Knowledge Management in the Automotive

Knowledge Management in the Automotive Industry

The Current and Potential Use of Knowledge Management within the Automotive Industry

Automotive Industry Analysis

Current Use of Knowledge Management in Automotive

Potential Future

The automotive industry's use of knowledge management is progressing from creating and sustaining knowledge systems designed to support the major phases of product development, supplier management, production and service to a more strategic approach of supporting interorganizational learning strategies and knowledge transfer. The resulting impact on it-based strategies is the development of Enterprise Content Management (ECM) platforms that are specifically developed to enable greater interorganizational learning and foster the growth of learning ecosystems between auto manufacturers, their suppliers, customers, and services organizations. Global leaders in automotive manufacturing have progressed beyond the life cycle approach of knowledge management and are executing strategies for making interorganizational learning a competitive advantage, leading to the development of entire learning networks that encompass suppliers, dealers, distributors and customers. Knowledge management in the auto industry is increasingly be relied on as the foundation for the diffusion of lean production and strategic sourcing initiatives through supply networks. In addition, the greater the interorganizational knowledge sharing, transfer and management of knowledge-based processes, the greater the level of innovation being accomplished by automotive manufacturers as the multiplicative benefits of including all members of the value chain in key strategies yields greater time-to-innovation relative to competitors. In addition, auto manufacturers are relying knowledge management as the unifying aspect of their supplier, dealer, distributor and services organizations, increasingly looking to interorganizational knowledge transfer and the development of learning systems as fueling long-term competitive advantage from both a cost reduction and innovation perspective.

Introduction

For automotive manufacturers knowledge management has progressed to enabling a series of interorganizational processes that enable knowledge management to serve as the impetus of lasting competitive advantage and differentiation. Automotive manufacturers attaining best practices in both interorganizational collaboration and the creation of their own learning ecosystems, knowledge management plays a much more foundational and less of an archival or referenceable, role in their strategies. There admittedly needs to be a balance, yet top performing auto manufacturers including Toyota for example are able to use interorganizational knowledge management as the foundation for the growth and strengthening of key strategic initiatives.

The overall objective of this report is to analyze and recommend which knowledge management processes those auto manufacturers who are attaining best practices levels of performance are relying on. Critical to this analysis is examining how Japanese auto manufacturers specifically are structuring their production systems to encompass suppliers much earlier in the sourcing, quality, and procurement process than American or European auto manufacturers. The extension of knowledge management frameworks, both highly structured with taxonomies specifically aligned to quality management strategies, and loosely coupled to promote high levels of collaboration, trust and reciprocity in the sharing of knowledge are profiled in this paper. As Toyota Motor Corporation and their Toyota Production System exemplify best practices in the area of knowledge management within automotive manufacturing, their approach to using knowledge management as both a foundation for interorganizational learning and the development of learning systems globally serve as the foundation for this paper.

In completing an analysis of the knowledge management best practices in the automotive industry, several key concepts serve as the framework of this research effort. First and foremost, there is a growing recognition that the processes and approaches companies rely on for ensuring knowledge management transforms their and their supplier organizations is a lasting competitive advantage, and as a result the depth of academic research being completed in this area is expanding rapidly (Cohen & Levinthal, 1990; Teece et al., 1997; Kogut & Zander, 1992; Spender, 1996; Grant, 1996). In addition, many scholars argue that despite manufacturers producing goods and enabling the development of entire sub-industries of accompanying services, the greatest contribution of goods producers is actually knowledge generation. In fact Toyota has found that the enabling of their suppliers for on-ramping and support of Toyota Production System standards, while rigorous and requiring continual learning, transforms the cultures of suppliers to enable greater knowledge capture, sharing and retention. In short, best practices in automotive industry knowledge management arena is now exemplified by the development of networks of companies that learn from each other and from the many collaboration requirements of making their value chains work. Scholars have begun to move away from the specific firm or manufacturer as the center of analysis and expanding the focus of research to include the network of companies and their accumulated learning both from each other and from the tasks of ensuring collaboration (Powell et al., 1996; Dyer and Singh, 1996).

