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This is an Open Access document downloaded from ORCA, Cardiff University's institutional repository: http://orca.cf.ac.uk/110909/ This is the author’s version of a work that was submitted to / accepted for publication. Citation for final published version: Nieuwenhuis, Paul 2018. Micro factory retailing: an alternative, more sustainable automotive business model. IEEE Engineering Management Review 46 (1) , pp. 39-46. 10.1109/EMR.2018.2810110 file Publishers page: http://dx.doi.org/10.1109/EMR.2018.2810110 <http://dx.doi.org/10.1109/EMR.2018.2810110> Please note: Changes made as a result of publishing processes such as copy-editing, formatting and page numbers may not be reflected in this version. For the definitive version of this publication, please refer to the published source. You are advised to consult the publisher’s version if you wish to cite this paper. This version is being made available in accordance with publisher policies. See http://orca.cf.ac.uk/policies.html for usage policies. Copyright and moral rights for publications made available in ORCA are retained by the copyright holders. Micro Factory Retailing; an who regulate it (Wells and Nieuwenhuis Alternative, More Sustainable 2017). Automotive Business Model. Unfortunately, we have often found the business academic literature is somewhat out of touch with the latest developments In 2000 we launched a new alternative in the automotive sector. The academic automotive business model, Micro Factory literature on the sector appears more like Retailing (MFR), which, although still historical accounts than current account; marginal, has nevertheless already or able to contemplate alternative inspired a number of automotive business models. In view of this situation, businesses. MFR is based on networks of we found academic publishers and small dispersed, combined assembly, retail reviewers initially quite unreceptive to and aftercare or lifetime management (e.g. these ideas and decided to air them first to maintenance and repair, parts supply, business and practitioner audiences. This upgrade, vehicle management and took the form both of publications (Wells takeback) facilities that could operate car and Nieuwenhuis, 2000) as well as use under a product-service system (PSS), conference papers to industry audiences. whereby ownership is retained by the These ideas were invariably well received, company and users pay for their use. although they did lead to many debates. Approximately 20 years on from when the MFR was a difficult sell, since examples and first germs of this innovative idea were precedents did not exist, which of course sown is a good time to revisit the concept are thin for most alternative business and its subsequent fortunes. This paper models. Similarly we were often asked, if traces through the early history of ideas these ideas are so good, then why do Ford and developments for MFR; to its current and General Motors not adopt them. situation and practice. Sustainability is a Again, the answer is obvious, as these major aspect of MFR. I present this work ideas run precisely counter to and in fact on the car and innovations from my challenge and undermine their existing experiences and growth in understanding. business models. We decided, therefore, to use academic conferences (e.g. Background on “Selling” the Micro- Nieuwenhuis 2002) and an academic book factory retailing business model as first steps in broadening the appeal of this alternative business model Our approach is unlike that of most (Nieuwenhuis and Wells, 2003), with business academics in that we are academic journal articles emerging much primarily sector specialists, rather than later (e.g. Wells and Orsato, 2005; discipline-based, or even discipline- Nieuwenhuis and Katsifou, 2015). focussed. The sector covers a range of activities and disciplines, from Origins – initial ideas engineering, design, marketing, human resource management, supply chain In 1996 I bought a new mountainbike and management, to politics and legislation. it occurred to me that here was a very This approach has also been evident from interesting business model. The company our methodology in that we maintain a whose name appeared on the frame – in continuous dialogue and exchange of ideas this case Proflex – actually made very little with the automotive industry and those of this bike. Although the design was differentiation in the market, despite this theirs, as was the development work business model. Could this approach be behind the springs for their unique Girvin applied to automobiles? full suspension system, most of the rest came from named suppliers. Suppliers Environmental challenges to mass whose name remained on the product, production such as Mavic for the rims and Shimano for the gears. The bike itself was built in While many in the environmental Taiwan by a subcontractor. Due to its community – including academics – modularity, the bike could be upgraded in advocated an abandoning of the car as the various areas and in due