Forrester: Build-to-order will save makers money

Reducing vehicle delivery time is just one way automakers can save money in the overall distribution budget.

Forrester Research Inc. in Cambridge, Mass., predicts that as automakers move toward build-to-order, they will cut inventories by 50 percent, saving an average of $200 per vehicle sold by 2010.

Baba Shetty, research director of Forrester's automotive practice, said the move also will allow for reduced incentives and better targeted ad spending, which would save the industry an additional $700-plus per vehicle. Shetty said automakers spend an average of $2,100 on incentives per vehicle plus $500 on other marketing per vehicle.

Automakers agree.

In December, General Motors entered a joint venture with supply chain specialist CNF Inc. to manage its vehicle and parts distribution. The venture, called Vector SCM, has reduced GM's vehicle distribution time in North America from 15 to 10 days. GM spokesman David Barnas, who left his job recently, acknowledged the estimate by industry analysts that 4 days in the chain are worth $1.5 billion, but he would not confirm his company's savings.

GM's Saab unit has tightened its order-to-delivery system without Vector. During the past two years, the automaker reduced the number of days a vehicle is in the chain from Sweden to the East Coast to 35 days from 50.

"This enables us to reduce the amount of inventory we have in the pipeline and at the dealer level," said Dan Chasins, president and COO of Saab Cars USA Inc. "We've identified clear cost savings of about $1 million a year, which is significant for us."

The Chrysler group is looking at all points of the distribution system for savings, said Chris Cortez, vice president of sales and marketing operations.

But within order-to-delivery, Chrysler is concentrating on "the mechanics of how to bring an order in, how vehicles are prioritized in that flow and putting the right stickers on the window," Cortez said.

"None of these move the earth by itself, but each brings us closer to where we need to be," he said. "We work very seriously on taking a half-day out here. It's not about saving transportation costs. It's about saving the cost of having to stock another vehicle."

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