Taking this network concept as the foundation of comparative analysis of innovation, it becomes clear that scholars are finding that the greater the level of integration between suppliers, manufacturers, customers, and channel partners, the greater the levels of innovation present in each organizations' products, processes, and services (Levinson & Asahi, 1996; March & Simon, 1958:188; Powell et. al, 1996). The higher the level of integration and therefore the higher the level of reciprocal knowledge sharing, the greater the level of innovation as manufacturers, suppliers, channel partners and services organizations find new processes for streamlining shared transactions, and this finding is supported by the work of Mueller, (1962, 23). Marsden, P.V. (1990, 435) argues in much of his research that the strength of integrative ties, and the "well worn paths" of knowledge sharing and eventual learning have an experiential effect on the overall growth of the learning network. What is often missed in a discussion of the strategies companies use in creating a knowledge management network, and as will be seen later in the paper, a knowledge management framework, are incentives. Szulanski (1996, 27) who states that the approaches that Toyota specifically uses in the TPS system, which he considers to be a highly taxonomy-specific knowledge management system that both applies incentives and disincentives to supply chain performance, are what differentiate this system from all others. The combination of highly structured content, well-defined process workflows, and incentives for performance all contribute to the high levels of performance attained.

Von Hippel (1998) has found that the greatest innovations have come from suppliers, looking to streamline the development of new products and therefore provide greater visibility to their own supply chain dependencies, and from customers whose unmet needs form the foundation for next generation products in those organizations that are customer-oriented and customer-centric. In the case of the automotive industry specifically it is common knowledge that as much as 70% of the value of the automobile is directly attributable not to production or assembly, but to the efficiency and synchronization of the supply chain and partnerships it is comprised of. Automobile manufacturers then are increasingly becoming integrators over highly vertically-oriented manufacturers; this integrator role is further forcing automobile manufacturers to rely on knowledge management over transactional approaches to collaboration. Taking this a step further, the quality, differentiated value and long-term cost advantages of an auto manufacturer are more of a function of the effective use of knowledge management as an interorganizational foundation for learning. The greater the dispersion of suppliers, the higher percentage of the time an auto manufacturer acts as an integrator, the more critical knowledge management be used as a platform for interorganizational learning. Toyota's dominance in global production is attributable to their best practices in sharing and enabling its production plants to use productivity-enhancing knowledge through its network Nishiguchi, T. (1994; et. al) and Lieberman; (1994; et.al.).

These scholars looked to the adoption of lean manufacturing throughout American and European auto manufacturers, and concluded that on a per-plant basis there were modest improvements in performance, yet due to the lack of knowledge management being used as a foundation for greater synchronization of efforts and integration of processes, a limit of benefits accrued from lean manufacturing resulted. Tables 1 and 2 compare the transformations Toyota has been able to make towards lean manufacturing as a result of their approach to knowledge management fostering interorganizational learning networks.

Table 1: Characteristics of a Lean Production System

Lean Production Process

System change initiative

Focus

Production line (tasks, activities and cells)

Single Organization (departments, processes, suppliers and customers)

Practices

Cellular Manufacturing; Quality Circles; Supplier Relationship Management; Pull Production; Re-engineering Setups

TQM, JIT, Six Sigma, Process Re-engineering;

Measures

Takt time, on Time Delivery, First time through, Safety Performance, Production Rate

Quality, Delivery, Process Time, Cost, Flexibility, Customer Satisfaction

Performance Measurement System

Visibility - Real Time Reporting

Causal Relationships (production tasks and activities).

Use of single version of the truth and single information

Balanced set of strategic metrics (Financial and non-financial).

New methods of cost accounting (ABC, Target Costing).

-down communication

Internal vs. External Focus (Benchmarking and Self-Assessment).

Process Management and Measures (value delivery).

