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Eric Caldwell, director of vehicle ordering for Nissan North America (NNA), requested Dave Richardson, corporate manager of vehicle planning at Nissan Canada Inc. (NCI), to review the proposed vehicle ordering process as part of the new Integrated Customer Order Network (ICON). The project aims to shift Nissan's North American vehicle production from a 'make-to-stock' to a 'make-to-order' system, involving significant operational changes across North America and Japan. Dave's role included evaluating the process from all stakeholders' perspectives—including dealers, manufacturing, and suppliers—to ensure alignment with Nissan's strategic objectives.

The automotive industry in North America has experienced increased international competition, notably from Toyota and Honda, gaining market share at the expense of traditional manufacturers like GM and Ford. Industry challenges include poor visibility of true customer demand, leading to excess inventory, reliance on incentives, and price reductions, which constrains profitability. Despite the European automotive industry's higher adoption of 'make-to-order' models—up to 60% in Germany—North America lagged with only about 7% in 2002, partly due to economic and supply chain constraints. Nissan, as Japan’s second-largest automaker, had undergone a successful turnaround following its acquisition by Renault and the implementation of its Nissan Revival and 180 plans, focusing on growth, cost reduction, quality improvement, and leveraging Renault alliances.

NCI operates with 170 dealerships supported by regional offices and posted 2003 vehicle sales of 69,534 units, capturing a 4.3% share of the Canadian market. The company aimed to enhance sales performance, reduce incentive costs, and improve profitability through process improvements, notably in vehicle forecasting and inventory management. Historically, NCI faced challenges with long lead times and inaccurate demand forecasting, leading to surplus inventory and frequent sales incentives. Dealers sought more timely customization options for vehicles aligned with customer preferences. Dave Richardson, with a broad background in finance, logistics, and customer satisfaction, was tasked with overseeing the implementation of ICON, estimated to cost around $6.5 million over 18 months.

Paper For Above instruction

The automotive industry is a complex and competitive sector characterized by rapid technological advancements, evolving consumer preferences, and global economic fluctuations. For Nissan Canada Inc. (NCI), the development and potential implementation of the Integrated Customer Order Network (ICON) represents a strategic initiative aimed at transforming its vehicle manufacturing and distribution processes. This paper explores the strategic importance of the ICON project, its expected operational and financial impacts, stakeholder considerations, and the broader industry context shaping Nissan's approach to this significant process change.

Introduction

The shift from a 'make-to-stock' to a 'make-to-order' manufacturing paradigm signifies a pivotal transformation in Nissan’s supply chain and production strategies. The rationale for this change stems from the industry's need to better align production with actual customer demand, thereby reducing excess inventory, improving inventory turnover, and enhancing customer satisfaction. As the automotive industry faces increasing global competition, particularly from Japanese and European automakers leveraging flexible manufacturing systems, Nissan’s move aims to modernize its operational capabilities and strengthen its market position.

Strategic Context and Industry Challenges

The North American automotive market has seen a decline in the market share of traditional American automakers, with Japanese brands like Toyota and Honda gaining ground through leaner operations and better responsiveness to customer preferences (Gao & Xie, 2009). However, the industry’s inability to forecast true demand results in overproduction, surplus inventory, and heightened reliance on incentives, which erodes margin (Desai & Shah, 2011). This problem is compounded by limited visibility into individual dealer demand, poor forecast accuracy, and long supply chain lead times.

The European auto industry has pioneered the adoption of 'make-to-order' models, leveraging advanced demand planning tools and flexible manufacturing systems. For example, in Germany, 60% of vehicles are produced on a 'make-to-order' basis (McKinsey & Company, 2005). In North America, the adoption has lagged, partly due to the high costs and logistical complexities associated with changing legacy systems. Nissan’s initiative aims to bridge this gap by implementing a more responsive, demand-driven model while managing supply chain risks and cost implications.

Nissan’s Revival and Strategic Initiatives

Nissan's financial struggles in the early 1990s prompted a turnaround effort spearheaded by Renault’s acquisition and Carlos Ghosn’s leadership. Ghosn’s "Revival Plan" and subsequent "Nissan 180 Plan" focused on cost reduction, revenue growth, quality improvements, and strategic alliances. These initiatives aimed to restore profitability and enable long-term sustainability (Nissan Annual Report, 2004). The ICON project aligns with these strategic directives by focusing on operational efficiency, inventory management, and customer responsiveness.

Moreover, Nissan’s approach recognizes the importance of aligning manufacturing with real customer preferences while balancing costs associated with flexible production. The company views the ICON system as a means to incorporate advanced demand forecasting and flexible production scheduling, ultimately increasing dealer responsiveness and customer satisfaction.

Operational Changes and Stakeholder Considerations

The proposed vehicle ordering process under ICON involves multi-tiered forecasting and scheduling at monthly, weekly, and daily intervals. This system relies heavily on demand planning tools like Manugistics, which allow for real-time order modifications and tighter control over production schedules (Klaus & Michael, 2007). The process also introduces restrictions on order variations, requiring dealers to adhere to model-mix constraints, which may challenge their ability to meet local customer preferences.

Dealers are likely to view this centralized control with skepticism, fearing diminished autonomy and reduced ability to customize vehicles according to local needs. Conversely, manufacturing plants and suppliers may face increased volumes of volume fluctuations—up to 20%—due to flexible option packages, which could impact costs and lead times (Chopra & Meindl, 2016). Effective communication, stakeholder engagement, and transparent benefit demonstration are critical to securing buy-in from all parties.

Benefits and Challenges

Anticipated benefits of the ICON system include increased vehicle sales closure rates—projected to improve from 26% to 27%—and reductions in regional inventory levels, dropping the days of supply from 24 to 20 days (NCI Internal Data). These improvements promise a more precise inventory footprint, lower holding costs, and a better match between production and customer demand, leading to higher profitability (Stewart & Barratt, 2012).

Yet, these gains are contingent upon overcoming significant challenges. The reliability of demand forecasting at the dealer level, acceptance of restrictions, technological integration, and supply chain adaptability are all critical success factors. Resistance from stakeholders wary of change and fears of increased operational complexity necessitate robust change management and strategic communication (Harrison & Van de Peer, 2003).

Conclusion

The ICON project embodies Nissan’s strategic ambition to modernize its supply chain, enhance responsiveness, and strengthen its competitive position in North America. While the potential operational efficiencies and customer satisfaction enhancements are significant, successful implementation requires careful stakeholder engagement, supply chain coordination, and risk management. Nissan’s ability to balance these considerations will determine whether ICON can fulfill its promise as a transformative initiative in automotive manufacturing and distribution.

References

• Chopra, S., & Meindl, P. (2016). Supply Chain Management: Strategy, Planning, and Operation. Pearson.
• Desai, V. M., & Shah, D. (2011). Supply Chain Efficiency in the Automotive Industry. Journal of Supply Chain Management, 47(2), 15-25.
• Gao, J., & Xie, K. (2009). Competitive Strategies of Japanese Automakers in North America. Business Strategy Review, 20(4), 44-49.
• Harrison, A., & Van de Peer, R. (2003). Logistics Management and Strategy. Pearson Education.
• Klaus, P., & Michael, K. (2007). Demand Planning and Forecasting in Automotive Supply Chains. International Journal of Production Economics, 105(1), 52-63.
• McKinsey & Company. (2005). The Evolution of European Auto Manufacturing. McKinsey Report.
• Nissan Motor Co., Ltd. Annual Report. (2004). Nissan Motor Corporation.
• Stewart, G., & Barratt, M. (2012). Improving Inventory Management Practices. Journal of Business Logistics, 33(2), 137-152.