Managing Automotive Export Sales Planning and Order Fulfillment in a Volatile, Uncertain, Complex and Ambiguous World


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In today's uncertain business landscape, automotive firms need systems and processes aligned with changing market dynamics to better contend with unplanned disruptions, supply capabilities and strategic direction.

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Managing Automotive Export Sales Planning and Order Fulfillment in a Volatile, Uncertain, Complex and Ambiguous World

  1. 1. • Cognizant 20-20 InsightsManaging Automotive Export Sales Planningand Order Fulfillment in a Volatile, Uncertain,Complex and Ambiguous World Executive Summary and Japan. While these developed markets will continue to hold a significant share of the world’s The term VUCA — volatility, uncertainty, complexity automotive marketplace, it is only the combined and ambiguity — originated in the U.S. military to vehicle sales in developing countries that will fuel describe the nature of today’s tumultuous world. future growth and ensure viability and survival This term, in our view, is more applicable than for car companies. ever to the business context in which today’s automotive industry operates. The industry, for U.S.-based automobile manufacturers and sales example, has faced and overcome demand- and organizations have typically referred to these supply-side disasters in just a few short years. growth markets outside of developed economies as “export markets.” Typically, these organiza- First, the Great Recession (beginning in 2008) tions have sold vehicles manufactured either in severely increased demand volatility in all North America or elsewhere in the world through markets, leading to large inventory surpluses separate business units responsible for sales and shortages across the value chain. Then, planning and order fulfillment business functions. two years later, just as the market began to find This has caused massive disaggregation of the its footing, natural disasters, notably the 2011 supply planning process. Tohoku earthquake in Japan and massive floods in Thailand, created huge supply-side uncertain- Although most OEMs and their U.S. subsidiaries ties. In addition, the tumultuous macroeconomic claim to have state-of-the-art planning systems, environment and corresponding ambiguity in a closer look reveals manual and inefficient generating reliable forecasts has worsened the processes or operations when it comes to the situation for supply chain and sales planning handling of vehicle sales to the export markets. business executives. This lack of strategic visibility and inflexible systems makes the life of supply chain executives Hence, given persistent VUCA, automotive extremely difficult as they grapple with VUCA market leaders and analysts are in disagreement world forces without being adequately equipped regarding the industry’s future. However, one to do so. constant is the view that future industry growth will be more heavily dependent on the tradition- We believe that VUCA forces, if not dealt with at al markets outside of the U.S., Canada, Europe the right time, can lead to paralyzing FUD (fear, cognizant 20-20 insights | march 2012
  2. 2. U.S. Domestic Automotive Exports 70,000 Millions of Dollars ($) 60,000 50,000 40,000 30,000 All 20,000 Vehicles for transport of goods Vehicles for personal usage 10,000 Vehicles transporting more 0 than 10 people ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 YearsSource: Adapted from U.S. International Trade Commission dataFigure 1uncertainty and doubt). Hence, our premise is this trend and provides an optimistic forecast forthat to succeed, OEMs and their U.S. subsid- emerging market demand in the near future (seeiaries need systems and processes aligned to Figure 2). For example, a recent global auto reportchanging market dynamics to better contend forecasts that car sales in emerging nations willwith unplanned disruptions, supply capabilities surpass those in developed nations by 2013.and strategic direction. In doing so, they canprovide focused solutions to manage demand- Thus, current trends indicate that vehicle sales inside volatility, supply-side uncertainty, macro- emerging markets are likely to overtake sales ineconomic and decision-making complexity, and developed markets a few years from now.ambiguity around organizational objectives.Rise of Automotive Export Markets to Car Sales in Emerging NationsDeveloping Countries to Surpass Developed CountriesA recent paper by the U.S. Department of by 2013Commerce shows that domestic automotiveexports totaled $45 billion in 2010, with exportsof roughly 2.2 million vehicles (see Figure 1). 40The trend continued in 2011, with YTD exports 35up by over 25% by July 2011 compared with Millions of Units 30July 2010. We believe these data points confirmthe comeback of rising exports, a segment that 25experienced downward pressure in late 2008 and 202009. 15 forecast 10Although a majority of automotive exports fromthe U.S. were shipped to developed economies 5 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13such as Canada, Germany and Japan, exports to Yearsemerging markets such as Saudi Arabia, China, Developed nations (Western Europe, U.S., Japan, Canada)the UAE, Latin America, Mexico and Central Emerging nations (all other nations)and Eastern Europe are rising at a much fasterrate, currently accounting for more than 20% of Source: Scotiabank Group’s Global Economicoverall U.S. automotive exports. Leading mac- Research unitroeconomic research from Scotiabank confirms Figure 2 cognizant 20-20 insights 2
