The worldwide automotive industry has shown remarkable gains in process efficiency over the last decade. Spurred on by an intensely competitive industry environment and increasingly demanding customers, the major OEMs in the Triad (Europe, Asia, and North America) have worked hard to improve product quality, lower manufacturing costs, and speed the development of new products.

Much of the improvement can be attributed to the industry's deep commitment to being customer-driven. The drive to satisfy customers pushed Triad manufacturers to focus on quality; the same orientation led to the introduction of new categories of vehicles like the Lexus and Infiniti. A customer focus also has caused the European industry to migrate toward a complete restructuring of the supply base.

So much improvement has been made, in fact, that the industry is now a model for other industries looking to make similar gains. Manufacturers in other capital-intensive industries are continuously benchmarking the assembly facilities of leading OEMs; the quality disciplines of several Japanese OEMs are now legendary; the product-development processes of several automakers are held up as models of best practice.

And yet, in marked contrast to the industry's excellence along all of these dimensions, the automotive OEMs are behind—far behind—the best practices of a variety of other consumer-goods businesses in the area of fulfillment. Very simply, the process of shopping for and buying a car is not customer-driven, and in fact takes considerably longer, is more unpredictable, and is more unpleasant than purchasing most other categories of consumer goods. Fulfillment is the next frontier for automotive OEMs that want to make their companies champions of best practices along every dimension that matters to customers.

The field is wide open. Although a number of auto OEMs are experimenting with new approaches, no one has put together the total solution. Whoever is first has the opportunity for startling gains in customer satisfaction, profitability, and share.

It is widely believed in the auto industry that customers do not want to wait to drive away in the vehicle they purchase, but would rather buy a vehicle immediately out of a dealer's stock. Indeed, a casual survey of market research data and customer buying behavior today in the major world economies supports this belief.

In the United States, at least 85 percent of customers purchase a vehicle off the dealer lot or from the stock of another, more distant dealer. The situation in many of the major economies of the world—the United Kingdom, France, and Japan—also shows a tendency toward off-the-lot purchasing. Only in Germany do as many as half the purchasers appear willing to wait for the delivery of their specific vehicles, with most of the rest taking possession immediately from a dealer. In the United Kingdom, France, and Japan, only 25 to 30 percent of the buyers are willing to wait. The majority take vehicles from dealer stock.

Consumers seem satisfied with the selection available on dealer lots. Research suggests that many consumers don't really know what they want when they visit dealers in search of a vehicle and therefore can be moved without penalty into the vehicles the dealer has available. In the United States, less than half of purchasers know the exact vehicle characteristics they desire before going to the dealer. The remainder can be influenced by the dealer. Although the proportion of consumers in France, Germany, and the United Kingdom knowing exactly what they want is higher, more than 40 percent can be influenced, and in Japan almost two-thirds of consumers can be influenced.

When they do buy off the lot, consumers are inclined at first to say that they got what they wanted. Of the consumers surveyed in five major Triad economies, more than 90 percent initially responded that they got the vehicle and all or nearly all of the features they wanted. A surprisingly low 1 percent to 7 percent admitted they did not get what they really wanted but purchased the vehicle anyway.

These data suggest that the automotive selling and ordering process is as customer-driven as other parts of the auto design and manufacturing process. Therefore, beyond the cost efficiencies available from a faster and more effective fulfillment process, the automotive OEMs have little to gain in dealer and customer satisfaction.

This is a myth.

Consumers appear to favor a stock-driven approach to purchasing their vehicles because they have been trained by the OEMs to do so. With a few noteworthy exceptions, the industry has not encouraged customers to think about how they would like to shop for and purchase autos. Instead, the industry has pushed its build-to-stock orientation on the market, reinforcing it with frequent discounting to encourage consumers to overlook their specific desires in order to buy the products the OEMs have put into inventory.

