Order to Delivery - Is Vehicle Supply Chain Changing?

In the early 2000s, the concept of “Order to Delivery” was touted as the Next Big Thing in the automotive industry. Order to Delivery or OTD, as it’s referred to, was the idea that a consumer would shift from buying a vehicle sitting on a dealer’s lot in favor of configuring and ordering their new car online. In the ideal world, the customer could get exactly the vehicle and options they want. At the same time, OEM production would perfectly align with customer demand which would mean no more unsold cars aging on dealer lots or costly incentives to move those cars out the door.

The idea of ordering from the factory is hardly a new concept. OTD has been part of the European automotive landscape for years; Volkswagen’s Autostadt in Wolfsburg and BMW’s Welt in Munich as examples of how the German OEMs have taken the customer delivery experience to another level.

Automotive Supply Chain Risks & Disruptions

In the last decades of the twentieth century, the practice lost favor as OEMs looked to reduce the manufacturing complexity of bespoke configurations, resulting in millions of possible model designs. This led to Asian manufacturers like Honda and Toyota floating the idea of offering popular options grouped into a small number of packages, which greatly simplified the ordering and production process. Dealers can now stock a wider assortment of vehicles while satisfying a consumer base that prefers taking immediate possession of their new car rather than waiting through the vehicle supply chain process.

Today, thanks to supply chain disruptions caused by COVID-19, dealer inventories have plunged from an industry average of 65 days down to the high teens, with some OEMs reporting in the single digits. With dealer lots nearly devoid of inventory, dealers are selling up the supply chain or trading with other dealers to get customers the vehicles they want. Increasingly, customers find that to get the exact color and features they desire, it is necessary to go through the OTD process because shortages of microchips and other components are expected to constrain dealer supply for months. Ford Motors recently announced it would promote a shift towards OTD in North America. CEO Jim Farley reported at the July earnings call that they want to increase factory orders to a quarter of all sales. So far, dealers are supportive as it will lower their inventory carrying costs and reduce the need to offer incentives to move slow-selling products.

While there is a risk that customers may not be willing to wait if a competitor down the street has a comparable product in inventory, that risk is diminished given the widespread shortages all OEMs are experiencing today in their end-to-end supply chain.

The Future of Purchasing a Vehicle

Has the time come for widespread adoption of OTD? Are consumers ready to give up the instant gratification of buying a vehicle off the lot and instead wait weeks for delivery? What does this mean to the finished vehicle supply chain? The pandemic dramatically accelerated consumer adoption of things like online shopping and food delivery. OEMs are working hard to improve their online buying experience, creating a seamless purchasing experience for dealers and consumers.

Completing much of the transaction from home will be attractive to many purchasers and car dealers. Customers can complete the selection process at home rather than spending hours at the dealership, and the dealer still gets credit for the sale while reducing the number of vehicles carried in inventory. No doubt some customers will still prefer buying directly off the lot, but Ford’s goal of 25% online orders seems achievable, perhaps even conservative.

Successful Order to Delivery Relies on End to End Supply Chain Visibility

The transition will have challenges, the main one being consumers will expect an “Amazon-like” experience with anything ordered online, something the automotive supply chain cannot support in its current state. OEMs do not own the vehicle delivery network and lack the same level of control as an online retailer. Vehicles may sit for days at a port awaiting a vessel or at a plant due to insufficient railcars. Truck capacity can vanish as drivers divert to move a more profitable load. Vehicles are subject to periodic inspections and repairs during the finished vehicle logistics process. These factors can result in added transit days and unpredictability.

When dealers had weeks of inventory on hand, these supply chain issues were largely invisible to the consumer. In an OTD world, the shortcomings of the finished vehicle delivery network will be readily apparent. Building a closed distribution network like Amazon’s is not economically feasible for most OEMs, so the existing network needs to change. Improved velocity and visibility will be central to this effort, requiring greater collaboration and information sharing amongst all stakeholders. ETA accuracy will gain importance, which will necessitate more consistent and reliable operations. This will require purchasing equipment and hiring people, especially truck drivers. An effort to optimize the overall network from an industry perspective rather than at the individual OEM level could identify hidden inefficiencies and highlight new opportunities. Accelerating the adoption of APIs and having accurate, actionable data in real-time will be critical to providing complete end-to-end visibility. In short, to fully realize the benefits of OTD, it will take substantial investment in the finished vehicle supply chain. If the industry commits to making that investment, it really can be different this time.

Supply chain visibility software is a critical component to implementing a true order to delivery process that meets consumer expectations.
For OEMs or automotive 3PLs/4PLs who want total visibility from plant to dealer, ICL’s VLMS transportation management system seamlessly integrates with logistics providers for all segments of the finished vehicle pre-delivery and transportation process. Learn more

Learn more about VLMS

https://iclsystems.com/en/product/vlms

For OEMs or automotive 3PLs/4PLs who want total visibility from plant to dealer, ICL’s VLMS transportation management system seamlessly integrates with logistics providers for all segments of the finished vehicle pre-delivery and transportation process. Visit our product page to learn more information