Zentrum für Logistik und Unternehmensplanung
FORA-Symposium
Supply Chain Management, Virtuelle Unternehmen und OperationsResearch
Managing the
e-Supply Chain Automotive
Dr. Stefan Wolff
Managing Director, Partner ZLU
Berlin - São Paulo - Boston
Aachen June 16, 2000
Center for Logistics and Business Planning - ZLU
• Independent and objective planning and consulting firm • Founded in 1990 by Prof. Dr. H. Baumgarten
• Headquarters in Berlin, Germany; offices in Boston, U.S.A. and São Paulo, Brazil
• Over 120 team members
• Leading consultant for logistics, supply chain management and business planning
• Over 40 of the European top 100 companies are clients of ZLU • Future oriented organization, based on partnership
• Steady international growth expected • Joined Pixelpark Network March 30, 2000
Worldwide more than 1,000 successfully implemented projects with over 120 international clients
Selected ZLU Clients in the Automotive Industry
Mercedes-Benz do Brasil
Contents
Present Situation, Targets and Potentials in the Supply Chain Automotive
Global Supply Chain Management in the Automotive Industry
Ÿ Network Management
Ÿ Order Management at Mass Customization Ÿ Global Aftersales Systems
Supply Chain Management and Logistics Complement Each Other
Logistics is an integral and the most important component of SCM
SCM extends the process approach of logistics horizontally and vertically to an integrated view of all single logistics systems
Plant
Sales Purchasing
Sales planning and control Purchasing- und supply management
Customer Supplier
Sub-contractor Logistics system A Logistics system B Logistics system C Supply Chain Management (SCM)
Information Material Customer
• Countries
• Sector The Survey focused on manufacturing companies
• Industries To provide comparability, four industries were selected
• Companies
• Data collection Internet, Fax, Telephone, Mailing
• Results Representative response rate from selected target group (~30 %)
USA Europe Tigers Japan Chemicals/ Pharmaceuticals Chemicals/
Pharmaceuticals Consumer packaged goods
Consumer packaged goods Electrics/Electronics/
Communication Equipment Electrics/Electronics/
Communication Equipment Automotive/Automotive parts Automotive/ Automotive parts 69 75 92 57 26% 29% 27% 18% = 293 = 100%
Delivery Time International
Delivery Time international Consumer goods Chemicals / Pharmaceutical Automotive industry Electrics, Electronics & Communication Equipment 40 45 0 5 10 15 20 25 30 35 USA Europa Tigers Japan 50 55 23 45 18 27 33 50 55 17 18 23 34 26 7 28 12 60Focus of Supply Chain Management
USA Today in future
(expected in 5 years) Europe Today Japan Today Tigers Today 0% 10% 20% 30% 40% 50% 60% 70%
local national regional global
Complex procurement-, production- and distributions systems require global Supply Chain Management throughout all countries
Integrated Information- and Communication System
Strategic Analyses
Planning and Decision Support
Transaction Management APS
ERP
Supply
Demand
• Functionalities of both systems present a distinctive part of a SCM solution • EDI and Internet enable communication
• Network- and database technologies are decisive components of the final solution
The integration of APS systems offers simulation opportunities, extended planning-and analysis capacities as well as optimization functions
SCM: The Bull-whip-effect
50% 100% 150% Time Necessary capacity apparent actual Material shortage Excessive ordering Unreliable delivery Increase of reserve inventory Distorted demandCauses of the bull-whip-effect:
• Independent updating of demand forecasts • Clustering of demands
• Price fluctuations
The independent planning in each phase increases market fluctuations, the result is a high inventory within the Supply Chain
• Quota orders and bottleneck risks • Incentive structures
Strategic Management Strategic Planning/ Tactical Operations ERP Supplier Management Planning &
Scheduling Transpor-tation Planning
Purchasing
Purchasing ManufacturingManufacturing LogisticsLogistics DistributionDistribution
Electronic Commerce PDM Produc-tion System Transport System WH Mgt. Stock-mgt. Demand Planning Order Management Cust. Mgt.
