Technology Integration with Automobile

Throughout its history, technology adoption by the automobile industry has been slow and steady. On an industrial perspective, traditionally the large automobile producers had control over all the value chain, including their suppliers. Closed proprietary product standards were set forth by these large automobile producers and vertical integrated suppliers were bound to follow them.

As far as adoption of technology in their products is concerned, they have been disruptive but not radical. The launch of new versions of the same gasoline car models year after year had additions or innovations that were not very significant. Car manufacturers sold their cars through dealerships or franchise. They set targets, training support, monitored their sales and service performance. This enabled them to be competitive and as a result provided employment to millions of people around the world through their distribution channels

However, it has been reported that the technical development collaboration between suppliers and customers along the automobile supply chain has been weak. The collaboration has been limited most of the time to arm’s length contractual relations. Although quality management and product and process design collaboration existed, permanent and close relationship to develop the technical capabilities of suppliers have not been usually identified, which may have limited technology adoption by suppliers.

Examples of the IT importance in the industry can be though identified more recently, as for instance, the so called e-collaboration systems or supplier collaboration portals. These portals are basically platforms in which suppliers can share information related to product design, quality, orders, planning and logistics. Large cost reduction has been obtained as a result of this tool.

In relation to marketing and distribution, improvements have also only been incremental. Automobile catalogues on prices and product features once printed could be also be found online, which has diminished somewhat the market power of dealers as information asymmetry has been accordingly reduced. Websites directly concerned with the direct marketing and selling of products, connecting customers to OEMs or single or multiple dealers have consolidated distribution efforts, but haven’t created a disruptive impact on traditional business models.

Toyota has been one of the automobile manufacturers with more intensive IT adoption. Contrary to the trend in the 1980’s-1990’s of highly automated plants, which didn’t bring economic returns, Toyota focused on IT outside its factories. Contrary to the American model, Toyota developed long-term relationship, almost paternalistic, with its suppliers. Said approach gave confidence to Toyota’s suppliers to follow the automaker’s investments in IT to enable a sophisticated logistical and in-time delivery system. Suppliers were integrated into Toyota production system and had the information on the stage in the line of production of each car. Said innovations made possible considerable reductions in inventory costs.

Another important Toyota strategy enabled by IT is that period of time has been the development of different types of cars for different markets and also as a result of the shorter life cycle of automobiles driven by the vertical integration and enabled by use of re-applicable parts among various models and use of IT. The creation of products faster than competitors had become an important competitive advantage. This process of ‘smart’ design required effective communication between the project teams of Toyota and also with the suppliers as Toyota started to inform them about the specifications of a new project before its conclusion.

All that was only possible through complex IT capabilities. It enabled then an approach that made possible different teams to evaluate in parallel the development of new parts and cars, avoiding constant reviews of projects, which were an usual cause of delay. Beside, with the evaluation of the suppliers, their expertise could be drawn on, especially providing opportunities for cost reductions, efficient inventory management and efficient business operations.

Share this post