Most supply chain change is industry specific. This, of course, is because industries develop unique structures, power-sharing mechanisms, cost- and profit-allocation programs, and information-sharing opportunities. In this column, we explore the changes taking place in one business segment that affects us all—the century-old automotive industry.

For more than 50 years, up until the decade of the '90s, the industry's channel structure had remained relatively stable. The large capital-intensive automakers either leveraged purchasing volume with their suppliers or in some cases vertically integrated key components into their manufacturing operations. The focus was primarily on the domestic market. The manufacturers made automobiles to forecast and used a "push" inventory system to distribute them to independent franchised dealers. Trade-ins, used cars, parts, and services all were handled at the dealer level in the supply chain.

This all started to change in the last decade, accelerating in the past five years. For one thing, the industry has experienced significant consolidation at the manufacturing, dealer, and supplier levels. This development has been global in scope. In fact, it now appears that over the next few years, five or perhaps six major global automakers will emerge in the world marketplace. Consolidation has occurred at the dealer level as well. One company already has acquired 400 car franchises, which gives it about 1 percent of the new-car market in the United States. In short, the face of the automotive supply chain has been changing steadily and unalterably in recent years.

The Internet has been the key factor in this supply chain transformation, which can be aptly characterized as a morphing. This powerful and pervasive technology has enabled actions and alliances that would have been unthinkable in the 1970s or 1980s. Consider that General Motors, Ford, and DaimlerChrysler recently announced plans for an online car parts exchange—and Renault and Nissan have said they would like to participate, too. GM also has entered into discussions with Toyota to use the latter's business-to-consumer Internet Web site. In addition, the giant U.S. automaker reportedly has invited Toyota and Honda Motor Co. to join its newly formed Internet marketplace for suppliers.

The new Internet-inspired partnerships are not limited to the industry players either. Ford, for example, has hired United Parcel Service to track vehicles from factory to dealer. Although the tracking problem has existed for decades, Internet ordering has suddenly escalated it to a top priority. Ford expects to reduce delivery time by up to 40 percent with the new alliance.

GM, for its part, has launched a major study designed to improve its cycle time to market. Input to the study was elicited not just from the internal GM units but also from more than 50 outside companies and experts. The outcome of this effort is expected to be an Internet-enhanced initiative to reduce the order-to-delivery cycle from a current (1999) level of up to eight weeks down to four to 11 days by 2003.

Meanwhile, DaimlerChrysler's chairman has announced that the company is working to win over investors by demonstrating that the company is adaptable and knows how to use the Internet to increase shareholder value.

The dealer link in the supply chain has experienced some significant changes as well. The Internet has exerted great pressure on traditional dealers. Their overhead can add up to $2,000 per transaction, and they currently have $60 billion tied up in new automobile inventory. The Internet attacks both of these problems, providing visibility over both new and used inventory and reducing transaction costs. This powerful capability threatens the dealers' dominant position.

Dealers are struggling with how to play in the Internet arena. Some have created their own Web sites and will take orders either online or in the showroom. Others have partnered with third-party Internet companies that provide sales referrals from their Web sites.

Then there's a whole other segment of dealers that seem to be fighting the Internet. They are evoking franchise laws of some states that protect the dealer as the sole source for new automobiles. Some dealer organizations are aggressively lobbying their state governments to pass similar protective legislation. The Texas Auto Dealers Association, for example, recently won passage of state laws that will stop Ford and GM from selling late-model used cars direct to customers via the Internet.

Despite the lobbying efforts, the number of automobiles sold on the Web (currently around 1 percent) is expected to increase rapidly. More than 60 percent of car buyers currently use the Web for research and price comparison, according to J. D. Power and Associates. Probably in response to these trends, the National Auto Dealers Association (NADA) has announced it will post dealer invoice prices on the NADA Web site. Sometime in the near future, the association also plans to list the entire inventory held by the nation's 19,500 dealers. The NADA site will not include incentives or "holdbacks" as the third-party competitors do but will simply give the dealer invoice.

The changes we've observed in the automotive supply chain carry implications that extend well beyond any one business sector or industry. Specifically, at least five lessons emerge that should be heeded by supply chain professionals everywhere:

• Lesson 1: The Internet can force significant change on an industry in a very short period of time.
• Lesson 2: As a supply chain goes through the morphing process, it becomes increasingly difficult to tell the competitors from the partners.
• Lesson 3: Brick-and-mortar can sometimes serve as an operational anchor when trying to adapt to supply chain change.
• Lesson 4: Brand equity and local market relationships are devalued as full and ubiquitous information becomes available to the buyer.
• Lesson 5: When in danger, when in doubt, fall back on your lobbying clout. Unlike the supply chain, this aspect of human behavior has not changed a whole lot. When things aren't going your way, you can always circle the wagons and call your congressman or state legislator.