"Using Information Technology to Create Shareholder Value"
Kevin Moyer
Vice President and Director, E-Business
Dana Corporate

2001 Univeristy of Michigan Management Briefing Seminars
August 6, 2001 - Traverse City, Michigan

“Ultimately, IT can be a platform for delivering advanced technology solutions. By getting our engineers connected with our customers, sourcing people, and suppliers, we can create a conduit for seamless idea flow throughout the value chain.” 

Good morning, and welcome back. It’s a pleasure to be with you today in this lovely setting. Traverse City in the summer is the type of place to make you want to forget about computers and the Internet, so I’m really pleased to see that so many of you here and not on the golf course. 

So far this session has lived up to its expectations. We’ve heard a great deal about the processes and practices related to information technology in our industry and how we can use it to leverage shareholder value.

My hope this morning is to expand on these themes further by looking at how Dana Corporation is trying to leverage information technology to not only create shareholder value, but also how we are using e-business to transform the automotive industry.

Certainly, as we review the past year in both the automotive industry, as well as information technology circles, collaboration has come to the forefront, replacing public marketplaces as the topic of focus and thought. 

In fact, tomorrow there are several sessions devoted to collaborative product commerce and collaborative value-chain practices. 

With this focus has come a renewed emphasis on the capture and exchange of information versus the transaction.

I’d like to begin today with a brief “state of affairs” of the automotive industry to provide a backdrop against which the remarkable growth in electronic business is taking place. I believe that this detailed review will provide insights into new customer value propositions that will drive sustained competitive advantage and therefore drive the creation of additional shareholder value. 

Secondly, I’ll offer a few thoughts on the importance of connectivity and the creation of accessibility. 

Then, a perspective on our Global Stategic Sourcing initiatives (a brief case study if you will), the information technology supporting it, and lessons learned so far. 
And, finally, I’ll wrap things up with general thoughts about IT in our industry – including some potential opportunities for e-business and some of challenges we may face as IT continues to evolve. 

Today, we are in the midst of a dramatic – perhaps even historic – change in the automotive industry. In fact, I believe it’s fair to say that we’ve seen more fundamental change in the last decade than we did during the entire half century that preceded it.

Globalization, consolidation, technological innovation, partnering, and the growth of modularity – these and a host of other industry changes have been well chronicled over the past several years. 

But perhaps less publicized has been the extent to which these major changes are driving a fundamental shift in the way we interact and integrate resources with our peers to meet customer demands. This is particularly evident as we continue the evolution from mass production to mass customization.

Virtually every one of us here today is a vehicle owner. So the demands of today’s typical automotive consumer are not foreign to us. We all seem to want unique vehicles, with more conveniences, that are more tailored to our individual lifestyles. 

Oh, and while we’re at it, how about a lower price?

Is this a reasonable expectation? Well, the jury is still out on this. But you can be sure that automakers and suppliers alike are working very hard to deliver what we, as customers, want. 

If we are to achieve this vision, however, it’s clear that suppliers and vehicle producers will need to become more closely aligned.

And one element that will play a critical role in the success of this effort is modularity and systems integration.

There is little doubt that over the course of the current decade, integrated systems and modules will continue to help automakers achieve greater efficiency.

Many industry experts are predicting that OEMs will build a more strategic relationship with their supply chain – if for no other reason than simple necessity. 

And this trend is becoming much more obvious. If we look at the modularity continuum, we see a growing shift from component manufacturing to true systems integration. 

Moving along this continuum, we can see where a typical vehicle platform might move from say 10,000 discrete components several years ago to perhaps 6,000 components and 5 modules more recently, to a day when the entire vehicle could be quickly assembled from 16 or 20 modules. 

For example, this graphic illustrates a very logical and typical grouping of components and systems to create 19 functional modules that we believe will streamline vehicle assembly, improve order-to-delivery time, and significantly reduce cost. 

Those shown with check marks illustrate the best opportunities for Dana Corporation in terms of content and expertise. 

As this transition occurs, suppliers such as Dana will better leverage the entire supply chain to optimize value and focus on five or six strategically significant modules. 

