240 G. Volpato and A. Stocchetti1 A new supply chain structure: from productive rationalisation to strategic integration In the automotive supply chain an extraordinary reorganisation has begun. Thisreorganisation mainly stems from the effort carried on by OEMs to develop a newrelationship with end customers , based upon a make-and-deliver-to-order approach,as opposed to the previous one, based upon the stock order approach [3,4]. This implies aradical transformation in the inner organisation of automobile firms, but it also requires adeep reorganisation in the component supply chain. As a matter of fact, the component supply chain has been under pressure for about adecade, tending to higher efficiency levels but, until now, such pressure mainly related toforms of internal organisation (OEMs and Suppliers), and to their working methods. Theemerging program of supply chain reorganisation lies in the strategic dimension of thewhole stream, mainly in the forms of interaction between different subjects in the chain.This transformation can be seen as a move from a ‘production’ rationalisation of thecomponent supply chain to a ‘strategic’ integration where, by production rationalisation,we mean a rationalisation primarily (although not exclusively) based upon innovationsapplied to component manufacturing processes . On the other hand, by strategicintegration, we mean a much wider process which involves the competitive structure ofautomobile firms, and especially their way of interacting: from whole vehicle design tomanufacturing and distribution of the final product to car purchasers. Here we claim thatwhile the first thrust towards rationalisation mainly applied within individual firms in theautomobile supply chain, the second mainly applies to interaction among firms in thechain, as elements of a more and more articulated and complex system. The goal and the radical nature of the transformation in progress do not appear in itswhole amplitude, since the objectives of automobile firms have not changed. They stillaim at the supply of innovative components, capable of ensuring higher standards to thefinal product, with lower costs. But this objective cannot be further pursued in aneffective and efficient way with the present structure of the manufacturing chain. Aboutone decade ago, tough competition triggered a rationalisation process, known as leanproduction [6,7], which has led to an inner reorganisation of supplier firms (as well assome reorganisation within automobile firms), through the definition of higher qualitystandards: in products, in manufacturing processes, and in servicing. This phase of greatmanagerial and technological effort has generated considerable results . Now, however, this previous line of action will continue further, but with less andless relevant results; in our opinion, the greatest share of the potential for improvementhas already been extracted from the organisational model called lean organisation. Awider competitive confrontation takes place due to:1 intense innovation2 the process of production internationalisation on a worldwide scale [9,10]3 the new environment that has been created after the stage of mergers and acquisitions.In order to achieve additional important efficiencies of a structural nature, a new andmore advanced organisational model must be adopted. The continuous improvementconcept (kaizen) can provide only marginal results; the whole structure of the componentsupply chain is under scrutiny indeed. The transformations in the last ten years have
The role of ICT in the strategic integration of the automotive supply-chain 241turned out to be undoubtedly effective, and have led to leaps both in innovation and incost reduction, but margins of future improvement have become gradually thinner. Inorder to keep the trend of improvement expressed over the last decade, firms must shift toa new organisational model that encompasses the whole structure of the internationalautomobile supply chain. Potential improvements are very promising, as recent studieshave pointed out .2 The quest for new integration tools2.1 The need for more qualified informationThe shift from ‘production rationalisation’ to ‘strategic integration’ has resulted from adouble action: competitive push and technology pull. These two forces shaped the presentautomobile industry giving birth, about one decade ago, to new needs and opportunitiesat the same time. On the market side, the increase in competition and customers’ requirements played amajor role: car manufacturers have been pressed to invest looking for both new sourcesof production economies and continuous product improvement. On the technology side,the fast-growing complexity of products and manufacturing processes turned the supply-chain management into one of the most information-intensive of all the managementprocesses . At the time, developments in Information and CommunicationTechnologies (ICT) created the opportunity to extend real-time control and directresponse far outside a firm’s boundaries. From the early 1990s car manufacturers were urged to re-arrange the supply chainmaps and their own operations ; the reorganisation encompassed both internaloperations (trends towards lean production) and interactions with suppliers. Here thefocus lies on the second issue: very shortly, the major goals in the process of supply chainre-organisation could be summarised as follows:1 to reduce the number of direct suppliers2 to re-arrange the supply chain in order to establish a sort of hierarchy which divides suppliers in tiers3 to outsource functions and operations previously considered as strategic, such as quality control, complex part design, design, assembly and test4 to extend strategic control through the supply chain – as far as their specific business is concerned – through the management of inter-organisational relations in a way which is generally known as ‘network’.Clearly the ongoing process of supply chain reorganisation bears several consequences.Among these is the reshaping of information flows among supply chain contractors:relevant changes are taking place in the way supply chain agents have to manageinformation flows, not only with respect to the management of technical issues but withrespect to organisational consequences. In this picture, the most peculiar aspect of thismove from production rationalisation to strategic rationalisation of the automobile supplychain is represented by a marked growth in integration needs. As a consequence the newsupply chain structure is based upon operations that require:
242 G. Volpato and A. Stocchetti1 a tighter link of production with automobile demand (such as the elements of make- and-delivery-to-order previously quoted), increase in product range and shortening of life-cycles of individual models, obtained through the compression of the time-to- market2 a stronger cooperation between operators (such as co-design between first-tier suppliers and OEMs and co-manufacturing between the system integrator and 2nd and 3rd tier supplier).The success of this great transformation is linked to the capabilities of the actors to carryout a system of information and organisational integration, with higher levels of qualityand complexity compared to those reached so far. Control of the system implies the capability to exchange information with a degree ofcompleteness, speed and precision that is largely higher than presently available. Thequalitative aspect of the new information required must be underlined and qualified, sincethis dimension appears much more relevant than the mere quantitative development ofexchanged information. The move from an operations chain governed by push logic to anew one governed by pull logic (that is: pulled by a demand which is differentiated andvariable over time) implies a different management of information. In the push logic thewhole coordination of the supply chain relies upon the ex ante