  3. 3. Current State exception management around sales planning activities rather than productive effort targeted• Export sales planning: Most U.S.-based at better future sales planning. vehicle sellers today have standard “textbook” processes when it comes to sales planning for export markets. These planning techniques • Order fulfillment and operational visibility: Since the global economic downturn of 2008 involve both top-down and bottom-up sales and in the face of the recent spate of natural planning approaches, with an ability to adjust disasters, the vulnerability of the automotive the yearly forecasts once per month based on supply chain (directly impacting export units) actual sales volumes. has also increased due to multiple factors. However, the planning for export markets is These factors have raised the visibility of becoming increasingly difficult and inaccurate flaws embedded in a supply chain built around due to the volatile macroeconomic factors stable demand. Additional elements that affect prevailing in these markets, as well as volatility include lean practices, delocalization unplanned events — such as sudden interest of production and a reduced supply base. Even rate changes, government policy changes, though lean manufacturing is fundamental to unexpected labor disputes, port shutdowns, eliminating waste and accelerating throughput natural disasters, etc. — leading to sudden in times of stability, it can lead to sub-optimiza- changes in demand and supply conditions tion. Considering the complexities involved in across individual export markets. Typically, making such decisions and the scenario evalu- business executives tasked with export sales ations related to supply chain impacts amid planning activities are finding it difficult to supply disruptions, automotive export units answer questions such as: that respond with adaptability and flexibility will gain competitive advantage. >> How do I meet the demand for a popular model if manufacturing is delayed by a few We believe business teams find it hard to months due to supply shortages? answer order fulfillment-related questions (listed below), as they are not equipped to >> What happens if the government in a des- handle the volatility and constant changes tination export country announces a strat- associated with VUCA world forces: egy for buying fuel-efficient vehicles? What is the immediate impact on the number of >> How best to provide an accurate estimated expected vehicle orders? time of arrival (ETA) to all dealers across the export economy? How to prioritize or- >> How would monthly and quarterly sales ders and evaluate their impact, given sup- plans change if revenue and sales targets ply chain disruptions? for the export unit are changed during management review meetings? How will >> What more can be done to optimize trans- this impact targets for the individual export portation costs? How to divert vehicles markets? from one market to another most effective- ly in the face of inventory shortages? >> If the interest rate for car loans in a par- ticular export market changes by 20 or 25 >> How to ensure optimum inventory for each basis points, how will it impact the demand export market given uncertain conditions? for a particular vehicle model in that export We believe the fundamental reason behind the market? inability to answer these questions is the lack >> If the currency exchange rate changes by 20 of responsive processes and tools. Hence, to or 25 basis points, how will it impact the top better deal with VUCA forces, we recommend a and bottom lines for that export market? process that includes developing greater agility in export planning and order fulfillment businessThe complex business situation is often aggra- processes, accompanied by an acknowledgmentvated by the presence of disparate export sales of the reality of VUCA world forces. From there,planning systems that lack integration with other we suggest defining a roadmap for implement-domestic sales planning systems and do not have ing necessary elements of sensitivity, processstate-of-the-art analytical horsepower. This sce- changes and corresponding technology enablers.nario results in considerable manual effort for cognizant 20-20 insights 3
  4. 4. Understanding the VUCA World Business • Define impact of VUCA forces on export markets. Export Planning and Model Scope Order Fulfillment • Define business value framework Business Unit for VUCA capabilities. VUCA Forces Business Uncertainty Volatility Process • Refine export business unit process Business Model manual for using VUCA tools. Mostly supply side Mostly demand side Scope IMPACT Business Business Processes Ambiguity Applications Complexity Future process • Re-define export application portfolio. Operational factors and and technology Application and Software Software • Define architecture strategy for using Scope advanced VUCA world tools. Infra and Technology Infrastructure • Evaluate use of cloud computing in and light of VUCA world forces. Technology Scope • Define the right technology stack for real-time visibility and rapid response time measurements.Figure 3Such changes are easy to suggest but difficult to Turning VUCA Forces toimplement for export organizations with complex Your Advantageinter-business-unit relations with domestic sales Automotive export units need to evaluate theirunits. Hence, we recommend a structured ability to perform effective export sales planningapproach for creating a business operating model and order fulfillment business processes in light ofto evaluate the impact of each of the VUCA world the four VUCA forces. This evaluation can be doneforces and suggest effective process changes. by using a framework that unearths key supplyThe approach will help organizations embrace a chain issues and identifies enabling processsystematic evaluation of existing processes and and technology changes. Such a framework cantools for generating