In turn, this approach will help speed efficiencies, enhance capital efficiency, and improve our collective return on invested capital. All of which should serve to increase shareholder value.

Whether or not this plan comes to fruition, one thing is clear: The modular trend is real. The benefits are clear and very compelling for the vehicle producer and the ultimate consumer – and for our part, Dana is aligning its resources to embrace it, as we view modularity as one of our value propositions. 

My colleague, Steve Hanley, Dana’s vice president for systems integration, will be expanding on these opportunities during tomorrow afternoon’s session, “Collaborative Value-Chain Practices: Getting to the X-Day Car.”

Clearly, as this shift toward modularity and systems integration occurs, suppliers must become increasingly responsible for “design-stage” engineering of complex components and modules to assure a more rapid speed to market.

Additionally, from the supplier perspective, we believe that modularity offers a tremendous opportunity to enhance value – both to customers and to shareholders – and to speed the vehicle-development process. 

On a more practical level, this concept also enables the OEMs to simplify current assembly methods and achieve greater efficiency. And it significantly contributes to our collective ability to profitably exploit the growing niche-market opportunities.

Surely if we are moving toward a five-day-or-so order turn-around, we cannot continue to do things the same old way.

With that said, it is not enough to deliver a top-notch component, system – or complete vehicle. Wall Street has certainly reminded us of that over the past year or so.

We also must deliver the financial performance that delights our shareholders.

The bottom line is, in fact, the bottom line! 

It is the combination of performance and the value proposition – be it expertise in systems integration or some other competitive advantage – that creates shareholder value. 

This brings me to my second point, the importance of connectivity and how it is speeding the transformation of our industry and how its accessibility can help to enhance shareholder value. 

After all, dramatic change, mass customization, and the efficiencies that can be achieved through modularity are exciting. But they place even greater demands on the development and integration of seamless communication within the entire supply chain.

In fact, as vehicle producers and their supply partners become more closely aligned, connectivity may well become the single most important factor for success. 

When I speak about “connectivity,” I am essentially talking about our ability to communicate quickly and clearly in a common language. 

The key to seamless communication – up and down the supply chain – lies in this notion of connectivity. From Dana’s perspective, “connectivity” does not simply refer to being “wired” for communication, but it is the act of communicating and collaborating. 

After all, when you think about it, we’ve had “on-line” communications with our customers for some time. 

Electronic Data Interchange, or EDI systems, can be traced as far back as the Sixties. And CAD systems and other production-oriented tools are hardly new developments either.

Now, everywhere you turn these days, you see references to revolutions taking place in e-business: B2B, B2C, B2E, and so on. 

But the real development – the true enabler – has been in the advent of the Internet as a more efficient conduit for communication and collaboration. 

The Internet combines real-time functionality and large data capacity with unparalleled accessibility. Each of these is lacking in EDI and CAD technologies, which fall short in data capacity, compatibility, and connectivity.

With the power of the Internet, we can employ B2B e-commerce as a tool to improve not only purchasing; but also day-to-day communications, such as schedule changes and vehicle modifications – and even product development. 

At Dana, we can even envision connectivity and modularity converging to produce projects where multiple suppliers work together to design modules that interface within an entire system under the hood or under the vehicle. 

Connectivity has a very direct and positive correlation to improved efficiency. Meanwhile, B2B e-commerce, for all its hype, is simply another tool – albeit a very promising one – in our arsenal against inefficiency.

In the end, our basic need is a lean delivery system throughout the entire supply chain. 

In general terms, I believe we’re making fair progress on such a system between OEMs and Tier I suppliers. But as we travel down the supply chain, we begin to see broken links in the chain. And as the old saying goes – and the new television game show reminds us – “a chain is only as strong as its weakest link.” 

The key to true “end-to-end” integration lies in the second, third, and subsequent tiers – or links – in the supply chain.

We must remember that communication is a multi-faceted. And for any system to be robust and effective, all parties must be able to readily access and deliver information. 

Whatever type of system we ultimately embrace, the one that prevails must be accessible. In fact accessibility will be a key to creating connectivity. In other words, it must incorporate a user-friendly, simplified “entry point” to its resources.