planning activities, carriedout by car manufacturers and transmitted through a cascade-like approach on the wholesupply chain. In this scheme, the chain slacks represent an efficiency loss which isconsidered as inevitable, and which can be partly recovered through an anticipation oftimes associated with initial operations (to leave earlier to get earlier). In contrast, in pull logic the starting point for operations is not governed by carmanufacturers, but results from the composition of a large number of individual decisionsby consumers. Any reduction in the chain slack does not represent only a cost reduction,but also a strategic capability to anticipate the competitors in design, manufacturing anddelivery of vehicles and a better synchronisation with market evolution. So far thedifference between push and pull organisation had applied only to manufacturing stages.Now, with the strategic integration of the supply chain, the difference between the twoapproaches involves a wider context, including the design and development stages of newmodels as well as the related components. The system should evolve towards a supplychain joining the ex-ante coordination of decisions (based upon information managed byplanning activities) to simultaneous coordination of operations (based upon executioninformation).2.2 From hierarchical links to network links in the whole supply chainIf we consider the relationship between a car manufacturer and its suppliers from thestandpoint of information flow management, we could say that until the 1980s such arelationship was quite simple. In short, the OEM led the whole project; parts andcomponents were mainly designed and engineered by the car manufacturer, whilesuppliers were asked to manufacture them. In an oversimplified description, one couldsay that such a relationship consisted of a few key elements:• The decision making process related to product development – concept, design, engineering, product tests, changes – took place almost exclusively within the car
The role of ICT in the strategic integration of the automotive supply-chain 243 manufacturer’s organisation; suppliers were more or less asked to manufacture some parts at some cost. None or very little interaction took place between the car manufacturer and its supplier with respect to product development issues. Consequently, key decisions were mainly taken in an intra-firm process, meaning that whenever a difficult decision was required (e.g. the choice among different and/or incompatible solutions) the problem could simply be shifted to the higher hierarchical level in the organisation, until someone made a decision. Such form of coordination is based upon ex ante planning, which has a key requirement: exclusively, the final assembler must be fully aware of the whole supply chain operation.• Under these conditions the relationship with the supplier is a proper ‘market- hierarchical relationship’: the car manufacturer purchases a product (part or component) at a set price. Its overwhelming bargaining power is the main element which causes the agreements on the price of supply to take place almost in the form of a spot market auction; for suppliers, profitability comes from their capability to make the process as efficient as possible.• Consequently, the information involved in such a customer-supplier liaison mainly consisted in one-way flows of technical details, prices, quantities, billing, terms of payment, etc.Let us consider the current supply chain as far as the customer-supplier relationship isconcerned. Since it is based upon an ex ante planning mechanism, some interestingasymmetry takes place with respect to the elements specified above. First, thefundamental aspect of coordination based upon ex ante planning is that any individualoperator does not need information on the whole chain of operations. Any chain operatormust know only start and end date for a given activity, and must be concerned aboutprecisely meeting its specific deadline. This implies a hierarchical management ofinformation that is hard to accomplish within a make-to-order framework. Actually, in amake-to-order policy each demand triggers a wave which backlashes the whole upwardoperation chain. Therefore, the simultaneous coordination of all the chain operations(basically, a direct effort to cut chain slacks) requires on line access to the wholesequence of operations. In other words, this implies forms of network connections amongoperators. The decision making processes related to product development involve both the carmanufacturer and first-tier suppliers. Owing to the continuous improvement both inproduct and process technology, nowadays the know-how necessary to manufacture acompetitive car covers a wide range of fields of expertise. As a result, critical decisionsmight often take place in an inter-firm process and thus an agreement among peers couldbe required. For instance, managers of both the car manufacturer and the supplier mightbe asked to share a strategic belief, such as an idea of what will be positively evaluatedfrom the market, or an opinion on the technological trend, and so on. In this framework it is absolutely not advantageous to base the relationship with thefirst-tier supplier upon a mere spot-market agreement. Since the part supplied consists ofa complex module that the first-tier supplier develops for that specific customer, theidiosyncrasy of the relationship increases in a significant way. Price-fixing shifts,therefore, from a bargaining process based on power to a long-term one based onpartnership.
244 G. Volpato and A. Stocchetti The car manufacturer needs a complex module to be developed and integrated in itsmodels. Therefore, the amount of information exchanged with the first-tier supplier isconsiderable. The vehicle architecture definition is still the core activity of the carmanufacturer, but design and engineering of parts and modules deeply involve first-tiersuppliers. Consequently, the relationship will not only include the usual commercialterms (prices, quantities, billing, terms of payment), but will become a mutual exchangeof designs, projects, suggestions, changes and technical details. The activities to be synchronised and integrated more closely go beyond themanufacturing process (where the time frame of reference does not exceed a few weeksand individual events can be forecast rather effectively). Firms must synchronise allactivities related to the whole design, production and delivery process. In such activitiesthe time frame of reference amounts to a few years at least, and the variability game canapply to a more differentiated and complex level. Therefore, the information exchange tobe achieved in the move from the hierarchical-information scheme to the network-information scheme appears much more sophisticated than the one obtainable through thetraditional information tools. We are facing a transformation that requires tools ofinformation integration greatly more advanced and flexible. Two steps are, therefore, needed in order to implement such change. Firstly, a shiftfrom the classic tools of data transmission (sheets of paper, phone calls and so on)towards electronic communication tools and standard protocols is needed, that is theadoption of Electronic Data Interchange (EDI) systems, in their broad sense (standardprotocols of data sending and receiving). The first step is a move towards informationflow integration. Secondly, the whole supply chain might gain in efficiency if the internal processes ofeach firm are planned and scheduled on real-time requests. Significant shortening ofcycle times might be obtained through the adoption of Enterprise Resource Planning(ERP) systems, meant as a system (based on software packages) which is supposed tosynchronise the resources required to optimise manufacturing and delivery of products,considering constraints such as lack of materials or capacity limits. This second