The automotive selling process is biased toward moving the vehicles that the dealer has in stock more than it is toward surfacing and satisfying customers' needs. Although it is true that only 1 percent to 7 percent of consumers buying off the lot initially admit they did not get what they wanted out of dealer inventory, when we probed survey respondents about specific vehicle features we discovered that between 12 percent and 40 percent of consumers compromised on one or more features they desired in their vehicle (Exhibit 1). France and Japan are at the low end of the range, at 12 percent and 29 percent respectively; the United States and Germany are at the high end of the range, at 36 percent and 40 percent. The features on which purchasers compromised the most were body and interior color and other basic and luxury equipment.

It is not surprising that consumers need probing to get to their true feelings about their automobile purchases. For most households the automobile represents the largest outlay of personal income after home ownership. It is hard for consumers to admit that they did not shop wisely or that they made compromises in such an important, high-ticket purchase. And yet when asked to comment about specific features of their vehicle, many consumers modify their initial statements that they got all that they wanted and instead identify features they actually would have preferred.

So why are consumers not buying more specially ordered vehicles? Why are consumers not getting precisely what they want? The answers are simple and disturbing: In a number of subtle and direct ways, they are discouraged from doing so.

Inventory Pressure: Many automotive OEMs believe that if the dealers have the inventory, they will feel the pressure to move cars. They do. Dealer sales managers push older cars from stock to keep inventory refreshed. Auto salesmen want their commissions as soon as possible, which for a car sold off the lot is when the dealership receives payment from the purchaser. A vehicle sold by special order means delayed commissions. Further, salesmen are fearful that a special-order buyer may sleep on the decision and decide not to follow through with the purchase, or manage to find a lower price by shopping at other dealers.

Push Marketing: Potential special-order customers must face the prospect that contests and incentive programs might expire by the time their vehicle is delivered. Given that in the U.S. average fulfillment time is 60 to 70 days (Exhibit 2) and that most consumer incentive programs last only 60 to 90 days, dealers can honestly say that the incentive may be gone by the time the sale is complete.

^{Deal-Making Mindset:} Dealers and their salespeople will go to great lengths to avoid special orders. Our survey of U.S. vehicle dealers indicated that 15 percent to 30 percent of customers are switched from the car they originally sought to one available on the lot (Exhibit 3). In another 10 percent to 15 percent of the cases, dealers satisfy customers by going to another dealer to locate the desired vehicle. Even at Saturn, which has worked hard to make its fulfillment process more customer-friendly, fewer than 15 percent of buyers place special orders.

In our survey, we also explored preferences for different buying experiences. We contrasted two worlds—one very much like the current automotive buying experience and another unlike anything possible today (Exhibit 5). Today's experience was described as one in which the consumer searches dealer stock for his or her vehicle, negotiates price, and, if successful, drives off the same day in a vehicle close to the specifications originally sought. Of the people who purchased vehicles in the major Western economies in the last year, only 36 percent to 58 percent of purchasers preferred this approach. Thus, a large portion of the market is not served by the dominant purchasing mode in the industry today.

The suggested alternative was for the purchaser to place a special order for the vehicle desired during a single visit to a dealership. The price would be negotiated at that time, and the chosen vehicle would arrive three weeks later. Some 40 percent of purchasers preferred this approach. A large fraction of consumers worldwide are ready for a different automobile retailing experience—and many of the rest may follow once they experience a changed system.

It is not surprising that large numbers of consumers are interested in a new way of purchasing their vehicles. In industry after industry, new modes of ordering and fulfilling orders have gained large followings. For example, as recently as 1990 almost all personal computers were ordered out of a dealer's sales floor inventory. Into this market came a new wave of computer makers, led by Dell, which championed a much more customer-friendly process that allowed customers to specify the exact features they desired with the expectation of delivery in three to five days. In five years, this mode of selling personal computers captured more than 40 percent of the total market and forced dealer-oriented companies like IBM to completely rethink their manufacturing and order-taking strategies.

As in the case of personal computers, one selling and delivery process will not fit all automotive customers: in every major market around the world, there will continue to be large groups of customers who prefer off-the-lot purchasing while others favor special ordering. Yet very few automotive OEMs have reckoned with this new reality in a meaningful way, in spite of the large potential rewards from doing so.