Many of the people in this room “grew up” in an Information Technology environment (or are at least well-versed in the subject). I know this because the marketing people are already on the golf course and the only people left are the IT and purchasing folks.

If you have ever done an internal assessment along with technology implementations, you have probably discovered a wide range of user capability and adaptability. 

We must remember that the broader audience for B2B e-commerce products includes a wide range of users – many of whom have an inherent resistance to change and fear leaving their “Comfort Zone.”

Unfortunately, however, some people are being dragged into this revolution kicking and screaming. 

Of course, some of this fear and trepidation came about as users were continually exposed to software was rushed to market before the bugs were worked out.

How often must we hear that the second iteration of a given software package has a “more user-friendly front end,” before we start to get it right the first time?

But most importantly, each new product – each new development – must ultimately demonstrate its own irresistible value to assure user acceptance.

We are all anxious to embrace the benefits of these products, and, if they are made to be accessible, we at all levels of the supply chain will flock to them.

These issues help to introduce my third area, as I’d like to discuss a subject we at Dana are pretty excited about – our Global Strategic Sourcing initiative. In doing so, I will also take a look at some of the lessons we’ve learned with this program. 

Dana’s intent is to gain $1 billion in savings through process and price efficiencies and to reduce the number of suppliers in our supply base by 50-percent by 2003 while at the same time improving supplier PPM quality and increasing on-time delivery.

Driven by strategic sourcing business processes and the associated process re-engineering, information technology investments were made to provide for e-procurement. 

The ultimate objective was the creation of the Dana Supplier Network to provide for both supplier-relationship management, which I’ll talk about in a moment. But we also wanted to provide the foundation and mechanism to collaborate with our supply chain to deliver our customer value proposition. 

Not only are we streamlining the process, but we are also implementing one common process across the Dana enterprise. E-procurement also becomes foundation infrastructure and data content to be able to facilitate our e-design initiatives.

This process was facilitated by putting in place a global team – a cross-functional team that crossed business units – that was appropriately sponsored and supported at the executive level. 

The goals of our global strategic sourcing initiative are supported by technology implementations that utilize Ariba “Buyer” as the transaction tool for MRO purchasing, i2’s e-Source for direct commodities, and FreeMarkets competitive bidding events for both direct and indirect purchasing. 

We now have Ariba enabled at 210 sites in 7 countries. This represents about half of our major facilities and provides 80-percent coverage of our spend on indirect materials (MRO). 

We expect to complete the roll-out of Ariba to all of our more than 300 major facilities by the end of this year. 

For i2’s e-Source, we have 110 sites in production and another 63 in development. This also represents 80 percent of the data relative to our spending for direct commodities and some indirect commodities, encompassing roughly 24,000 suppliers and 744,000 part numbers. 

And through Freemarkets, we have supported the purchase of nearly $400 million in goods through electronic competitive bidding events in less than a year and are on-target for our goal of $500 million by September 1.

Among the key capabilities of these software packages are commodity, supplier, and contract management, as well as material rationalization and development of supply and parts preferences. Thus far, we’ve concentrated mostly on the commodity and supplier management processes.

The benefits of these programs make information visible to leverage our spending, gaining efficiencies and speed, enabling strategic supplier relationships, and managing strategic commodities. 

Currently, we are on track to achieve our 2003 objectives. 

Many of us in this room have already realized much relative success in our e-commerce efforts. I thought I might share with you a few factors I feel have been critical to this success and will continue to be important as we move forward with our respective e-business activities.

Critical to our getting started on this initiative was the leadership from our chairman and business unit presidents.

They also review our progress monthly, aided by the performance metrics included in our Strategic Measurement and Reporting Tool or SMART report, which tracks savings, supplier rationalization, PPM and on-time delivery, and minority sourcing, and is available online. 

We put in place the organizational structure that we felt we needed which provided for cross-business-unit and cross-functional involvement with the appropriate amount of corporate and regional support. It was important to make the necessary organizational changes at the onset. 

The involvement of our people – at all levels of the organization – included site leads or power users as an important part of the process. 