step is amove towards production process integration.2.3 Integration is not just a technological eventThe fast development in ICT tools (e.g. EDI, ERP, communication networks such as theinternet, etc.) might give the idea that the integration process which car manufacturersaim at accomplishing can easily rely upon technological means with extraordinary power,capable of generating in a relatively short time the transformations which have beenpointed out. This would be misleading. As a matter of fact, the evolution of relationshipsamong car manufacturers and first-tier suppliers is primarily an answer to a change in thecompetitive environment, although the trajectory of the reorganisation has been deeplyshaped by the opportunities offered by ICT. There is strong evidence that the future organisation of the supplier-chain, as well asthe relations between customers and suppliers, will be shaped by organisational choicesand competitive policies instead of by technological opportunities. Here we suggest twonotes that, in our view, constitute an important basis to the whole analysis. Firstly, as far as the technological development of the last decade is concerned, thegreat majority of suppliers have chosen the tools that their customers have ‘invited’ themto choose. EDI is a well-known example; its introduction has been deeply influenced by
The role of ICT in the strategic integration of the automotive supply-chain 245the car-makers pressure on their suppliers. Now that several suppliers still work on EDItools, the aim to implement new tools like ERP is strictly connected to the functionalityof these systems with respect to their specific relations with customers. In other words,Ford rather than GM suppliers will buy those tools that Ford or GM solicits them to buy(or will not change their systems unless they are not sure they will be compatible withtheir customer system). For these reasons, the shift from EDI technology towards web-based technologies will take place as long as strongest actors of the supply-chainintroduce them; but it’s not clear if it will take six months or three years. For sure EDIwill continue working for some time , but the recurrent impression is that the nextchallenge is the merge of EDI-based tools (first-class effective in frequent and predictabletransactions) with Web-based ones (much more flexible and compliant to infrequentand/or unplanned interactions). On the other hand, suppliers that heavily invested inEDI-based technology might sooner or later suffer the disadvantage of a compelledrestructuring if EDI technology cannot be upgraded and readjusted to work in concertwith web-based tools. Secondly, each company has its own history, its own path of development, etc. Thebigger a company, the more diversified its organisational procedures, the kind ofmessages, the hierarchies and so on. The promise of ERP systems is to integrate allinformation in order to allow anyone in the firm (even around the world) to pick what heneeds and fulfil his operation in a way that everybody in the firm will approve and/orunderstand. Few people still believe that such a promise can be honoured in the time andwith the costs claimed by ERP vendors, unless the company is a small one or theimplementation is limited to a small area (e.g. accounting). In fact, many companieswrongly believed that ERP would fix their organisational problems concerning theintegration of data, the standardisation of procedures and so on. On the contrary, ERPrequires a well-structured organisation, since the ERP systems are nothing more thangeneric and simplified modelling of the ways a generic company rules its activities.Actually, several sources report that the proportion between the cost of the software andthe cost to make it work is from 1:3 to 1:6. Of course, no one could deny that the advantages deriving from the actualorganisation of automobile supply chains would not have been possible without thecontribution of ICT. Nonetheless, the impact of ICT goes far beyond being just technicaltools making the exchange of information easier, faster and cheaper. Here we claim thatthe chance to fully exploit the opportunities introduced by ICT is much more anorganisational problem than a technological one. A vast and complex reorganisation,such as the one here mentioned, can never be accomplished through the mere adoption ofinnovative tools, even though powerful and flexible. The re-design of the supply chain, asbased upon a different distribution of information compared to the past, implies also arestructuring in bargaining power among the subjects in the supply chain and, therefore,in their capacity to gain portions of the added value generated by efficiency gains in thesystem. No transformation can take place leaving previous power relations unchanged.Hence, no transformation will be accomplished if decisional centres expect no gain fromthe change and believe they have the power to stay away from the transformation. As a consequence, the process of development of ICT systems is not determined bytheir intrinsic process of technological innovation, but rather by the evolution of thedegree of convergence/divergence of interests borne by the participants in the chain. Only
246 G. Volpato and A. Stocchettian understanding of the new power equilibria emerging in the chain shows the actualforms of application and diffusion of new information tools .3 The field research3.1 Questions and methodologyThe aim of the field study was to highlight important issues related to supplier-customerrelationships whose transactions and production process get highly integrated thank toadvanced ICT systems. In our opinion, although there is a common view on how ICT canimprove productivity and competitiveness through a closer connection amongcontractors, little has been done to investigate some important issues that lie at the basisof this study. In other words, the applications of technological opportunities are largelyunexplored. The main questions might be summarised as follows. Firstly, the advantage which a single firm can obtain from such integration is to someextent influenced by the specific kind of relationships established among firms in thesupply chain; on the other hand, ICT integration will probably affect existing relationsand the competitive position of supply chain contractors. The question is: how doesICT-based integration affect customer-supplier relationships? Is the relation changing ina significant way? Which trajectory should we expect? Secondly, we have seen that the closer integration of the supply chain’s contractors isa key trend. But it is arguable that such a process might take place without disadvantagesfor one or both contractors. So: which kinds of obstacles and problems occur in theICT integration process? In our view the answer to these questions must be sought with respect to the variouskinds of relationship that are likely to take place between suppliers and customers ratherthan focussing on the different kinds of possible information flows. In view of this, theresearch steps have been the following:1 to identify a specific kind of relationship on which to focus the empirical analysis2 to carry out a field study trying to provide an answer to the above specified questions.The empirical analysis included:1 in-depth interviews devoted to paradigmatic cases2 a questionnaire-based survey on a sample of firms to attempt to shed light on the actual degree of diffusion of ICT-based customer supplier relationships.3.2 Background No. 1: ICT relevance in small and large problemsThe first main evidence is that, as far as information flows are concerned, it is notpossible to speak about customer-supplier relationships in general, since a wide range ofpossible situations might exist. For this reason a 360° oriented research project wouldrequire a vast synthesis effort to evaluate every single possible situation. In this research,we decided to focus on the specific relationships taking place between a system-integrator supplier and its customer; such a relationship is at the same time the most