course featured a only way forward on our quest for greater Selle Italia saddle, for example. In the sustainability, we felt this was a non- automotive industry – which is our starter. specialism – examples of this kind of work were very limited. You might see the name If people were going to persist in their of a design house – e.g. Pininfarina, Zagato pursuit of automobility, how could this be – on a car, or even ‘Handling by Lotus’ on delivered in the most sustainable manner? an Isuzu, and occasionally the name of a This was the era of Amory Lovins tuning firm such as Alpina or AMG, but ‘Hypercar’ concept (Lovins 1995; Von beyond this, the final assembler’s name, Weizsacker, et al. 1998); other initiatives BMW, Mercedes-Benz, or Ford was such as the Clinton-Gore administration’s dominant. Partnership for a New Generation of Vehicles (PNGV) also existed. It was an era At this time, we were struggling to of much experimentation, including new understand mass car production and materials, which necessitated new traced this right back to its origins in the manufacturing techniques. GM’s EV-1 early 20th century. This review process electric sportscar, for example prompted involved extensive archival research in the creation of a completely new Europe and the US. It had struck us that manufacturing system, the Lansing Craft mass production was a barrier to Center, while mainstream car production sustainability in cars due to the sheer was also increasingly homing in on lower number of cars added to the planet’s roads volume manufacturing approaches (see each year. We were exploring possible Nieuwenhuis and Wells, 1997). alternative automotive business models, focussing in the first instance on However, it occurred to us that the existing appropriate manufacturing systems. ‘fire-and-forget’ mass production system also missed other tricks. Considering the This bike was a manufacturing system and lifetime income stream of a car, the actual business model that combined a degree of mass producers only managed to capture a mass production of standardised relatively small slice of revenue (Figure 1). components that was then shared by a Moving towards a new business model number of competitors. The bike firms still that, instead of generating income only retained their brand integrity and brand from selling cars, parts and finance, made awareness in the market despite doing money by capturing a much greater very little themselves. This vertically proportion of that lifetime value stream. disintegrated industry still managed to This holistic capturing of value seemed to show significant diversity and make a lot more sense, while at the same time easing that pressure to ‘move the possible. This approach was used by Ford metal’, which made the existing business to develop its Model T. model inherently unsustainable. The mass car production of today is very Figure 1 different from the way the Ford Model T was built at Highland Park, Michigan. The This new business would involve an Model T, was based on a modular integration of manufacturing and retailing approach to car making as used by the in a manner that did exist in the early years previous generation of craft builders: of the industry. It was essentially made separate chassis and separate, wood- obsolete by the move to mass production, framed, coach-built, or ‘composite’ body. with its high levels of investment, Modern mass produced cars are made particularly in Budd-style all steel body quite differently. They use all-steel technology (Nieuwenhuis and Wells 2007) ‘monocoque’, or ‘unibody’ construction, and its attendant economies of scale. This whereby a structural metal box fulfils the situation forced the industry into functions of both body and chassis. This centralising manufacturing and separating technology was made possible by Budd manufacturing from retail and distribution. and Ledwinka’s invention, around 1912, of We were again looking at the core the all-steel welded body and the press technology of car making – the Budd all- and jig technology that came with it. Thus, steel body – as the principal barrier to a modern mass car manufacturing in many new business model. ways owes at least as much to Edward Budd and Joe Ledwinka, as to Henry Ford Budd’s all-steel body (Nieuwenhuis and Wells 2007, Nieuwenhuis, 2014). Cars started life as craft-made products in that they were made one-by-one manually Budd’s steel body technology requires very with each vehicle being different, and each high initial investments. But once these component being unique, as it was initial investments are made, low unit costs adapted to its neighbours in the at high volume production occur – each car subassembly. This method has often been made is cheaper than under the previous described as the ‘European System’. Very craft-based system. This idea is the basic rapidly, major suppliers were set up, economy-of-scale paradigm where a particularly in France, able to supply sufficient number of cars is made to recoup engines, gearboxes, axles and other key that very high initial investment.