John Costanza Speaks Out -- Auto Industry's Outdated Thinking Is Its Nemesis

    ENGLEWOOD, Colo.--May 14, 2001--Many of the current problems in the auto industry can be attributed directly to antiquated methods of forecasting and fixed-volume manufacturing, says John Costanza, prominent consultant to the manufacturing industry.
    Costanza, the world's leading expert in demand-based manufacturing, is challenging automakers to revamp production methods to be responsive to actual customer demand.
    "The automakers are doing things basically the same way they did in the 1970s and 1980s," Costanza says. "Consequently, they focus on raw material while they hold huge, finished goods inventories, and now the discount-sale signs are out on the car lots. They need to transition to a business model that's demand-driven, where they build and adjust volumes based upon what the customers buy. Old, fixed-volume manufacturing is not only outdated, it'll be the nemesis of companies too set in tradition to change."
    Costanza expresses concern with automakers' focus to pinpoint schedules and delivery of raw materials based upon their fixed-volume production plans, which are built upon theoretical forecasts and not actual demand. "The industry needs to drive to customer demand. As the economy adjusts down, the auto industry needs to adjust down. Using fixed volume methodology, they can't react. It's either full bore ahead or shut down the factories," he says.
    "Every day customer tastes are evolving," Costanza says. "Forecast-driven schedules that were derived weeks earlier are not addressing the economic or customer needs. Customers are increasingly more demanding and the industry must be more responsive. Nobody wants the particular car that's coming off the line, and fewer cars are wanted overall."
    Problems associated with the over capacity and auto glut, unfortunately, ripple far beyond the fixed-volume manufacturers, Costanza says. When production suddenly stops (fixed volume on-or-off), hundreds of suppliers are forced to lay off workers and some are forced out of business. At least two major steel companies are facing serious financial problems because auto companies have halted orders, adds Costanza.
    "When basic industries get in trouble, that's a major problem for the U.S. economy," Costanza says. "That should not happen. They need to adjust to changing demands and economic conditions."
    Since the 1980s, automakers have developed highly complex forecasting and scheduling techniques on which car production is based. Their fixed-volume scheduling attempts to look too far into the future, forcing them to make the wrong products and exposing them to massive finished goods problems if the economy shifts, says Costanza. If automakers had been adjusting production in the direction of actual demand during the last six months, manufacturing would still be running at a lower volume and plants would not be shutting down, he says.
    With today's manufacturing and communications technologies, automakers have all the tools they need to build cars closer to customer demand.
    "Auto manufacturing technology is sophisticated, and cars can be built quickly. Companies must learn to adjust volume and build cars based upon the `direction' of actual demand," Costanza says. "There's no reason for car lots to be packed with hundreds of cars. That's unnecessary, and the costs to the manufacturers, suppliers, and dealers are enormous -- in the tens of millions every month!"
    Using Demand Flow Manufacturing techniques, dozens of companies throughout the world are building products based on actual demand without massive inventories of finished goods.
    "These companies can adjust production volumes and product mix on a daily basis. They are flexible and efficient and require very low operating capital," Costanza says.
    Says Costanza, "The auto industry has been slow to change. This time around, they'll learn they have no choice except to make significant changes."

    About John Costanza

    Fortune Magazine named Mr. Costanza one of six "Heroes of U.S. Manufacturing" in 2000. He has been a nominee for the Nobel Prize in Economics.
    A published author, Mr. Costanza's book, "The Quantum Leap in Speed-to-Market" has been published in six languages, and he has taught his Demand Flow(R) Technology in 51 countries. Over 76,000 persons from 3,000 companies, including more than half of the Fortune 500 companies, have attended training on Demand Flow manufacturing techniques.

    Note to Media: For more information on Demand Flow Manufacturing, visit www.jcit.com. To interview Mr. Costanza, contact him via jcostanza@jcit.com or 303/792-8310, or Nancy Wilhelms, nancyw@teamwestgroup.com or 949/263-2227.