The role of ICT in the strategic integration of the automotive supply-chain 247complex and the one where higher integration is required, since it implies a deep sharingof information. Such a decision came from the obvious opinion that the more intense theobserved information flow, the more interesting situations we would meet. Actually, this turned out to be only partially true; very often scholars considercomplexity (in its broad sense) as one of the problems that is better solved by ICTsystems integration. Nevertheless, the interviews showed that the most obviousadvantages concerning repetitive tasks – seemingly less important in the mind of ascholar – are evaluated with major attention by a practitioner. Unexpectedly, from the in-depth interviews emerged the role of ‘error-killer’, playedby electronic data transfer tools, as one of the greater sources of efficiency gains. Forinstance, in a traditional system a single document (e.g. a bill, an order and so on) needsto copy a series of codes from one piece of paper to another piece of paper. Thedocument is then sent by fax to another firm where it has to be copied again. Theprobability of an error might be high or low, depending on the kind of informationexchanged. Yet, whenever an error occurs there is often a considerable waste of time intrying to fix it. Therefore, firms give great importance to the capability of EDI and otherICT technologies to eliminate errors attributable to manual transfer and keying of data. We then asked ourselves why such an essential element is not given its legitimateimportance; maybe the answer lies in the fact that frequently the comparison betweenICT and traditional technology assumes an error-free environment. In other words, bothtraditional technology for supplier-customer information exchange and the ICT-basedone are considered at their best. On the contrary, as far as possible faults are concerned,they both feature peculiar aspects. ICT will probably suffer from its own possible faults,but traditional technologies definitely rely upon human activity for data transfer. In anEDI integrated system data are transferred without manual keying but with a simple‘forward’ input. In conclusion, the range of possible information exchange situations is broad: theremight be structured circumstances as well as de-structured ones, complex and simpleones, and so on. We tried to investigate the more relevant questions and, therefore, wehave chosen to focus on the relationship between first-tier and/or system-integrator andassembler, but this does not mean that more common situations have to be lessinteresting.3.3 Background No. 2: ICT advantagesApart from the unexpected relevance of rudimentary ICT benefits, there is a shared viewabout the potential advantages deriving from the integration of production processesthrough ICT. Here we talk about Information and Communication Technologies including all thosetools (hardware and software) which are based on electronic devices and which allow oneto transmit and process information such as data, sound, images, movies and so on. The‘physical’ elements include hardware, software and communication networks. Fields ofapplication of ICT in supplier-customer relationships potentially have no limit. Just togive some examples:• exchange of information and data• sending and processing of messages
248 G. Volpato and A. Stocchetti• preparing support to allow the diffusion of information• collecting information• exchanging documents• preparing supports to control and evaluate firms activities• preparing supports to collect past information• search for new business opportunities.Since customer/supplier relations require a great amount of work in several activitiesinvolving several actors, ICT aims to provide a set of tools that help in each of theseactivities through the automation of repetitive procedures and through easier and fasteraccess to information. Specifically, the main sources of benefits might be summarised as follows:• Automation of procedures connected with in-bound and out-bound information flows. Electronic Data Interchange (EDI) should eliminate the manual handling of information and forms concerning, for instance, delivery calls, dispatch advice, invoice, confirmation of receipt and so on.• Automation of procedures connected with the inner information flows related to order fulfilment. The recent developments of the so-called Enterprise Resource Planning Systems (ERP) should give the opportunity of coordinating the information flows coming from the outside with the internal production system. For instance, the whole planning of order fulfilment – from purchasing of parts and material to delivering the order – might be managed, in theory, through an advanced ERP system, within the time constraints applying to that specific order .• Electronic communication of data of various kinds: from draft and technical notes to vocal comments. GroupWare allows teamwork at a distance, significantly improving the chance to implement practices like co-design and co-engineering among contractors without increasing transactional costs.• Reduction of Inventory: one of the most appreciated advantages is the possibility of reducing the level of inventory thanks to the immediateness of planning and scheduling, although such a benefit can vary significantly according to the kind of product.The potential improvement brought about by such practices in the supply-chain is oftentaken for granted. In fact, by integrating the available ICT at its best, we could observe animmediate effect on the competitiveness of both contractors. Above all:• shortened time-to-market, due to faster and safer exchange of data and its effect on work phases, like design, engineering, prototyping and development• faster planning and production scheduling• reduction of work-in-progress• reduction in idle times.In reality, ICT advantages come from the overcoming of spatial distances and in thesubstitution of manual operations with automated ones; for instance:
The role of ICT in the strategic integration of the automotive supply-chain 249• video-conferencing substituting for meetings• EDI substituting for manual keying of orders, billings and so on• ERP substituting for manual operational planning• MRP substituting for manual calculation of needs, re-ordering, scheduling and so on• CAD substituting for manual design and calculation of components, etc.3.4 Results from the interviewsThirteen supplier firms have been selected for in-depth visits and interviews:1 six OEM (4 first-tier) auto-industry suppliers2 one system developer and final-product tester (included on-road pre-series car tests)3 three producers of ERP systems and similar software4 one OEM first-tier mechanical firm producing components for agriculture5 one firm LAN-WAN administrator and software producer6 one company web provider, market-place and portal creator and administrator.All the manufacturing companies interviewed have adopted EDI and MRP and/or ERPsystems. Except for the ERP producer and the agricultural-machine producer, the subjectsinterviewed were the CEO together with another executive and personnel from both themanufacturing and technical staff. In the case of the ERP producer the person interviewedwas the product-manager responsible for specific software, while for the agriculturalindustry firm the interviewee was a production engineer responsible for inventorymanagement. The interviews were carried out between June 1999 and March 2001. The main result can be expressed in just a few words: problems are not related totechnical issues but to the management of production processes and to the managementof relations with customers.ICT-based integration and firm organisationAccording to almost all the subjects interviewed, ICT improves profitability but theadvantages are connected to the internal organisation of production.ICT improves but does not overcome the problem connected to the upward design of theproduction flow. For instance, advanced systems operation requires responsibility anddecision processes within the firm to be well defined and efficient. In other words, it mustbe clear:1 who is responsible for each activity within each process2 which procedure has to be activated for each situation.We do not agree with the common statement: “ERP systems allow the re-design andimprovement of organisational structure of a firm” . On the contrary, a re-design islikely to be needed for an ERP system to work properly. According to the product