Advanced Planning and Scheduling Software
APS Vendors
Source:
Source: GartnerGartner Group Group
Vision Vision Ability To Execute Ability To Execute Baan Baan Paragon Paragon WebPlan WebPlan Demand Mgmt Demand Mgmt SynQuest SynQuest Mercia Mercia Logility Logility Aspen Tech/Chesapeake Aspen Tech/Chesapeake Thru
Thru-Put-Put
Numetrix Numetrix LPA LPA SCT/ SCT/FygirFygir SAP SAP Manugistics Manugistics APS APS Peoplesoft Peoplesoft i2 i2 Challengers
Challengers LeadersLeaders
Niche Players
Niche Players VisionariesVisionaries
1997 Vision Ability To Execute • Manugistics • i2 • SAP • Paragon • Logility • SynQuest • Numetrix • Baan • P-Soft 1998 Vision Ability To Execute • i2 • Manugistics • SAP • Paragon• Logility • SynQuest • Numetrix • Baan • P-Soft 1999
Personal-mgt. Personal-mgt. Finance-mgt. Finance-mgt. Product Life Cycle Mgt. Product Life Cycle Mgt. Purcha-sing Purcha-sing Manu-facturing Manu-facturing Distri-bution Distri-bution Customer Service Customer
Service MarketMarket
Strategic Management
Strategic
Planning/ Tactical
Operations
Advanced Planning and Scheduling Software Traditional Supply Chain Management Solutions
Supply Chain Planning Suite
ERP Synchronization and Integration Market Analyses Customer Mgt. Distri-bution Control Asset Management Productions Control International Logistics Product Data Mgt. Supplier Mgt. Product Developm. Financial Analyses Operative Finance
APS Systems Tomorrow
Retail OEMs
Suppliers
Potentials of the Automotive Supply Chain
9 Billion Euro Logistics Costs 143 Billion Euro Revenue Network management Start-up management Order management Distribution management Aftersales management
* Case study: German automotive industry In the OEM sector of the German automotive industry there is a variable costs volume of more than 9 Billion Euro logistics costs
Contents
Present Situation, Targets and Potentials in the Supply Chain Automotive
Global Supply Chain Management in the Automotive Industry Ÿ Network Management
Ÿ Order Management at Mass Customization Ÿ Global Aftersales Systems
Global Procurement- and Production Network
Example network:
14 plants (assembly and production) 1,800 direct suppliers
Europe
Plants
1st tier suppliers 2nd tier suppliers
Parameters to Be Influenced in Logistics Networks
Optimal structures can be gained through pro-active network management
Decision for single Supply Chains must be made in the context of the entire network
relation node relation
Throughput time Inventory costs Handling costs Transport costs Necessary Investment Time to change or relocate Cross-docking point Consolidation point Warehouse Supplier plant Assembly plant Relation main focus of network management Support for long term and strategic decisions source destination x x x x x x x x x x x x x parameter
Tool SNN enables static simulations for optimization
Tool: Supply Network Navigator
Navigation in pilot tool: Geographical focus
Supply Network Navigator
Map Navigator
Map Navigator
Standard Supply Chain Navigator
Standard Supply Chain Navigator
Structure Element Navigator
Structure Element Navigator
Supplier Navigator Supplier Navigator Parts Navigator Parts Navigator Simulation Navigator Simulation Navigator
Supply chain focus Detailed
analyses possible
1. Potentials due to optimized combination of parts and standard supply chain
Example: Fiber glass module, current supplier location Australia Volume: 918 m³ per year
2. Potentials due to the optimization of the network processes - for instance, through the creation of a new Supply Chain or the change between standard Supply Chains
3. Integration of supply- and customer networks - for instance, two South America suppliers deliver 40% of the volume
Optimization in Global Networks
Australia Europe Supply Costs 1998 Supplier location -79 % AUS air 2,5d road 0,5d road 0,5d 2,5d 70% 6 days AUS sea 23,5 road 0,5d road 3,5d 2,5d 30% 30 days Plant
Case Study
Potentials
• For the first time, the complexity of the global manufacturing- and logistics network is visible
• Amount of costs that can be influenced within the networks of suppliers and customers: 110 Mio. DM per year
• Potential for optimizing: about 30 % of these costs
• Shortening of delivery time for key components from 20 to 8 working days (intercontinental)
• Development of a specific data processing tool for the global network management
• Creation of an organizational unity including a cross-functional responsibility for the manufacturing- and logistics network
Contents
Present Situation, Targets and Potentials in the Supply Chain Automotive
Global Supply Chain Management in the Automotive Industry Ÿ Network Management
Ÿ Order Management at Mass Customization Ÿ Global Aftersales Systems
Range of Order Management
• Requirements planning • Ordering • Scheduling • Quota fullfilment • Ordering system • Long-range planning • Sales planning • Demand planning • Quota planning • Order management - Order receipt - Weekly buckets - Transfer to manufacturing • Production planning • Planning of parts • Daily buckets • Sequencing • Master planning • Parts approvals • Delivery forecast • Call-offCustomer Dealer Sales Production Puchasing Supplier