Those automotive OEMs that can improve their fulfillment process will experience significant increases in value. Improving the fulfillment process will reduce dealer inventories. Evidence of the potential impact on dealer inventories already can be seen in North America, where OEMs currently have varying order-to-delivery times (Exhibit 6). The days of inventory at dealers whose OEMs require up to 10 to 12 weeks to supply are approximately 60 percent higher than those of dealers that are supplied in five to six weeks. If all dealers in North America could be supplied in under four weeks, $10 billion to $15 billion tied up in inventory investment and its financing could be redeployed elsewhere.

The net effect of a better match between customer needs and product availability is greater sales. More accurate fulfillment increases the availability of specific combinations, both from inventory and through special ordering. Because fixed costs in the business are high, small increases in sales volume have a major impact on OEM and dealer profitability.

When customers get exactly what they want, the vehicle they buy often has more features and options, which results in higher margins for the OEM and dealer. With today's inaccurate fulfillment, dealers tend to drift to the lowest common denominator of equipment. This reduces their inventory exposure and makes the vehicles easier to trade. If the dealer gets stuck with an option that turns out to be a slow mover, he may never recover its value.

Customers who say they have compromised on vehicle features often cite their inability to get the extra equipment they want in a reasonable period of time. Those who special order are four times more likely to add extra equipment than to delete it. Such special orders lead to approximately 25-percent higher margins for the dealer than in ordinary transactions—averaging $1,230 for a special order, compared to $979 for a stock order and $836 for a dealer trade. They also lead to higher margins for the OEM, since the margins on extra equipment and options are higher than those on the base vehicle. Faster and more accurate fulfillment reduces the risk for dealers in ordering higher-spec vehicles.

The longer a vehicle is on the lot, the less attractive it is to all parties. The consumer can open the door and see that the car was built more than four months earlier. The gloss may have dulled slightly, the paint work may show a slight patina, the battery may be flat. Even worse, the age of the vehicle may create suspicion in the consumer's mind that something more serious is wrong. In addition, the dealer must care for the vehicle and carry the financing costs after the OEM withdraws financing support. The OEM must provide the initial financing and the replacement of batteries and warranty work necessitated by exposure to the elements. The net effect is lower margins on vehicles that sit longer in inventory (Exhibit 7).

Dealers react to aging inventory by putting pressure on the sales force to move the older vehicles. Often, the sales manager authorizes the sales force to use discounts to move older vehicles, and may also offer "spiffs" (incentive payments) to the salespeople themselves. Together, these costs reduce the realized gross margins on stock sales by as much as 35 percent and by more than 66 percent in comparison with the gross margins on special orders.

A better fulfillment process also will lower the costs associated with dealer trading. A dealer trade costs $100 in cash per pair of cars traded and $150 per unit in lost gross margin compared with selling out of stock, and on average, trades cost a dealer between $75,000 and $150,000 a year. Typically, 10 percent of U.S. dealer transactions involve trades, and every doubling of order delivery times results in a doubling of the percentage of vehicles that are sold as trades.

Furthermore, a better fulfillment process will probably work in support of no-haggle pricing. In this approach the dealer has the same everyday low price, clearly displayed, for every consumer. Today, dealers have to rely on individual deal-by-deal haggling not just to attract customers but also to shift them to the slow-moving combinations of options and colors. A better fulfillment process would reduce the problem of aging inventory, and it would lessen the need to use individual deal pricing to manage the inventory portfolio.

The pressure of both haggling and being pushed into a compromise, together with the customer's anxiety that he or she may be paying too much, has a significant impact on the relationship between manufacturer, dealer, and consumer. Better fulfillment of orders may eliminate the need to set price deal by deal. This could contribute to a more customer-friendly purchasing and ownership experience.