250 G. Volpato and A. Stocchettimanager of the ERP producer interviewed, when the management of a medium-sizedfirm decides to invest in advanced planning systems and ICT integration, they roughlyknow what they are buying. Very often it is up to the ERP seller to suggest theintroduction of workflow management systems together with a re-design of tasks andresponsibilities. In one of the interviewed companies (a technology world-leader in itsniches), the CEO said that they have chosen to buy a fully customised ERP because theexisting ones would have required “to change our way of doing business”. One of the OEM suppliers declared that the huge problems faced in adopting SAP-R3derived from difficulties in interfacing personnel dedicated to managing the informationsystem and the rest of the firm’s organisation. Just considering simple cash implications,for the starting proposal investment was about Euro 2.5 million, but the set-up period hasbeen longer than expected and total investment has increased to Euro 15 million over sixyears .ICT and relationships among firmsOne of the OEM suppliers we studied (working mainly on batch productions), managethe whole process of order fulfilment through an EDI-MRP system. The implementationof ICT tools has been required by car manufacturers with whom the firm is operating. Thanks to the EDI connection the firm’s customers (carmakers) can send their ordersalmost continuously . Together with one of its customers, individually, the supplierhas developed a system that allows the carmaker to ‘see’ the inventory of the firm and toset the orders and the production schedule according to what is in stock. All other carmakers do not know, in fact, the level of inventory for the specific itemthey need, nor if and how the production capacity of the supplier is allocated at that time.Since all carmakers ask the supplier to fulfil just-in-time delivery with intense scheduling(from one to five deliveries a week), the company has to face a trade-off between:1 maintaining a slack of production capacity to be sure that it can fulfil the order on time2 storing a higher level of inventory than is strictly necessary.Such a solution has been implemented under the condition of a long-term relationshipbetween the supplier and the customer. On the other hand, this practice of a ‘viewable inventory’ has been labelled as‘dangerous’ by another executive. According to the engineer from the OEM agriculturalmachine producer (batch production), to let the customers know the internal plan ofproduction and operational scheduling might create the conditions for a renegotiation ofterms (prices and times) for each batch. Such a situation exists, in his opinion, since veryoften in that specific industry the customer has a bargaining power towards first-tiersuppliers that is greater than in the car industry. As a consequence, final assemblersseldom seek a long-term partnership agreement and an opportunistic attitude is, therefore,common on both parts. For instance, a problem arises whenever parts or components in stock are not enoughto fulfil DELJIT-requests from two different customers ; in this case, it is necessaryto establish a priority or to find a compromise to displease neither of the customers. Such problems as those described above, obviously do not come from ICT but fromthe balancing of bargaining power between the supplier and its customers, together with
The role of ICT in the strategic integration of the automotive supply-chain 251the intent of both contractors to exploit ICT advantages. This leads to a twofoldconsideration: From the supplier’s point of view ICT has created a situation in which theperformance required of the supplier is much higher . For instance, the OEM suppliershifted from one delivery every 15 days to one to five deliveries a week. At the time ofthe interview the lead time was supposed to decrease from 16 days down to 48 hours(make and delivery) and 24 hours (just delivery). From both the carmakers’ and supplier’s point of view, relationships became muchmore idiosyncratic, since lower costs occur according to:1 the nature of ICT tools and production capacity2 the high importance of supply for the car manufacturer and the lack of possibility of replacing it within a short time.Therefore, if it is reasonable to think that the advantages of ICT-based integration areconnected to the stability of relationships in the supply chain, the question is: might sucha deep integration (paradoxically) lead to a less flexible relationship?3.5 Results from the questionnaire surveyThe second part of the empirical research aimed at evaluating the actual diffusion of ICTsystems in supplier-customer relations. A certain number of firms have been chosen for aquestionnaire survey; selected firms were first-tier manufacturer suppliers. Forty-sixquestionnaires have been collected. In Table 1 the main features of the sample arepresented.Table 1 Distinctive features of the sampleNo. Number of employees Turnover (million Euros): Company structureof (average)firms Direct Indirect Total <5 5-25 25-50 > 50 Snc* Srl* Spa* workers (empl.)46 547 121 668 19.6% 43.5% 15.2% 21.7% 6.5% 28.3% 65.2%* = Snc stands for a non-limited company (people’s company); Srl stands for a limited company; Spa is a limited incorporated company of greater sizeThe sample is mainly made up of small-sized firms : the average number ofemployees is 668 and only 21.7% of the sample turnover exceeds 50 million Euros.About 13% of the sample (that is six firms out of 46) have more than 500 employees; forsuch firms turnover is greater than 100 million Euros. On the other hand, 36.9% of thesample have less than 100 employees.ICT investmentsResults evidence a widespread use of ICT as a generic communication tool, but a muchless common use of ICT tools devoted to specific firm-network relations. As one can see(Table 2) all the interviewed firms have e-mail and internet connection  and 78% owna website. On the other hand, only 65.2% of firms own a company-network, presumably
252 G. Volpato and A. Stocchettian instrument mostly devoted to internal operations management. Moreover, only 36.9%of the sample use EDI while 50% use intranet connections, both ICT tools specifically fitfor inter-firm information exchange.Table 2 ICT tools availabilityE-mail Website Company- Intranet EDI Mobile Video- Network forand wide phone Conferencing GroupWareinternet information network applications network100.0% 78.3% 65.2% 50.0% 36.9% 21.7% 28.2% 15.2%An obvious justification for the lag existing between non-specific communicationinstruments (e-mail, website) and specific ones could be found in the different amount ofinvestment required. It is also conceivable, however, that the diffusion of commonprotocols is a pre-requisite for diffusion of ICT tools. A tool with a universal interface,like e-mail or fax, finds no obstacle in diffusion, while instruments like EDI, GroupWareand so on, require, as a pre-requisite, partners equipped with the same kind of facilities. Videoconferencing and network for GroupWare applications are the least commonICT equipment present in the sample: videoconference is owned by 28.2% of firms (all ofthem coordinating production in two or more plants), while GroupWare is present in 15%of firms. The questionnaire also asked firms to declare the amount of investment in ICT overthe last year and to specify the percentage of expenditure related to turnover; results areshown in Table 3.Table 3 ICT investments over the last yearTable 3a Amount of investments (,000 Euros) Average (,000 Euros)Over 500 Between 250 Between 50 Between 25 Less than 25 and 500 and 249 and 5021.7% 13.0% 21.7% 15.2% 28.4% 1,164Table 3b ICT investment as a % of turnover Average0.2% or less 0.2% – 0.5% 0.51% – 1% 1.1% – 2% Over 2% 23.9% 26.0% 15.2% 10.9% 23.7% 1.33%The average investment (€ 1,163,944) is higher than one could expect and mainly comesfrom relatively few big firms that declared they had heavily invested in ICT over recentyears. In fact, the 13% major investors account for 81.3% of the total investment. Thismeans that the first six investors (out of 46) have spent about € 42 million on a totalinvestment of about €52.5 million. Anyway, about 21.7% of the firms in our sample have
