to assemble is now made in Internet time: 24 minutes. The industry finally has the tools to create online links that span the entire manufacturing chain. If the car makers can coax their thousands of suppliers into the online galaxy, even the most traditional companies could soon be giving customers precisely what they want. First published in Business Week. Copyright 1999 by the McGraw-Hill companies Inc. All rights reserved.
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