Source: Lieberman; (1994; et.al.).

Table 2: Comparing Lean Production and Lean Enterprise Characteristics

Lean Production Process

System Change Initiative

The Lean Enterprise

Focus

Production line (task, activities and cells)

Single Organization (departments, processes, suppliers and customers)

Extended Enterprise (value streams and all stakeholders)

Practices

Cellular Manufacturing; Quality Circles; Supplier Relationship Management; Pull Production; Re-engineering Setups

TQM, JIT, Six Sigma, Process Re-engineering;

Seamless information flow, Integrated product and process development, Process capability and Maturation, Identify and Optimize enterprise flow, maintain stability in changing environment, Align and involve all stakeholders to achieve lean vision, Relationship based on mutual trust and commitment across the extended enterprise, make decisions at the lowest levels, optimize capability and utilization of people, focus on external and internal environment, Nurture a learning environment

Metrics

Takt time, on Time Delivery, First time through, Safety Performance, Production Rate

Quality, Delivery, Process Time, Cost, Flexibility, Customer Satisfaction

Stakeholder value (effectiveness),

Overall efficiency, System availability, System level Flexibility

Performance Measurement System

Visibility - Real Time Reporting

Causal Relationships (production tasks and activities).

Use of single version of the truth and single information

Balanced set of strategic metrics (Financial and non-financial).

New methods of cost accounting (ABC, Target Costing).

Internal vs. External Focus (Benchmarking and Self-Assessment).

Process Management and Measures (value delivery).

Stakeholder value measures

Uniform set of measures

Causal relationships between measures across all levels.

Source: Lieberman; (1994; et.al.).

Automotive Industry Analysis

Entering 2007 it is clear that Japanese firms, lead by Toyota, will be at parity with and potentially surpass the Big Three automakers' market share in the U.S. And globally. The Big Three automakers, all in various phases and strategies of restructurings today, will continue to look towards significant cost reduction strategies over time. General Motors and Ford specifically are offering early retirements and incentives to further decrease payroll, pension and healthcare costs. It is anticipated Ford will consider selling Land Rover, as the sales of Austin Martin is pending. General Motors' efforts to integrate their production systems and processes with Toyota's Production System have had limited success, as GM continues to push for an 18% reduction in the number of suppliers per year.

Chrysler's approach to a turn-around is to sell the remaining part of the company to Daimler-Benz and exit the U.S. market completely as a result. Daimler-Benz has shown interest in acquiring the remainder of the Chrysler assets, and re-vamping the product strategy to focus more on global car unmet demands in the Pacific Rim nations. GM has expressed an interest in Chrysler's plants that can produce minivans and light trucks, the two areas of the GM product strategy that are performing at production quota today. With all these cost reduction strategies in progress, it appears Toyota will potentially emerge with the leading market share in the U.S. At the close of 2007.

The exacerbating factor in the cost reduction strategies of the auto manufacturers however is the role of the United Auto Workers (UAW), and their negotiation points in the event of a potential 10% GM layoff and 5% reduction in force at DaimlerChrysler. The UAWs' wage and pension negotiation points have become more focused on limiting the number of layoffs and less on trying to increase wages by the high single-digit and double-digit growth gains in the 1980s and 90s.

To many industry experts and analysts, the restructuring of the Big three automakers was overdue, and is now all the more costly due to the lack of focus on cost efficiencies earlier in the decade. American auto manufacturers have been on average spending between 2% to 10% of a Sport Utility Vehicle (SUV) price on dealer and customer incentives alone, which in effect takes their gross contribution margin per vehicle down by 50% or more. General Motors specifically has been taking this strategy on their top-selling SUVs in the U.S. And elsewhere. Demand for SUVs, the flagships of the GM line, has proven to be highly inelastic however and as a result the auto manufacturer is facing challenges to growth.