The role of ICT in the strategic integration of the automotive supply-chain 253spent more than the considerable amount of €500,000 on ICT (Table 3a). The efforttowards improvement is also testified to by the weight of investment related to turnover:on an average, ICT absorbs 1.33% of turnover. Moreover, almost one third of the sample(33.7%) has invested more than 1% of turnover in ICT and 23.7% have invested morethan 2% (Table 3b). The questionnaire also asked firms to specify if any other ICT investment wasforeseen in the next six months, and to check boxes to specify the kind of investment(Table 4).Table 4 ICT investment expected within the next six months Manufacturing Management and Internet Network Connections AdministrationHardware Software Hardware Software Internet Updating/developing Development presence existing ones of new ones 50.0% 47.8% 52.2% 50.0% 67.4% 45.7% 30.4%All but one of the firms in the sample declared the intent to invest in one or more of theoptions proposed. Table 4 shows the most frequent answers: suppliers will mainly expandthe firm’s internet presence (67.4%) but will also invest in production hardware andsoftware (respectively 50% and 47.8%). As far as network connections are concerned,45.7% of the firms plan to update the existing ones, while only 30% will develop newconnections (Table 4). About this topic, we have already noticed how a straightintegration might create the premises for an increase in idiosyncrasy; coherently withsuch a view, we did not expect to find signs of a more definite trend towards dedicatedconnections, rather towards more easy-to-interface tools. In fact, in some of the OEMsuppliers interviewed, the speaker said that a common trend is towards droppingdedicated network infrastructures, which turn out to be expensive, towards a larger use ofthe internet, thanks to achieved reliability, data-security and adequate speed ofconnections. Such a trend would be, after all, induced by the rationale of the search forflexibility. We, therefore, wanted to verify if decisions concerning ICT investments wereto some extent influenced by the firms’ position upstream and downstream. Therefore,we asked whether ICT facilities were chosen considering suppliers’ and/or customers’equipment (Table 5).Table 5 ICT investments and contractors equipment Are ICT investments taken considering ICT Are ICT investments taken considering ICT equipment at suppliers? equipment at customer? Yes No Yes No 50.0% 50.0% 52.2% 47.8%We can see that both sub-suppliers and customers have a remarkable influence inorienting the ICT investment of our sample: in 50% of the sample ICT facilities arebought considering sub-suppliers’ equipment, while customer’s ICT are relevant for 52%of suppliers.
254 G. Volpato and A. Stocchetti3.5.2 Relationships with sub-suppliersIn the fourth section of the questionnaire the firms were asked to specify some features ofrelationships with their suppliers; first we tried to understand how intense the informationexchange could be as far as product development is concerned. We therefore asked themto specify how parts and components purchased were developed. The exact questions andthe results are shown in Table 6. Results show a variety of situations: in 65% of thesample co-design between the firm and its sub-supplier take place, that is the more‘information-exchange intense’ relations. Different, less intense, kind of relations arepresent as well, since both in-house design (67.7%) and external design (36.9%) occur. Aminority of firms (19.6%) purchase parts and components that are designed by thirdparties.Table 6 Forms of developments for purchased parts and components Which of the following forms of development of purchased parts and components take place? (check the box if the situation is present)Design wholly developed by supplier 36.9%Co-design between firm and supplier 65.2%Design wholly developed by firm 67.7%Design by third parties 19.6%It is also interesting to evaluate the use of ICT tools in relations with sub-suppliers. So weasked firms to specify which ICT tools were commonly used for this purpose (Table 7).Table 7 ICT tools used in relations with sub-suppliersWhich of the following information systems and tools are commonly used in relationshipswith suppliers?E-mail 100.0%EDI 36.9%Intranet-Extranet-LAN-dedicated network 28.2%GroupWare 13.4%Video-conference 8.7%As we expected, e-mail is the most commonly used communication instrument. Quiteinterestingly, all the firms having EDI use it for data exchange with suppliers: thepercentage is 36.9% in both cases. On the other hand, while 50% of the interviewedcompanies own a dedicated network, only 28% use it with sub-suppliers. The samehappens with regard to GroupWare and videoconference: 15% of firms own GroupWarenetwork but only 13% use it with suppliers; similarly, 28% of firms have video-conference equipment but only 15% use it with suppliers. Specific attention has been devoted to the use of the internet as a way of exploring themarket. As generally acknowledged, one of the most interesting features of the internetconsists of the possibility of developing a low-cost contact tool in the search for new
The role of ICT in the strategic integration of the automotive supply-chain 255business opportunities. We were fully aware that an in-depth exploration of this issuewould require specifically oriented research, but the questionnaire-based research seemedto us a good opportunity to start exploring this topic. We, therefore, decided to scrutinisethe attitude of the firms in our sample towards the internet as a tool for searching for bothnew suppliers and new customers. Therefore, we asked if the firms ever searched for asupplier via the internet and their opinion about finding a supplier via the internet(Table 8).Table 8 Searching for suppliers via the internetDoes the firm search (or In your opinion, finding new suppliers via the internet is:has it searched) for asupplier via internet? Yes No Basically Hard Not easy Easy Very easy impossible 67.4% 32.6% 8.7% 15.2% 39.1% 17.4% 9.3%We found that the use of the internet as a way to look for suppliers is a more commonpractice than we expected: 67% of the sample do search or have performed such a search.On the other hand, opinions on how useful such a search might be are almost perfectlydivided into three main groups: the ‘optimistic’, those who think that it is easy or veryeasy to find a new supplier in this way are 26,7%. A higher percentage (39%) think that itis not easy, but another 24% find that it is hard or basically impossible. Probably the opinions gathered on such a topic from the various firms are strictlyrelated to the kind of business managed by each firm. Of course, the more ‘hi-tech-intense’ the parts and the components required, the more difficult to find a convenientsupplier. This is not a problem of the internet, but a problem of an overall scarcity ofcompetencies. In other words, in order to verify the actual potential of the internet as atool for developing new business (both for purchasing and selling) one should be able tocompare the effectiveness of the internet against traditional tools in one specific industryunder similar conditions. The firms in our sample, instead, belong to different industries,although all of them are somehow related to the auto supply-chain. Although not an issue directly concerned with the use of ICT, we also wanted toverify the presence of just-in-time logistics of first-tier suppliers with sub-suppliers. Wefound that 54% of the sample do not ask their sub-suppliers to operate JIT (Table 9).Table 9 Just in Time with sub-suppliersDo firm suppliers operate just in time? No 54.4% Some 36.9% All 8.7% 100.0%