The optimization of order management requires the integration of the entire Supply Chain
Complexity of Mass Customization
Mass production
Ÿ Production of 250 - 3,000 cars/day/plant Ÿ Several models are built in different
plants
Customization
Ÿ 80% of all cars are customer specified Ÿ Each model can be painted in 25
standard colors and 300 customer specified colors
Ÿ Hundreds of special options and a high number of combinations 8 - 4,000 80 - 100,000
∞
12 - 30 h 8 - 35 h 10 - 40 hLead time Model variants
Plant C • Engine assembly • Body Shop • Paint shop • Assembly Plant A • Module production Plant D • Module production Plant B • Body shop • Paint shop
• Assemby •Plant EPaint shop
• Assembly
Plant F • Assembly
Customer specified mass production and the historic evolution of production structures are the main forces for complexity
Body shop
Paint shop
Starting Point Conventional Ordering
(weeks) 0 5 % 10 % 15 % 20 % 25 % 30 % 35 % 40 % >5 -5 -4 -3 -2 -1 0 1 2 3 4 >4Delivered versus promised
18% early 47% late 35% on time Percentage of Deliveries
Result of causes analysis: Considerable deficits in the field of order management
Main Deficits at Order Management
• Dealer, sales and manufacturing optimize themselves independently from each other according to different criteria
• Lacking visibility of information on demand and capacity beyond functional borders
Capacity
Lacking demand information
Lacking capacity information
Dealer Sales Manufacturing Procurement
Customer Supplier
Demand
Customer requirements
Profits
Capacity utilization
Especially in case of high variant variety the order management is not able to meet the requirements
Realization of Online Direct Ordering
Order management Sequencing • Order management • Available-to-promise • Quota management • Change management • Profit optimizing • Daily buckets • Sequencing Sales Manufacturing Customer Dealer ManufacturerCustomer Dealer Sales Sales
1st step
Plant Complexity
Body shop
Paint shop
Assembly
Buffer Buffer •Model specific lines •Line split up •Line merging •Parallel lines •Rework
•Drop back •Parallel lines
•Take out / put in •Different cycle times Model A
Model B
Model D (from a different plant)
Model A, B ,C, D Model A Model B, C, D Model C A, B , C, D Model C
Case Study
Paint shop: Lead Times
100 % 80 % 60 % 40 % 20 %Lead Time
[h]
10 20 30 40 Probability Distribution FunctionCase Study
Potentials
• Visibility of capacities and demand volume
• Delivery shortening and increase of delivery reliability
• Binding fixing of manufacturing dates when orders are received
• Optimized change- and failure management
• More precise forecasting through simulation and increased information basis
• Optimized supplier integration
• Reduction of inventory costs
• Optimized loading rate
Contents
Present Situation, Targets and Potentials in the Supply Chain Automotive
Global Supply Chain Management in the Automotive Industry
Ÿ Network Management
Ÿ Order Management at Mass Customization Ÿ Global Aftersales Systems
Application of SCM at Aftersales
Supplier Supplier Manufacturer Dealer Customer
• Counter purchasing • Free garages • Inspections • Repairs • Urgent demands • Replenishment orders • Special designs • Standard- & • Special materials • Immediate parts availability • Quick repair • Instantaneuos or
24 hour delivery service • high availability
• Service level • High quality
• Short delivery time • Cheap first cost prices
• Regular Orders • Rare demands • Final storage • Special designs Demands Expectations
Costumer requirements are met through early demand identification • Service level
• High quality
• Short delivery time • Cheap first cost prices
Tool-based modelling of the Supply Chain
Decentralization Basic strategy of the Supply-Chain (eg. parts distribution)
Distribution structure • Locations
• Transport routes Process definition
• Product line management • Inventory management Realization
• EDP tools and adaption • Staff training
Monitoring • External factors
• Performance key data Top-Down
Integration of customers with specific requirements within a master plan
Bottom-up Manufacturer Supplier Costumer •Number •Distribution •Service •TNR •Products •Product line •Number •Distribution •Service
Effects of network management on parts distribution
• Regionalization of distribution structure • Separation of material- and information flow • Selected storage strategies in combination
with central product line- and inventory management in a virtual warehouse • Direct access to the whole inventory
within the network
• Application of alternative replenishment methods (cross-docking, bypass processing and
direct delivery supplier-RDC) • Increase of supply markets
Logistics Costs
-20 % 94 %
98 %
Customer Service SCM leads to significant service increase as well as to costs reduction
Contents
Present Situation, Targets and Potentials in the Supply Chain Automotive Global Supply Chain Management in the Automotive Industry