Countering the many financial challenges the Big Three auto makers have are their new model line-ups including the broader availability of hybrid vehicles, an area Toyota has been able to dominate to this point through the use of their Toyota Production System (TPS) integration strategy with suppliers. The acceptance or rejection of the new model year will be a direct indicator whether Toyota will become the market share leader in the U.S. And globally. Figure 1, from Value Line Investment Surveys (2007, 47) shows the composite statistics for the Automotive Industry based on the firm's financial analysis.

Figure 1: Automotive Market Financial Analysis

Figure 2 provides an overview of the global car market as of 2007, according to Standard and Poor's Research organization. From this graphic it is clear the majority of growth is in the Asian countries, a clear indication that Chinas' emerging growth is significantly changing global demand. Table 1, Passenger Car Sales by Asian Region, shows the historical growth in sales specifically in China, to the exclusion of the other nations in that region.

Figure 2: World Car Sales Analysis and Forecast (Standard & Poor's)

Table 1: Passenger Car Sales in Asian Region

Units -- "

Country 2003 2004 2005 Growth in 2004 (%) Growth in 2005 (%) Japan 4,714,003 4,768,625 4,745,267 1.2 (0.5) China 2,171,312 2,478,911 3,293,382 14.2-32.9 South Korea 1,020,130 879,816 944,073 (13.8) 7.3 India 704,902 868,323 920,551 23.2-6.0 Australia 592,921 593,463 611,235 0.1-3.0 Taiwan 331,896 388,745 418,944 17.1-7.8 Malaysia 337,536 387,795 414,079 14.9-6.8 Thailand 178,086 207,247 182,207 16.4 (12.1) Others 335,218 374,110 433,710 11.6-15.9 Sources: Global Insight, Standard & Poor's survey of industries -- "auto and auto parts, August 2006.

The European demand for automobiles however has been mostly flat, with Germany experiencing solid growth of 3.8% according to Standard & Poor's (2007, 1), while sales in France fell by 3.3%. The U.K. auto sales market continued to be weak with a 3.9% decline in sales, with slow sales anticipated through 2009 when replacement demand is anticipated to begin. Spain also experienced a 2% reduction in market growth, while Italy experienced a modest 1.4% increase in auto purchases.

Current Use of Knowledge Management in Automotive

Managing, organizing and making available the many types of content that comprise automobile manufacturers' knowledge management systems require the creation of enterprise-wide frameworks. Auto manufacturers vary in their approach to managing these frameworks, yet many share common characteristics which are defined here. As these frameworks are designed for agility and responsiveness to business strategies and the development of interorganizational knowledge management and learning systems development, integration between content systems is critical. The basis of these systems is specifically a reliance on Enterprise Content Management (ECM), and within that framework, Digital Asset Management (DAM), has lead to the development of Product Data Management (PDM) and Product Lifecycle Management (PLM) systems that deliver significant value to auto manufacturers' design and production teams. As the automotive field specifically relies on both structured content the need for a content framework is clear.

It's critical to keep in mind that selectively layering in of technologies to the process workflow areas of automobile design, production, and service is leading to the significant growth of ECM platforms and frameworks within the automotive industry. Growth is not happening due to the technology itself; growth is happening because the technologies inherent in it are now progressing to the point of being able to meet the unmet needs of the automotive manufacturers who require faster time-to-market strategies, relying on their years of accumulated content and knowledge.

Background

Automotive manufacturers' series of unmet needs are forming the foundation for a series of product and solution development strategies on the part of many software, hardware and services companies globally. Reducing production errors through integrating content with lean manufacturing, coordinating the manufacturing processes with supplier management, integrating both structured and unstructured content into the sales and services aspects of auto manufacturing are all strategic initiatives many companies are pursuing today.

The unmet needs of the automotive manufacturing industry are driving the greater application and adoption of it-based strategies for helping these companies meet their needs are as follows:

major unmet need in delivering more timely and more accurate access to information including legacy design and engineering files, manufacturing and financial analysis reports, sales and service data which have historically resided in siloed systems. At present there are many manually-based processes used in auto manufacturing to gain access to the content, and therefore the knowledge, needed for specific tasks.