In this respect, the final and perhaps the greatest benefit for OEMs and dealers who improve their fulfillment processes will be more satisfied customers. Our interviews with dealers who are receiving vehicles more quickly from OEMs such as Cadillac, Saturn, Rover, and Renault revealed greater customer satisfaction with the purchase process than did our interviews with the dealers of other OEMs. Many OEMs have found that consumers whose purchases most closely conform to their specifications rate the buying process higher.

As the need for a more effective fulfillment process has emerged, several OEMs have turned their attention to making improvements. Although many of the innovations are still experimental or being pursued piecemeal, companies are nevertheless taking a number of interesting steps.

Progressive spec freeze: This is a process in which the features of a vehicle are specified according to a schedule defined by the physical requirements associated with each feature. For example, at Renault, items requiring extended leadtimes, such as the power train, must be specified eight weeks prior to assembly, whereas other features, such as seating and interior trim, can be specified only two weeks ahead; the exterior color can actually be selected the day before production begins.

The major benefit of the progressive spec freeze is that it allows the consumer and dealer to specify their preferred features as close as possible to the scheduled date of assembly, thereby reducing the overall time customers must wait for their vehicle. The progressive spec freeze also allows a more orderly scheduling process for the manufacturing facility because fewer unanticipated schedule changes occur.

Smaller order banks: The traditional way of thinking about the automotive manufacturing facility holds that large order banks are good because they allow the OEM to keep the facility constantly loaded. Although large order banks do provide a certain degree of security, they also increase the waiting time on every new order that hits the schedule. Therefore, large order banks tend to make it difficult for OEMs to respond to changing market conditions. The problem is often exacerbated when companies use two order banks—one for the sales organization to handle the flow of orders from the market, and another for the manufacturing organization to extract orders from the sales order bank in order to make up its schedule.

Chrysler was an early mover in eliminating dual order banks and managing its order banks to improve responsiveness. As a result, the automaker was able to take 20 percent to 30 percent off the average time of its order-to-delivery process and reduce the waiting time for a special order by an equal amount. Concurrently, Chrysler dealers have also experienced a 15- to 20-percent reduction in inventory.

More voice of the customer: Some OEMs have taken steps to make the sales process at the dealership more open to the expression of customer preferences rather than immediately adopting a "move the iron" mode of selling. For example, customers visiting Saturn dealerships find a ready supply of printed information showing them all of the features and combinations Saturn makes available. Also, the Saturn salespeople can provide customers with worksheets to help them specify the exact vehicle they want. This gives customers the impression that they are tailoring their very own vehicle even if it turns out that the desired combination can be found in inventory. And because Saturn salespeople are paid salaries rather than commissions, there is a consistent desire to get the customer into the car he or she wants whether it is in stock or a special order.

Improved information systems linking dealer and OEM: Many OEMs have recognized the importance of having fast and user-friendly information systems that link the dealer and the OEM to facilitate the flow of orders into the order bank. But some, like Toyota, have gone further, building systems explicitly aimed at processing not only dealer orders but also dealers' forecasts of demand. This allows the OEM to build a bottom-up view of demand, which is probably more accurate than a centrally generated forecast and allocation system.

Perhaps the most important change in information systems is the creation of a transparent order bank that allows dealers to reallocate units among themselves up to the point of production. This enables dealers to respond to their marketplaces immediately and to rebalance inventory to its optimal use. As a result, dealer trades should go down and individual customer needs should be better met.

Regional inventory: Some OEMs have taken the straightforward step of holding inventory on a regional basis rather than at dealerships. In doing so, they have made it possible to respond quickly to changes in mix across multiple dealerships in the same region. Regional inventory reduces the need for dealer trades by withholding the commitment of specific vehicles to specific dealerships until the last possible moment. It does not solve, however, the problem of limited dealer supply of the most sought-after vehicles.

Integrated supply chain management: Many OEMs are working to improve the practices of their suppliers. Some of the new directions include narrowing the number of suppliers, pushing for more sourcing of systems rather than individual components, and generally seeking more cost efficiency from the supply base.

