In the 1990s, when the creative minds of the auto industry imagined what manufacturing should look like in 2004, 2005 or 2006, they envisioned an empty retail lot, empty shipping yards, empty warehouses, empty data banks of unsold vehicles.
It was to be the brave new world of build-to-order automaking. Consumers would design their vehicles on a manufacturer's Web site, submit their orders, obtain instant financing and receive a delivery date when their vehicles would arrive at a local franchised dealership.
There would be no waste, no unsold merchandise, no expensive inventories tempting automakers down the path of customer rebates.
That future hasn't panned out.
Despite a few earnest moves in that direction, along with a few experimental programs to build specific models as closely as possible to customers' orders, the build-to-order concept remains elusive - not so much a plan of action as a long-range aspiration.
Some observers see it as at least 20 years away. Others have trouble seeing it at all.
"I'd say the industry has definitely backed off the idea," says Jeff Watts, a principal with Deloitte Consulting LLP in Los Angeles.
"It looked very promising. But the reality of it - particularly the expense of operating supply chains that are flexible enough to respond to almost infinite order variations - has been difficult to justify."
Another key reason the idea hit the wall: The concept is partially at odds with a bigger trend that is shaping the world auto industry, lean manufacturing.
In practical terms, a build-to-order system requires the storage of vehicle components and of partially manufactured vehicles. Dell's computer factories with their build-to-order production systems caught the fancy of automakers in the 1990s. But Dell's plants still rely on warehoused parts and on component suppliers that can substitute one shipment for another at the last minute.
They don't jibe
Warehousing parts built for anticipated production is almost precisely the opposite of lean manufacturing.
In its bid to master lean practices, the auto industry is struggling to wean itself from the security blanket of stored inventory. Build-to-order systems will require automakers to bring at least some of those inventories back.
Matthias Holweg, a management lecturer at the University of Cambridge in Cambridge, Eng-land, has just published a book on the topic with Frits Pil, an assistant professor of business at the University of Pittsburgh.
Their book, The Second Century: Reconnecting Customer and Value Chain Through Build-to-Order, lays out the predicament the global auto industry faces.
Inefficient methods of distributing vehicles have remained largely unchanged for a century and are inflating the industry's cost structure, the book contends. Even though the industry's average order-to-build time is 40 days, the vehicle spends just 3 percent of that time in production.
"We've built an industry of pretty lean factories," Holweg says. "But what's really changed? Very little, I would argue.
"About 70 percent of the total cost of manufacturing is still in the distribution of the product.
"If we are to truly move beyond this, I believe the industry is going to have to give up some of its current notions about plant efficiency. Plant managers all over the world are measured on how well they keep up factory productivity. The sort of flexible factories that will be capable of fulfilling customer orders are going to be more expensive to operate."
At the moment, the industry is pursuing build-to-order models in various ways:
That model contrasts with building vehicles on specification and counting on retailers to find buyers for them. But sales demand for the Mini is high. Many retailers are encouraging consumers to custom-order their cars since they will have to wait for one either way.
That is down by about half from where Renault stood in 1998 when it embarked on what it calls its Projet Nouvelle Distribution plan. But the French automaker originally had declared that it would bring its production time lag down to just 15 days. After three years, Renault revised the goal to a more sober 21 days. The company determined that its global
supply chain is not up to the challenge.
Nissan vowed to deliver a 14-day car to U.S. customers. The company's new $1.4 billion assembly plant in Canton, Miss., was to be a big step in that direction when it opened last year. Canton has a number of key suppliers within walking distance from the final assembly line in order to guarantee scheduling flexibility. But that plant remains in ramp-up mode.
Toyota's challenge is that most of its U.S.-made cars and trucks are high-volume products. Allowing 400,000 American Camry customers a year to choose from thousands of production variables has a potential for chaos, particularly for a carmaker that relishes level production and lean inventories.
But Toyota is moving in that direction. This year, the automaker started an advanced production control system that gives dealerships the power to make daily requests for changes to their factory orders. The requests aren't always possible, depending on where an order is in the pipeline. But if they are, the dealership could alter production.
Toyota is using a port building in California to store incomplete vehicles along with inventories of electronics components, wheels and other large accessories. Customers can order their Scion via the Internet. As the orders arrive, the port operation completes the build.
Speed vs. choice
As part of its build-to-order system for its Scion brand, Toyota uses a port building in California to store vehicles, electronics components, wheels and other large accessories. As orders arrive, workers accessorize the vehicles. Shown, clockwise from left, are the Scion xA, xB and tC.
Automakers such as Nissan and Toyota will move closer to a build-to-order model, Watts predicts. But in the meantime, they are refining their systems by making their supply chains more flexible. They are adopting new production control systems and improving their abilities to forecast model mix.
But Watts doubts that manufacturers will be motivated to make dramatic changes soon.
"Some of the automakers who expressed an interest in build-to-order early on are now wondering just how much their customers really care about it," Watts says. "Do customers really value the perfect configuration?
"Do they have to have it built exactly to their specifications, or are they willing to accept something different if I can just get it to them a little faster?"
Until some significant event in the marketplace triggers a change in consumer attitudes, Watts says, automakers will focus less on changing practices and more on improving them.