This is a major unmet need as it relates to responsiveness and speed of service to engineering, development, production, sales and service divisions of manufacturers. What is critically missing as a result of this unmet need is a 360 degree view of the development and production process as it relates to integrating all functions that need to begin their own work on new vehicles before they are formally launched. The new product introduction process is just one example of where the need for an integrated and highly agile knowledge management platform is needed.

Lack of consistency in existing manual processes aimed at the managing of chronic conditions. This unmet need emanates from the currently high levels of miscommunication between engineering, manufacturing, production services, sales, and service, in addition to finance which needs to track variances in costs associated with these specific functional areas. This lack of consistency in processes causes much lost productivity, and in completing ROI analyses of knowledge management systems, this is the first area where managers look for productivity gains.

Greater levels of professional productivity through better collaboration, scheduling and coordination. Appling it strategies to this unmet need would include integrating all databases internally so data and knowledge is available at the production, supplier, buyer, financial analysis and service perspective.

Lack of integration between legacy, and siloed or stand-alone systems forces greater reliance on short-cut and often inefficient processes, cutting down on agility and responsiveness to market demand. Along with lost productivity due to a reliance on manual processes, this lack of data integration and capturing of knowledge is an unmet need that manufacturers making the investments necessary in knowledge management systems quantify regularly. This specifically focuses on the need to have greater integration of systems to provide a foundation for faster time-to-market and greater responsiveness to changes in market direction.

Figure 1: Automotive ECM Architecture

Source: (LWC Research 33)

There are many additional unmet needs auto manufacturers have yet the four provided above are the most prevalent and as a result are driving much of the it strategies of software, hardware, and services companies devising solutions for this automotive manufacturers.

What is emerging from it strategies aimed at resolving these unmet needs is a comprehensive framework. Figure 1, Automotive ECM Architecture, defines the it architecture that early adopter auto manufacturers opting for to selectively apply it applications and components to the unmet needs in their industry.

The core building blocks of this framework include the presentation and client layers, where web-based applications aligned with the needs of automotive manufacturers' engineering, development, procurement, manufacturing, marketing, sales and services organizations. The need for synchronization across Platform, Storage and Infrastructure and Integration areas of this framework dictate the speed and accuracy of responses to all users of the system. Thinking of this framework as the foundation that the specific processes that manufacturers rely on to complete daily tasks to accomplish their goals and objectives illustrates how ECM architectures are beginning to pervade the auto industry as the foundation for knowledge management strategies to be attained.

Another approach to viewing the framework that is emerging from it providers addressing the unmet needs of auto manufacturers is shown in Figure 2. This is a framework that has foundational elements focused on Security and Audit Control to protect the confidentiality of auto manufacturers' design, production and manufacturing and financial data. The intent of this design structure is in accomplishing the task of making Records Management, Business Process Management, and a Portal Framework available as a system-wide resource for the specific collaboration, content management, search and retrieval implementation plans to act as a unifying it strategy across the diverse auto manufacturer department needs. Note that this framework also includes support for Expert Network and Learning Management applications to also increase the level of best practices attainment in knowledge management.

Figure 2: Knowledge Management Framework

Source: (Murphy 4)

Potential Future

The implications of ECM frameworks specifically being created for the purpose of supporting knowledge management strategies must first begin at a very process-centric level, where the many sources of content and knowledge are aligned to organizational objectives. The use of ECM frameworks to enable greater knowledge management is becoming pervasive as a result of this process-centric view. From this process-centric foundation, the potential future of knowledge management, and further, learning systems, will greatly impact the auto industry. Instead of just focusing on costs or driving down material pricing, or trimming back suppliers as GM is doing today, the focus becomes more on how to create an organization that can learn both from interactions with suppliers and customers, but also about efficiencies based on process workflows being more focused on goals and objectives.