In addition, some OEMs have made major efforts to work with their suppliers to achieve a better balance of availability and inventory levels. Much of this work has centered on improving the flow of forecasts and production schedules from the OEMs to the supply base in order to synchronize the two systems. These efforts, which build on the just-in-time philosophy pioneered by the Japanese, try to incorporate more emphasis on availability and support of product variety without sacrificing the traditional emphasis on inventory discipline.

Although these examples demonstrate the industry's desire to improve fulfillment, it strikes us that the rate of improvement is nowhere near the pace seen in other industries and leaves automobile consumers at a disadvantage to purchasers of other consumer durables. For example, as seen in Exhibit 8, automobile consumers still must wait weeks longer on average for a special order than buyers of personal computers or heavy appliances, with the greatest disparity in delivery times coming on more customized products with lower volumes.

The barriers to faster and deeper improvement tend to go beyond questions of intent and effort to include fundamental aspects of the current production system and of standard operating practices.

High levels of product variety: The auto OEMs rightly want to offer a great deal of choice in the particular features available for order, but in so doing they have created a system where in some cases literally millions of variations of the same basic vehicle model are available. The burden of such variety on the fulfillment system is enormous, and it forces the OEMs into a difficult compromise between holding high levels of inventory to accommodate all possible orders and stretching out the leadtime on large numbers of vehicle configurations. The dealers themselves can hold only a small proportion of this variety. The full range is never visible to the consumer and in some cases is actually disguised by the dealer. Dealers fear losing the sale by not having in stock the combinations that the consumer would select if exposed to the full range available from the manufacturer. Therefore, suppliers, OEMs, and dealers already have incurred the considerable cost of providing variety to the consumer, only to be thwarted at the very end of the process.

Unclear strategy: All OEMs are naturally concerned about being both efficient in designing and building vehicles and responsive to the market's needs and wants at any given time. And yet, for all of the reasons described earlier, there are real tradeoffs between maximizing efficiency on the one hand and pursuing the highest possible level of responsiveness on the other. Many OEM executives have chosen to ignore the tradeoffs in the hope that their organizations will magically solve the problem just by operating better. Unfortunately, this attitude creates confusion as the organization weighs investments in manufacturing capacity, information systems, inventory, and people that might improve the fulfillment process. Without an understanding of the criteria (efficiency or responsiveness) to apply to such investments, the organization struggles to develop a vision of what the new fulfillment system could be.

Piecemeal approach: It is natural for OEMs to want to experiment in improving a process as large and complex as fulfillment. And yet, because of filfillment's very complexity and multifunctional nature, isolated experiments in one part of the system can produce very limited results or even, in some cases, negative outcomes. Many OEMs that have made isolated changes in their fulfillment processes, whether by changing the size of order banks or rewiring the information links between dealers and themselves, have been disappointed with the modest gains in overall performance.

Subsystem shortages: The best fulfillment process in the world will founder if not supported by ready availability of the components that go into the final product. The demand for some automobile components has proven especially difficult to predict, resulting in periodic shortages. Engines are a prime example. OEMs have found it difficult to solve this availability problem because of the cost and uncertainty associated with forecasting and providing the necessary supply of engines.

Globalization of the automobile business: The complexity of the fulfillment process increases dramatically when off-shore markets become significant for an OEM. Many OEMs implicitly treat offshore markets as places that will receive the tail end of their supply, thereby subjecting the markets to large swings in availability and leadtime. Add to this the additional time required to transport the vehicles, and you have all the conditions needed to create a long, variable, and expensive fulfillment process. The major auto companies will need to rationalize their supplier bases with cost, quality, and leadtimes in mind if they hope to harvest the fruits of faster order fulfillment.

Organizational boundaries: A better fulfillment process lies at the intersection of the sales, marketing, and manufacturing functions. These organizations have proven remarkably adept at giving the appearance of working together to improve major processes like fulfillment while actually protecting their own interests. Manufacturing wants stability and predictability; marketing wants responsiveness; sales wants simplicity. As they continue to talk past one another, it is the consumer who is the big loser.

