We have for far too long relied on a “make to stock” model for the automobile industry. In essence, car companies attempt to predict user demand when scheduling cars to be built through their factories and then shape the resulting user demand to what is actually in stock at the auto dealers.

If our automobile companies had instead relied upon a build to order model, they may not have found themselves asking for billions in bailouts or on the brink of bankruptcy. They would not, for instance, have overproduced the large gas guzzling SUVs that have remained piled up at dealers. When gas prices increased, orders for these vehicles would have fallen and the car companies would have shut down production on them. Jobs would likely have been lost much earlier, but the companies likely would have been in a better position to weather the financial storm.

A 2002 Forrester Research report indicated that “The auto industry’s failure to align production with customer demand costs billions each year”. Why don’t we demand a fundamental shift in business model with some of our taxpayer money? Some things are just too obvious…

Detroit – here’s an idea: Hire a couple executives from Dell and use some of the bailout money to switch from demand forecasting and factory planning systems to built to order “configurator” systems. Dealers can still stock some cars for people to test drive and maybe even purchase, but most sales can happen electronically. Everyone wins. You stay in business, dealer margins increase (they need to stock fewer cars), customers get what they want – not what they are sold, etc. Yes, we might need to wait a couple extra months to get that new car but maybe, just maybe, you’ll be in business for another 10 years.

This entry was posted on Monday, May 4th, 2009 at 10:59 pm and is filed under Product Management. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.