256 G. Volpato and A. Stocchetti3.5.2 Relationships with customersThe fifth section of the questionnaire aimed at investigating the relationships of the firmsin the sample with their customers. Since the sample is made of first-tier producers,customers are supposedly carmakers but, as we said before, other kinds of firm might beincluded since the production of the sample is highly diversified. Again, as in the section regarding relationships with sub-suppliers, we wanted tocheck the degree of customer’s involvement in product development. The exact questionsand the results are shown in Table 10.Table 10 Product development and customer relationsWhich of the following forms of development of product takes place?(check the box if the situation is present)Product wholly designed and manufactured to customer specifications 71.7%Product developed on a base project and customised to customer 47.8%Product developed in co-design with customer 45.6%Product developed in simultaneous-engineering with customer 23.9%Product defined by firm and put into market without specific customisation 34.8%In more than 71% of the firms part of the production is completely designed andmanufactured to customer specifications. Co-design is a pretty common practice (45.6%),while simultaneous engineering involves a bit less than one-fourth of thesample (24%). These data show a framework of intense information exchange between first-tiersuppliers and customers. However, data about the use of ICT systems do not differ toomuch from those regarding relations with sub-suppliers (Table 11). All the examinedfirms use e-mail to communicate with customers and 37% use EDI, while only 24%utilise a dedicated network. All firms having GroupWare facilities use them in supplier-customer communicationsand in supplier-sub-suppliers ones (15.2%), as well as video-conference (28%).Table 11 ICT tools used in the relations with sub-suppliers Usage of information systems in relationships with customersE-mail 100.0%EDI 36.9%Intranet-Extranet-LAN-dedicated network 24.2%GroupWare 15.2%Video-conference 28.2%Personal contacts still play an important role in inter-firm relations; Table 12 shows that54% of firms base the definition of supply specification on multiple and long meetings ofboth technical and administrative staff. This is considered to be an expensive form of
The role of ICT in the strategic integration of the automotive supply-chain 257information exchange, compared to video-conference, but, however, an essential one.Moreover, 28% of firms temporarily locate personnel at customers’ plants.Table 12 Contacts among customers and suppliers for supply specificationWhich kind of personal contact with customers take place for the definition of supply specification? (check the box if the situation is present)Longer/multiple visits of technical and administrative personnel 54.3%Brief meetings with technical personnel 58.7%Personnel temporarily located at customer plants 28.2%Quite predictably, bounds between customers and first-tier suppliers are tighter than thoseexisting between suppliers and sub-suppliers. While only 46% of the firms interviewedask one or more sub-suppliers to operate JIT (Table 9), 72% of the sample are asked tooperate JIT by their customers (Table 13).Table 13 Just in Time with customers Do your customers ask you to operate just in time?Yes 71.7%No 28.3%A high level of integration also presume an exchange of information on production plans;so we tried to verify this aspect asking which information the firm has about customers’plans (Table 14). Results indicate that 34.8% are informed about the annual or long-termproduction plans of the customer; a greater percentage (52.1%) is informed aboutmedium term production plans, while operations scheduling is known only by 37% offirms in the sample.Table 14 Information on customers’ production plansWhich information do you have about your customers’ production plans?(check boxes if the situation is present)Annual or medium/long term production plan 34.8%Medium term production plan 52.1%Operations scheduling 36.9%Finally, as we found that the internet is a tool commonly used to look for new suppliers(Table 8), we also discovered that it is commonly used to look for new customers(Table 15). 73.9% of the firms declared they practise it (Table 15a). While this was quitepredictable, what was not was the success of this task: as shown, 27% of the firmsinterviewed consider it ‘easy’ or ‘very easy’ to find a supplier via the internet. A higherpercentage (45.7%) think that to find new customers via the internet is common orfrequent; more than one third of the sample (37%) is convinced that gaining a newcustomer thanks to the internet is a ‘rare’ event. Finally, 17.4% is rather pessimistic,thinking that opportunities in this field are ‘basically zero’.
258 G. Volpato and A. StocchettiTable 15 Searching for customers via the internetDoes the firm search (or In your opinion, finding new customers via the internet is:has it searched)customers via internet? Yes No Basically Rare Common Frequent Very impossible frequent 73.9% 26.1% 17.4% 36.9% 30.5% 15.2% 0.0%4 ConclusionsThis paper investigates a fast-evolving issue. Therefore, the emerging evidence must beconsidered carefully. We wish to say that some of the first evidence from managers’interviews went far beyond our expectations; ICT integration certainly brings problemsand advantages not described in the literature. Three main aspects have emerged:• The possibility of reducing the number of errors in routine operations is one of the ICT benefits executives seem to appreciate most. On the one hand, it is an objective that could be easily reached thanks to relatively simple technology; on the other hand, it suggests a constraint to be kept in mind when thinking about developing ICT solutions: does it reduce errors or can it cause new ones? Does it simplify work-life (reduce the number of operations to be carried out, make decisions easier) or does it make it more complicated? It might be useful to recall the experience that the car industry has undergone when flexible automation was first introduced . Although the great benefits of automation were definitively visible, obtaining those benefits was not so instantaneous as was first believed. The technological questions which emerged caused concern about organisational problems related to the production process as a whole. In short, the lesson was: to insert in a complex process a machine that uses and manipulates information is hardly a ‘neutral’ or ‘technological’ improvement, as the use of an electric-powered screwdriver instead of a manual one could be. ICT integration goes even further, presenting problems which are much more complex than those introduced by flexible automation, since it involves both the internal organisational processes and relations with other firms.• The problems connected to the existing organisational process must not be underestimated. An example: if an irregularity occurs in a purchase order coming from EDI into ERP, the system automatically addresses a message to a pre-defined organisational position responsible for that specific task. Some little irregularities frequently occur in day-to-day activities of the firm. Problems might be due, for instance, to a little deviation from contractually pre-defined terms (e.g.: that specific customer by contract is supposed to have paid the last batch before ordering a new one, but he has made the new order although he has not paid for the last one yet). In a traditional planning process the person who receives that order will look for someone who takes the responsibility to say ‘go ahead’, or rather ‘let me check the situation with Mr. Smith’. An ERP can do the same thing in a faster and more effective way: using the internal net, the ERP can automatically inform the person