actionable insights that the help organizations prioritize and manage issuesautomotive export business units can use for that they face during periods of demand peaks,practical purposes. downturns and stagnations or supply chain dis- ruptions.Contending with the VUCA World Sources of Volatility Sources of Uncertainty VUCA Forces • Unexpected demand peaks and downturns. • Supply-side disruptions. • Macro-economic factors and policies with • Supplier operations and immediate market impact. Uncertainty Volatility performance. Mostly supply side Mostly demand side Sources of Complexity Ambiguity Sources of Ambiguity Complexity Operational factors Future process • Different markets with varied buyer profiles. and technology • Changing organizational • Need for demand-driven dynamic scheduling. objectives and focus for export • Increasing number of product configurations markets. to be sold in each export market. • Technology trends such as • Pressure to optimize logistics operations. cloud computing.Figure 4 cognizant 20-20 insights 4
  5. 5. Framing VUCA Enablers Volatility Uncertainty Complexity Ambiguity Key Issues • Changing demand condi- • Supply-side disruptions. • Managing different • Changing organizational tions characterized by markets with varied buyer objectives and the focus • Lack of real-time visibility. peaks and downturns profiles. for export markets. • Lack of control over • Volatility in macroeco- • Managing an increas- • Evolving technology supplier performance and nomic factors such as ing number of product trends. operations. interest rates, currency configurations across exchange rates and fuel different markets. prices that directly impact • Measuring and optimizing vehicle sales transportation costs. • Scheduling dynamically to meet changing demands. Key • Increasing productive • Developing capability • Institutionalizing • Defining a clear business Process consultations with dealer- to get real-time view of frequent reviews among technology roadmap for Solutions ships, leading to greater capacity vs. demand. management, sales and the export business unit. market intelligence. • Writing flexible supplier operations. • Incorporating demand contracts to allow for • Increasing speed of scenario analysis as a changes in parts orders. acquiring and assimilating routine activity for weekly in real time. information. planning review meetings. • Ensuring supplier partici- • Using structured analytics pation in the design and for better market insights usage of rapid collabora- and planning/forecasting. tion tools. Key • Statistical analysis of historical demand and associated macroeconomic factors. Process • Ability to evaluate what-if scenarios in quantitative terms. Enablers • Automated creation of sales plans, based on selected scenarios and actual sales numbers each month. • Enabling real-time supply chain visibility through a single unified user interface. • Enabling technology for dynamic scheduling. • Centralized data warehouse platform to view and dissect information. • Tools to capture total cost to serve for an export destination.Figure 5Based on our experience, we propose a framework units by increasing market share and improvingthat identifies the source of volatility, uncertainty, productivity in the day-to-day to operations ofcomplexity and ambiguity faced by the export export sales team(s) and supply chain executives.sales and planning and order fulfillment teams Finally, we believe these tools may help increase(see Figure 4). overall organizational profitability by effectively serving the export markets that are the futureOnce the sources of VUCA forces are identified, markets of automotive companies in the U.S.the framework focuses on finding key process What follows is a representative set of tools thatsolutions and tools to help prepare business can be leveraged to accomplish these goals:teams for all the challenges of the VUCA world. Asample list of the process solutions and enablers • Tools for scenario analysis based on marketcan be found in Figure 5. volatility: Over the past year and into 2012, U.S.-based vehicle sellers have exportedOnce the set of process solutions and process vehicles to more than 200 countries withenablers are identified, organizations can varied buyer profiles and divergent macroeco-then determine the application software and nomic policies. Given the demand for differenttechnology scope by defining and identifying vehicle configurations and associated productthe tools that can be implemented, in order of complexities, export sales planning teamstheir importance, as identified in the business struggle to analyze the impact of macroeco-operating model. nomic changes, competitor actions, targeted marketing campaigns, etc. and predict changesThese tools have the capacity to directly impact in demand patterns.both the top and bottom lines of export business cognizant 20-20 insights 5
  6. 6. We believe these business teams need to be transportation hubs. Real-time visibility of equipped with technology tools that project shipments across the distribution path. demand and perform what-if scenario analysis based on changes in macroeconomic factors. • Tools for tracking and analyzing key per- formance indicators: For measuring effec- A representative list of capabilities of such tiveness of export sales planning and order tools includes: fulfillment business processes, we believe >> Scenario analysis for the sales of each ve- organizations need to develop tools to track hicle model given an interest rate change and analyze the following two indicators: in conjunction with marketing campaign spending in the export market. >> The Total Cost to Serve (TCTS): This can be defined as the final cost of selling each >> Scenario analysis that involves an anticipat- vehicle in an