Increasing profitability still a challenge

Two decades since the automobile industry set out to employ Japanese lean production best practice to close the productivity gap, the industry still suffers from overcapacity, spiralling costs and perforated profits.

Lean efforts have delivered considerable improvements in manufacturing efficiency, but have been largely ineffective in increasing profitability due to a myopic focus on factory processes.

Research conducted in the US indicates 74% of consumers would rather specify and order a car and wait, rather than simply buying one from the dealer’s stock. But build-to-order (BTO) customers in Europe currently have to wait an average of 48 days for their European car to be delivered or 63 days for a Japanese model built in Europe.

Most large European car manufacturers have instigated feasibility trials on BTO because they recognise the concept appeals to a considerable market. But the most significant advantages would be gained by the manufacturers themselves, who would benefit from reduced stock and increased profit margins by building the majority of their cars to customer order.

The question for automotive executives isn't when they switch to BTO, but how will such a radically different business model operate?

New production systems recommendations

Professor Andrew Graves, Dr Glenn Parry and Gareth Stone have contributed to a lean build-to-order production strategy for the 5 day car project, which provides insight into how a car can be built from scratch and delivered anywhere in the EU in five days.

Their study of 'intelligent logistics' and supply chain configurations led to recommendations for building new production systems that are helping to address significant industry problems:

  • global overcapacity
  • rising stock levels
  • low profitability

More flexible supply chain

The research findings have been widely shared with vehicle manufacturers, suppliers, industry trade associations and government bodies, original equipment manufacturers (OEMs) and suppliers - influencing those seeking to implement a more flexible automotive component supply chain across Europe.

Their research has had an impact on the:

  • reduction of waste that is integral to the former 'build to stock' production model
  • development of an environmentally friendly manufacturing approach
  • improved profitability through the reduction of 'inventory' (new cars losing value in large distribution parks)
  • future innovation and growth challenges for the automotive industry

REF submission

This research was part of our REF 2014 submission for Business and Management Studies.