Business processes were re-engineered with the new technology in mind such that a process map was created that has guided and driven the implementation of both the new business process and the technology.

Communication and change management support – not only from functional leadership, but also by general managers and plant managers – was critical. 

Providing users with both personal and online training support and the rest of the organization with shared learnings, while keeping the project website up to date, has also been necessary. 

This may all sound overly simple, but experience shows us that missing components can cause such initiatives to move slowly and create more organizational pain than necessary. 

Strategically, this is all being done as part of our effort to create the Dana Supplier Network, or DSN, our private marketplace. 

As this screen capture indicates, DSN will be the primary supplier Internet portal to Dana.

The network’s primary functions include consistent communication to suppliers; information on purchasing plans, such as supplier development plans; and resources for capturing important information, such as minority spending and delivery performance. 

In keeping with our philosophy on connectivity, the DSN will supplement existing communications with our suppliers – not replace them.

Currently, the DSN is actually a collection of separate applications. The process is managed by a global group for alignment.

Given the diversity of Dana and our customers and suppliers, we are not focusing on integrating one single standard into our DSN. 

This is because the DSN is focused much more on the process of collaboration with the supplier rather than the day-to-day production aspects. 

Ultimately, these technologies will enable us to work more closely with a smaller group of preferred suppliers, reducing transaction times and expenses, improving connectivity and information flow, and expanding collaboration opportunities with our partners, suppliers, and customers. 

Each of these improvements enhances the value and support we can provide our customers. 

There are, of course, also a number of trade exchanges currently working to address this need for information delivery and rapid processing. 

The most publicized of these in our industry is Covisint, which Henry (Danzinger) spoke about earlier.

Covisint and similar exchanges utilize a single global portal to eliminate redundancies and provide a single entry point for suppliers. This slide illustrates Covisints current product overview. 

Covisint’s end-goals include the seven items depicted on this slide. If fully realized, we believe our participation in Covisint will complement our own e-procurement initiatives and represent another important tool in our ongoing effort to eliminate duplicate efforts in the purchasing and vehicle development processes. 

More importantly, it could provide even closer collaboration and strategic alignment. 

The beauty of having our own Dana Supplier Network, as well as the support of Covisint, is that we can work more closely with our preferred suppliers through DSN when we have strict Dana-supplier issues (such as competitive bidding events and online purchasing), and we can work though Covisint when the issues transcend the supply chain all the way up to the customer (such as sharing production schedules, and design collaboration).

Our philosophy is that we will participate in Covisint when it makes sense for us to do so, and we will use our own resources when that makes more sense.

Our e-business strategy is to use the Internet to work more closely with our suppliers in all aspects of business, not just purchasing and transactions, but also communication, reporting, and other collaborative activities.

Of course, we all have the challenges of managing the many points of connectivity which could incorporate the numerous partners and customers that we will need to connect with in order to advance product development. 

Now, connectivity is clearly vital to the success of these exchanges. But amid these promising networks and the “whiz-bang” technologies that support them we should also remember that what we are talking about is an exchange. 

By definition, an exchange involves providing one item in return for another. So it stands to reason that any worthwhile exchange will need to provide value to all participants – not just its architects.

To be frank, we have faced a challenge in getting some of our Tier 2 and 3 suppliers online. Some of this goes back to the fear and trepidation issues I mentioned earlier, but it also has to with the uncertainty of the value e-commerce can provide.

The challenge with our suppliers is basically the same as the concern we faced initially as a company: People must be convinced that there is a worthwhile payback. 

Of course, the problem is amplified for small suppliers because they have a lot less capital to spend on infrastructure. 

Our strategy is to make sure that suppliers who work with us on our e-business initiatives can build a good business case for doing so – just as we have done.

For instance, we have to make sure that we have a global purchasing strategy and organization that can respond to a supplier who provides us with an online catalog by driving more purchasing volume to that supplier. That way, the supplier’s e-business strategy of buying and selling online isn’t just about making life easier for Dana, it’s about increasing sales.

In other words, it’s not an e-business strategy, it’s simply a business strategy.