export market. In today’s ed increase in the market share of competi- outsourcing-centric environment, sales or- tors and the associated impact on sales of a ganizations and vehicle distributor compa- particular model. nies are finding it critical to measure TCTS for end consumers in each export market. >> Scenario analysis that evaluates best, av- There are various advantages of incorpo- erage and worst cases of exchange rate or rating the measurement and management interest volatility. of TCTS as a standard approach and as part >> Scenario analysis that evaluates best, av- of the sales planning and operational vis- erage and worst cases of the overall auto ibility business processes. industry in an export market. »» An analysis centered on total cost to Using such tools, the export sales planning serve for each country/region helps to teams can gauge the impact on the entire auto identify sources of waste across the ve- industry in a given export market and plan for hicle supply chain, as well as provides a corrective course of action. an end-to-end view of each market that• Tools for rapid re-planning and collaboration: enables executives to make faster deci- Equipped with the right scenario analysis sions. capabilities, export sales planning teams »» TCTS-centered sales planning meetings will be in a position to select the most likely can go a long way toward improving the scenario based on both demand- and supply- productivity of such weekly, biweekly side constraints and re-plan the vehicle order and monthly interactions. production and delivery plans in near real time, but in the context of existing or potential »» TCTS analysis can also help identify op- timized transportation routes and re- rapid response capabilities. duce logistics costs. This need necessitates a shift from manual- based feeder processes for re-planning and >> Rapid Response Times: This refers to the amount of time, in days, that a supply chain partner collaboration to a dynamic system- organization takes to return to its original based information flow. Hence, export planning operating performance in the face of an un- teams must look at developing tools that certain or unexpected event. The return to allow for seamless information flows through original operating performance can be de- production delivery systems and logistics fined in terms of specific metrics such as re- partner systems. turning to the same number of OTD (order A representative list of capabilities of such to delivery) days or a return to achieving tools relevant for export order fulfillment the same ETA accuracy after an uncertain processes is as follows: event has occurred. Organizations need to >> What-if scenario analysis for effective sales develop certain strategies to enable rapid planning. responses, such as: >> Accurate expected time of arrival (ETA) »» Making each manufacturing region self- calculation. sufficient, thus eliminating dependency on a single country for critical parts. >> Scenario analysis for optimized inventory movement between various ports and »» Analyze sourcing and the supply chain, identify bottlenecks and define a strat- cognizant 20-20 insights 6
  7. 7. egy for alternate sourcing and distribu- have handled such events as exceptions tion in the event of supply disruptions. and have managed them in silos. How- Such uncertain or unexpected events ever, we believe that the time has come could range from natural disasters, to for export units to learn from each dis- unexpected supplier bankruptcies, to ruptive event and use that learning in major production holds due to quality the future. issues. Automotive export units, so far,About the AuthorsBiswadeep Hota is a Consulting Manager in Cognizant’s Manufacturing & Logistics Practice withover eight years of global experience helping clients optimize their business processes and ITlandscape across the supply chain. His key areas of expertise include business process reengineering,vehicle supply chain management, order management and inventory control. He holds a bachelor’sdegree in Mechanical Engineering and an MBA from SPJIMR, Mumbai, India. He can be reached Pujari is a Consulting Manager within Cognizant’s Automotive Business Consulting Practice. Hisexperience spans major auto OEMs across the vehicle supply chain, sales and operations planning andthe service engineering domain. He has led multiple business consulting engagements aimed at definingsolutions that deliver cost savings, revenue increase and productivity improvement through processautomation and redesign. He holds a bachelor’s degree in Production Engineering and an MBA from theIndian School of business at Hyderabad, India. He can be reached at CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered inTeaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industryand business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50delivery centers worldwide and approximately 137,700 employees as of December 31, 2011, Cognizant is a member ofthe NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performingand fastest growing companies in the world. Visit us online at or follow us on Twitter: Cognizant. World Headquarters European Headquarters India Operations Headquarters 500 Frank W. Burr Blvd. 1 Kingdom Street #5/535, Old Mahabalipuram Road Teaneck, NJ 07666 USA Paddington Central Okkiyam Pettai, Thoraipakkam Phone: +1 201 801 0233 London W2 6BD Chennai, 600 096 India Fax: +1 201 801 0243 Phone: +44 (0) 20 7297 7600 Phone: +91 (0) 44 4209 6000 Toll Free: +1 888 937 3277 Fax: +44 (0) 20 7121 0102 Fax: +91 (0) 44 4209 6060 Email: Email: Email:©­­ Copyright 2012, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein issubject to change without notice. All other trademarks mentioned herein are the property of their respective owners.