September 28, 1999 Web posted at: 10:28 a.m. EDT (1428 GMT) by Ephraim Schwartz

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(IDG) -- A dramatic change taking place across all major industries is challenging everything people know about manufacturing and the support role IT plays.

One hundred years ago, Henry Ford established a mantra for mass production, "You buy what we make," and consumer choice has been limited ever since. "A model-T Ford comes in any color as long as it is black" is the classic example.

But as evidenced by the signing of an agreement between Ford and Microsoft, announced last week, manufacturers are making fundamental changes to respond to Internet-empowered consumers, who are now telling companies, "You make what we buy."

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Ironically, this mass customization and consumer-centric manufacturing phenomenon first took hold in the PC industry, with Dell Computer moving to the forefront of the industry by building PCs to order. Now, this business model has been embraced by the automotive industry, with other industries such as consumer electronics to follow soon.

According to sources, Sony Electronics will offer consumers a basic television, which can be configured to include such options as a digital connection, a satellite dish, set-top interface, or WebTV.

Industry analysts are predicting changes to other industries as well. In fact, any product with a price of more than $500 is a candidate for mass customization, they said. Behind the scenes, the auto makers and every other industry that embraces this model will have to significantly redesign their back-end IT infrastructures to support real-time transaction across previously disjointed systems.

For example, both Ford and General Motors have looked to Motiva Software, in Del Mar, Calif., which creates change-management software based on the Extensible Markup Language or XML, to bridge supply chains. This software lets companies respond to customer requirements at "Internet speed," said Bob Pinkerton, vice president of marketing at Motiva.

"The actual practice of customization and eliminating huge inventories through faster communications across a network of suppliers is going on now. The customer's heightened expectation is the only component missing," said Pinkerton.

But new software alone does not transform a 100-year-old distribution channel.

"If you are going to change a market, you have to control the money," said Scott Painter, CEO of CarsDirect.com, in Sherman Oaks, Calif.

Dramatic changes are occurring because consumers are electing to buy high-ticket items through what is an emerging alternative channel.

"You get a certain amount of respect when you start accounting for 1,000 transactions a month," Painter said, referring to the number of cars now sold through CarsDirect.com's Web site.

"The average dealer sells 50 [cars] per month. CarsDirect.com sells more than that every day," Painter said.

Painter said the key is to control the transaction. Otherwise, any Internet electronic-commerce company becomes nothing more than a referral service, or "infomediary."

"Worse than that, if you are not changing the relationship the customer has, you are actually reinforcing the old system, giving them more leads through a new channel," Painter said.

Ultimately, that means manufacturers must think differently, because most current structure's are designed around inventory and relationships, said J. Ferron, partner in charge of the Americas for Automotive division at PricewaterhouseCoopers, in Detroit.

"In contrast, a pull system minimizes inventories and maximizes relationships, upstream business-to-business and downstream business-to-consumer," Ferron said.

The endgame is the consumer-centric enterprise, said Ferron, which will thrive on uniqueness and variety, the antithesis of the traditional push system.

In the new economy, purchasing and procurement with volume discounts based on size is losing its relevance as a core business process. It is being replaced by the need for speed and innovation.

"This means you better have your allies, and you'd better listen to them," Ferron said.

There are a few caveats to the consumer-centric model, however.

Unless a company can generate a tremendous volume, the shift to customization and shipping direct requires a significant investment on the back end, according to Adam J. Weiner, senior auto analyst at Gomez Advisors in Lincoln, Mass.

"And some consumers are still looking for some degree of hand-holding," Weiner said.

Ephraim Schwartz is an InfoWorld editor at large based in San Francisco.