Ÿ Network Management Ÿ Start-up Management
Ÿ Order Management at Mass Customization Ÿ Global Aftersales Systems
Automotive Industry Vision: The e-Supply Chain
OEM 1st Tier Supplier Dealer/ Service Pr. Dealer/ Service Pr. Customer Customer 2nd TierSupplier CustomerCustomer
Customer Customer Customer Customer Material flow Information flow Consumer Connect Supply Chain Connect
• Direct consumer relationship • Factory direct
• Online auto retailers
• Web-enabled traditional dealers • Procurement
• Planning and Scheduling • Forecasting
• Product development
Today´s System: Created for Make-to-Stock
• Stock • Discount • Batching • Push • Trading • Dealer & market allocation • Push • Padding • Sequence Body, Paint, Assembly • Constraints • Volume • Time • Instability • Forrester • Batching • Push • Quality • Labor • Shutdown • Complexity • IT • Wrong Stock • Push • Visibility • Push • Service level • Due date Sales Sales Customer Customer Dealer Dealer Program planning Program planning Production control Production control Procurement Procurement BodyBody PaintPaint
Assembly Assembly Quality Quality First Tier First Tier Second Tier Second Tier ... ... Dealer Dealer Distribution Center Distribution Center
Specially European carmakers are already selling a lot of customer designed cars within the traditional planning and fulfillment environment
Future Development of Online Vehicle Transaction
Select vehicle Close deal
directly Find dealer and price Finance deal 8 7 6 5 4 3 2 1 Million of units
[U.S. online new vehicle transactions]
2003
(53 million online households)
2003
(53 million online households)
1999
(26 million online households)
1999
(26 million online households)
In Future: Fulfillment with Make-to-Order Capabilities Necessary
In future supply chain production capacity will be sold apart from on stock vehicles Web-enabled, real time information flow
Sales Sales Customer Customer Dealer Dealer Program planning Program planning Production control Production control Procurement Procurement Body
Body PaintPaint
Assembly Assembly Quality Quality First Tier First Tier Second Tier Second Tier ... ... Dealer Dealer Distribution Center Distribution Center
Planning and Forecasting the e-Supply Chain
Supply schedule generated from OEM
schedule
Supply chain specific and lead time related
OEM OEM Supplier Supplier Forecasting Planning Production start t t*
Supplier plan generated from the OEM forecast
Specified orders are scheduled
Order Schedule
Web-enabled information flow provides real time demand forecasts to all supply chain participants
Consumer input via online automobile configurations improves forecast accuracy Supply Schedule
Scheduling the e-Supply Chain
OEM
OEM Dealer/ CustomerCustomer
Service Pr. Dealer/ Service Pr. Supplier Supplier Order schedule
• Request for due date and quote • Order placing • Status check • Order change • Request for due
date and quote • Order placing • Status check • Order change • Scheduling • Change and breakdown mgt. • Stock allocation • Planning • Schedule check • Feasibility • Load balancing Forecast Web
Web increases information connectivity and makes planning and scheduling applications ubiquitous
• Incoming orders will be scheduled by request
• Without program planning demand fluctuations will directly strain production control • Real demand will still be balanced by make-to-stock cars
Inventory Across the e-Supply Chain
[Inventory level]
OEM
OEM DealerDealer
Supplier Supplier
Inventory reduction facilitated by improved forecasting and scheduling
Inventory reduction facilitated by transformation
from push to pull
Today In future
In future - without supply side improvement
Exact stock allocation will be a major challenge within the new competitive environment Customers demanding their new cars at once will still remain
Valuing Managing the e-Supply Chain in the Automotive Industry
European value chain*
European value chain*
164
116,2
61,5
Supplier OEM Dealer
[Billion €] [Billion €]
Value proposition
Value proposition
7,8
1,1
Back end cost savings
Supply Chain
e-Efficiency From push to pull The overall conservative value proposition of managing the e-Supply Chain is € 21,3 Billion p.a. (6,2%**) within the European Automotive Industry
341,7 Billion €
* all data for 1998; **does not include start-up and spare parts potentials Discounts Stock-outs Mix losses Inventory 5 4,9 2,5
Conclusion: The Advantages of Supply Chain Management
• Visibility of material flows of present and future global logistics network
• Assistance for decision-making due to modern planning- and controlling systems
• Integration of suppliers and their specific logistics networks
• Identification and realization of synergies and potentials
• Development of new standards and modular network solutions
• Active network management
• Integrated planning and controlling
Global Supply Chain Management offers the opportunity to improve service, costs, flexibility and reactions decisively