Traditional bad habits: On top of all of these challenges, there is simply the inertia of business as it has traditionally been practiced. Introducing a completely new fulfillment process implies a new relationship between the OEM and its customers. With so much investment in the current way of doing business, it is difficult for OEMs to contemplate, let alone execute, required changes in the fulfillment process. It seems easier to keep operating in the traditional mode. This will continue to be the case until some competitor works out the new industry standard for fulfillment and wins a large share of the market by doing so.

As we have described earlier, there are any number of ways to improve the fulfillment process, ranging from progressive spec freeze to new information systems to new ordering and scheduling procedures. The proper balance and emphasis among these elements will differ according to the situation of each OEM. Picking and choosing among them requires the sort of deep examination that automobile OEMs have already brought to other major processes, such as new-product development and assembly operations.

But before launching into a major reexamination of the fulfillment process, OEMs should stop and recognize that they are likely to be their own worst enemy in this effort. Two basic truths about fulfillment will cause almost all OEMs to struggle: first, it is extremely cross-functional; second, the benefits are harder to quantify than the costs, since so much of the benefit comes in the form of long-term customer satisfaction, gradually improving mix, and improved dealer performance.

In addition, OEMs wanting to improve their fulfillment processes should consider the impact on their financial results. The short-term benefits of lower deal-by-deal discounts and reduced inventories are at first likely to accrue only to the dealers. This can be corrected, but not until OEMs adjust the terms of trade. Dealer grosses may have to be reduced. OEM floor financing may need to be scaled back from the typical 30 to 45 days. Also, as dealer inventories fall into line with more efficient fulfillment practices, OEM sales will actually be suppressed as dealers sell down their stock. OEM sales will not show the benefits of increased consumer availability and selection until dealers start adding to their inventory as quickly as they deplete it.

Therefore, OEMs should first consider the nature of their organizations and explicitly prepare themselves to be open to the sort of changes required by a new fulfillment process. Some of the organizational changes that ought to be considered include:

• Spanning the functional silos with a powerful "Fulfillment Czar" who can keep attention on the issue and who is empowered to break ties among the functional groups in the name of an advanced fulfillment process.
• Increasing customer voice in fulfillment, both through better use of survey mechanisms already in place and by altering the sales process to encourage consumers to say what they want in a vehicle. This will enable OEMs to measure their success and failure in providing consumers with the specific vehicles they desire.
• Giving more weight to fulfillment objectives in the annual planning and budgeting cycles, alongside cost and quality targets.
• Reviewing the flow of information between OEMs, dealers, and suppliers to ensure that all points in the supply chain are being fed the latest and most accurate view of demand and emerging trends.
• Experimenting with new fulfillment practices. Because it is so difficult to quantify the benefits of improvement in fulfillment, setting up a series of small pilots to experiment with new fulfillment practices may be a useful organizational spur. It's important, however, to manage the organization's expectations about the outcome of such experiments. Changing only a small piece of the puzzle will have only limited results.
• Explicitly crafting a fulfillment strategy that stands as a major part of the OEM's overall strategic plan. Doing this will signal to the entire organization how important the fulfillment process is to the company's future. Related to developing a strategy is the need to maintain a clear vision of the purpose of improved fulfillment. Cost savings are both possible and beneficial, but the real value is better alignment with the consumer's needs. Senior executives need to talk about the vision of fulfillment to keep the organization focused on the right things.