The role of ICT in the strategic integration of the automotive supply-chain 259 responsible via computer, sending him a message and letting him retrieving all the documents related to the situation (contracts, addresses, telephone numbers and so on). A pre-defined hierarchy of positions responsible for each possible situation becomes necessary. In a traditional organisation this takes place informally (a secretary goes around searching for the boss); in an ERP-based organisation one must be sure that someone will guard that position. In short, a complete workflow of internal processes must be defined; this might not be an easy task.• It might be necessary to drop several established notions about the firm’s competitiveness and to shift towards a vision regarding integrated-process competitiveness. In our opinion, a single firm would hardly get greater competitiveness merely from ICT tools, since ICT-based process innovation in a firm takes place mainly in the form of external purchase of instruments (hardware and software), while competitive advantages are supposed to be distinct and enduring. Neither of these features seems to apply to ICT tools in themselves; the true source of competitive advantage consists in the net of internal and external relationships that are improved by ICT. For this reason, we should expect both carmakers and first-tier suppliers to strive towards the securing of reciprocal relations. In brief, we could say that increasing integration seems to originate increasing idiosyncrasy. In order to fully exploit the evident benefits of ICT interconnections of production processes, a relatively stable environment and the absence of opportunistic behaviour from both sides is needed.References and Notes1 This paper is a synthesis of research developed within the CoCKEAS project (Coordinating Competencies and Knowledge in the European Automobile Systems), supported by the EU within the 5th framework.2 Sako, M. and Helper, S. (1999) ‘Supplier relations and performance in Europe, Japan and the US: the effect of the voice/exit choice’, in Y. Lung, J-J. Chanaron, T. Fujimoto and D. Raff (Eds.) Coping with Variety, Ashgate, Aldershot.3 de Banvill, E. and Chanaron, J-J. (1999) ‘Inter-firm relationships and industrial models’, in Y. Lung, J-J. Chanaron, T. Fujimoto and D. Raff (Eds.) Coping with Variety, Ashgate, Aldershot.4 Camuffo, A. and Volpato, G. (1997) Nuove forme di integrazione operativa: il caso della componentistica automobilistica, F.Angeli, Milano.5 E.g., modularity and platform approach. See: Y. Lung, J-J. Chanaron, T. Fujimoto and D. Raff (Eds.) Coping with Variety, Ashgate, Aldershot. See also Sako, M.and Warburton, M. (1999) ‘Modularization and outsourcing project’, IMVP Annual Forum, MIT, Boston, 6–7 October. See also (1997) ‘Platforms are fewer, but more flexible’, Automotive News Europe, 22 December.6 Womack, J.P., Jones, D.T. and Roos, D. (1990) The Machine That Changed the World, Rawson Associates, New York.7 Womack, J.P. and Jones, D.T. (1996) Lean Thinking. Banish Waste and Create Wealth in Your Corporation, Simon & Schuster, London.8 Freyssenet, M., Mair, A., Shimizu, K. and Volpato, G. (Eds.) (1998) One Best Way? – Trajectories and Industrial Models of the World’s Automobile Producers, Oxford University Press, Oxford.
260 G. Volpato and A. Stocchetti9 By internationalisation we mean the geographic expansion of the activities (purchasing, design, manufacturing, selling) carried on by a firm.10 Camuffo, A. and Volpato, G. (1999) ‘Project 178 in the form of an international double network: internal exchange and global sourcing’, IMVP Annual Forum, MIT, Boston, 6–7 October.11 A recent research estimated that inefficiencies in product data communication among the US supply chain (so-called ‘imperfect interoperability’) costs about $1 billion a year. See: RTI – Research Triangle Institute (1999) ‘Interoperability cost analysis of the US automotive supply chain’, Final Report, RTI Project No. 7007-03.12 EIU (2000) Automotive Supply Chain Management, Research Report, London.13 Volpato, G. (1998) ‘Fiat auto and magneti marelli: toward globalization’, in Actes du GERPISA, No. 22.14 See, for instance, Digital Economy 2000, US Dept. of Commerce, June 2000, pp.15–20.15 The manufacturing industry has already met a similar occurrence with the introduction of flexible automation; at that time it has been widely acknowledged that technology in itself does not create major efficiency or effectiveness if the organisational and strategic design is inadequate. See, for instance, Parthasarthy (1992) ‘The impact of flexible automation on business strategy and organizational structure’, Academy of Management Review, Vol. 17, No. 1, pp.86–111. See also Boer and Krabbendam (1994) ‘Organizing for manufacturing innovation: the case of flexible manufacturing systems’, International Journal of Operations & Production Management, Vol. 12, No. 7/8, pp.41–56.16 One of the CEOs we interviewed in our research estimated for his company a time-saving equal to 56 hours of work each week, thanks to the use of EDI interfaced with ERP supply management.17 Cerruti, C. (1999) ‘L’introduzione di sistemi informativi avanzati nella media impresa: prime evidenze su potenzialità e limiti dei sistemi ERP (The introduction of advanced ICT systems in medium-sized enterprise: first indications on ERP value and limits)’, AIDEA Workshop 1999, Parma, Italy, 29–30 Oct.18 In our view there is a significant difference between this case and other (even worse) cases that Davenport calls “horror stories about failed or out-of-control projects” (Davenport (1998) ‘Putting the enterprise into the enterprise system’, in Harvard Business Review, July–Aug.). A certain amount of problems and failures might be considered physiological among first- adopters, but the interviewed company started to adopt advanced planning systems after several years of experience in the field.19 The company CEO said that they were just testing during those days a 24-hour connection for continuous ordering.20 DELJIT is an EDI-ODETTE acronym standing for Delivery Just In Time; it indicates the request of implementation of a previous confirmed order. It can be of a twofold kind: 1. Pure Just-in-Time, which allows the supplier to arrange the delivery normally within 24 or 48 hours; 2. Pick-Up-Sheet, not adjustable, announces that the carrier is already on the way to pick up the items. The situation described above is related to the first kind of order.21 The bargaining power is, of course, one of the main determinants in carmakers relationship strategies towards suppliers, together with the criticality of purchased items. See, for instance, Kraljic (1983) ‘Purchasing must become supply management’, Harvard Business Review, Sep.–Oct., pp.109–117.22 According to EU commonly used classifications, a firm is small if it has less than 500 employees.23 In the questionnaire, e-mail and the internet have been presented with different boxes, although nowadays providers always offer both internet and e-mail together.24 In Italy an explanatory case is the Cassino experience. See Volpato (1996) Il caso Fiat. Una strategia di riorganizzazione e rilancio (the Fiat case), Torino, ISEDI.