This concept was supported in a recent Booz·Allen & Hamilton report on B2B e-commerce. Many e-marketplaces may create value, the study concluded. In the long run, however, the trick will be to capture that value for market owners and participants, ensuring that all are fairly rewarded for their contributions. 

To be successful, exchanges will need to accomplish at least three things:

· reduce cost;

· increase our speed-to-market potential; and

· accomplish this within a framework that is simple, secure, and reliable, but also rewarding.

At Dana, we have tried to make it easy for our suppliers. Our initial plans call for our suppliers to have nothing more than Internet access and a web browser. 

We will not be charging for the service, and we expect our suppliers to benefit from the improved connectivity enough to use it. Likewise, we expect Dana to benefit enough from the productivity improvements that we can reduce costs and improve profitability.

Tomorrow afternoon, my colleague Anthony Baugh will expand further in the measurable benefits of information exchanges when he discusses the Manufacturing Supply Chain Portals that we are developing for use with our customers and suppliers, which is a good example of improving information visibility and connectivity.

But for now, let me turn to my fourth point – some of the challenges, opportunities, and general thoughts that I see for e-business going forward.

I said earlier that connectivity should enhance communication and facilitate collaboration activities.

What I meant by that is that, ultimately, IT can be a platform for delivering advanced technology and systems integration service solutions.

What we’re talking about is using information technology – IT – to deliver the benefit of intellectual property – IP – in advanced technology solutions and processes, which, as some have suggested, is important as companies shift from a focus on tangible assets to an emphasis on intangible assets.

With that said, information technology must be fully integrated into the business strategy of an organization if it is going to unleash shareholder value.

By getting our engineers connected with our customers, sourcing people, and suppliers, we can create a conduit for seamless idea flow throughout the value chain.

And the technologies you see on these slides are just a few examples of the recent technologies Dana has developed through its integrated IT efforts.

For me, the collaboration capability that information technology can deliver is where the real shareholder value can be created.

Now, along with the many ambitious projections we’ve all read about in relation to these exchanges and other e-business opportunities, there are also concerns on the e-commerce horizon.

Just a few weeks ago, a Cap Gemini Ernst & Young survey of 60 Tier I automotive component and engineering groups in Europe revealed that some work may lie ahead for Covisint and other exchanges in terms of global acceptance and recognition.

Not only did the study report that most of Europe’s Tier I suppliers don’t believe in B2B Internet-based exchanges, but surprisingly, it revealed that nearly two-thirds of the industry’s largest European suppliers say they have no B2B strategy. Implementation costs were cited as a primary obstacle. 

Furthermore, the study noted that more than 70 percent of those polled were not even familiar with Covisint, which would seem to emphasize the need for us all to work at considering this issue from a global perspective.

Ultimately, though, I believe that in one form or another, e-business and the Internet will continue to transform the manner in which automotive companies do business. 

And as we continue to refine the associated efficiencies of these technologies, e-business will move to the heart of the automotive supplier. 

Now, in closing, let me quickly reiterate a couple of key points.

For us to leverage IT for shareholder value, it must be integrated with and a partner with the key business processes that create operational excellence, a connected supply chain, collaborative product development, and customer intimacy.

We have numerous initiatives across our organization and with our suppliers, partners, and customers. Some of these are directed at basic infrastructure capability and enablement, while others drive strategic key processes in supply-chain management and product development.

The common thread that IT is creating is information that is standardized, aggregated, and made visible. IT also provides the tools for analyzing and making decisions based on that information – providing for ever-increasing connectivity and collaboration.

While I could list today several techniques to keep an eye on, such as wireless and the mobile internet, the fact is that it’s really not as much about just getting the technology right as it is about getting the people and processes right first – then integrating the tools into the process.

There is little doubt that e-business and the Internet will continue to transform the manner in which automotive companies do business as we move forward. 

But, it’s up to architects and users alike to ensure that we develop the people, tools, and processes together that will yield the innovation, value, and performance our ultimate customers and shareholders crave.

If we are successful in this endeavor, there is no question that e-business will indeed enhance shareholder value within our industry.

Thank you very much. I look forward to continuing this discussion as part of the panel discussion.