When will an automotive OEM make a commitment to redefining the relationship between the industry and its consumers by completely rethinking the fulfillment process? We don't know, although we are encouraged by the growing attention to the topic. We do know, however, that when it does happen, there will be several major implications for strategy in the automotive business:

• Those OEMs with the most customer-friendly fulfillment processes stand a good chance of assuming leadership in the business from a share and growth standpoint, and they will use their fulfillment advantages aggressively to push for a new position in the marketplace.
• The competitive advantage of better fulfillment could be quite long-lived. The actions of the leaders may accelerate as they witness the multiple benefits of improved fulfillment. We already have seen that those OEMs that have experienced better fulfillment processes undergo a sort of awakening. In contrast, those OEMs caught without the capability may face a long delay in catching up, because so many functions and disciplines must be involved.
• The balance of advantage between domestic and export competitors will shift as home-market producers improve and compress their fulfillment processes in ways that export competitors cannot.
• The industry will undergo a major rethinking of product variety and complexity. This will be led by competitors that have lagged in improving their fulfillment processes and as a result will seek to reduce their product variety to respond to faster, more nimble competitors.
• OEMs, suppliers, and dealers will become more reliant on each other in sharing information about consumer wishes. The need to share more information more quickly will require more openness and trust in the relationships, and it also should be factored into network hookup and IT strategies.
• OEMs with effective fulfillment processes will see their profitability increase; more importantly, the profitability of their dealers, particularly their best and most customer-driven dealers, also will increase. This, in turn, will facilitate the restructuring of dealer networks, a development that many OEMs have dreamed of without knowing exactly how to proceed.
• More precise control of price and mix will allow auto retailing to take advantage of economies of scale, further facilitating the restructuring desired by many OEMs. Economies of scale in retail and distribution are evident in almost all other consumer retail categories. If price and mix were more readily controllable in the auto industry, the economies associated with more concentrated retail networks would become much more favorable. More accurate fulfillment should reduce the need to set prices deal by deal. Mix management can become less of a black art residing only in the heads of the dealer and/or sales manager. Leveraging retail economies of scale in auto distribution potentially benefits consumers, and provides opportunities for dealers and OEMs alike.

Significant improvements in the fulfillment process will dramatically affect the automotive industry, much as the quality revolution did in the 1980s. The remarkable quality advantages held by the Japanese enabled them to increase market share in the United States and Europe and establish permanent positions in these markets. U.S. and European OEMs were forced to respond to protect their businesses.

Major improvement in fulfillment by one or more OEMs will have an analogous and perhaps greater impact on the industry. Today, the industry is in transition as the OEMs rethink how they do business from top to bottom. When the dust settles, there will be Losers, Survivors, and Leaders.

The Losers will be those OEMs that seek improvement through incrementalism. These companies will focus on fewer suppliers, reduce the complexity of their offerings, and continue to use incentives to match sales with what is made. Timid changes like these will not be enough to ensure the future of these OEMs. The Survivors and the Leaders will see to this.

The Survivors will improve their fulfillment capabilities, but will do so simply to save costs. They will integrate their supply chains and make all the improvements the Losers attempted. Their costs will come down, but dealer inventories and customer satisfaction are unlikely to improve dramatically, as everything else about the business will essentially be the same.

The Leaders will improve their fulfillment capabilities as part of a total strategy to remake their businesses by focusing on the customer's lifetime ownership experience—from initial interest, to purchase, to maintenance, to replacement. This focus will require completely rethinking the needs of consumers and the roles of suppliers, the OEM, the dealer, and the complete after-market industry. The lifetime experience of customers will define the brand of the OEM. The Leaders will use the benefits of their improved fulfillment capability to extract concessions and changed behaviors from their partners in the business. Dealers who do not meet the needs of customers and support the brand experience of the OEM will be dropped or fail.

Ending up in the Leaders' circle will be very difficult. OEMs cannot get there in piecemeal fashion. Virtually all parts of the company and its supply chain must share the vision of leadership and the response must be intensely coordinated. The temptation throughout the change process will be to change only things on the margin.

In this respect, the recent emphasis on teamwork as the predominant mode of management in the auto industry may work against success. The first principle of teamwork is consensus. However, unless senior management drives consensus, companies run the risk of focusing on "lowest common denominator" changes that may win everyone's approval but won't really attack the compromises of the current system.

Thus, it is likely that The Leaders will be headed by strong champions, whose determination and strategic vision will propel their organizations to new levels of competitive success.