Managing the e-supply Chain Automotive

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1 FORA-Symposium Supply Chain Management, Virtuelle Unternehmen und OperationsResearch Managing the e-supply Chain Dr. Stefan Wolff Managing Director, Partner ZLU Berlin - São Paulo - Boston Aachen June 16, 2000 Zentrum fuer Logistik GmbH Voltastrasse Berlin, Germany Phone Fax

2 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 -Seite 2-

3 Selected ZLU Clients in the Industry Mercedes-Benz do Brasil -Seite 3-

4 Contents Present Situation, Targets and Potentials in the Supply Chain Global Supply Chain Management in the Industry Network Management Order Management at Mass Customization Global Aftersales Systems Conclusion -Seite 4-

5 Supply Chain Management and Logistics Complement Each Other Sales planning and control Purchasing- und supply management Customer Customer Sales Plant Purchasing Supplier Subcontractor Logistics system A Logistics system B Information Material Logistics system C Supply Chain Management (SCM) 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 -Seite 5-

6 The Global Supply Chain Survey Countries USA Europe Tigers Japan = 293 Sector The Survey focused on manufacturing companies Industries To provide comparability, four industries were selected Chemicals/ Electrics/Electronics/ Consumer / Pharmaceuticals Communication Equipment packaged packaged goods goods parts parts 26% 29% 27% 18% = 100% Companies Data collection Internet, Fax, Telephone, Mailing Results Representative response rate from selected target group (~30 %) -Seite 6-

7 Delivery Time International Electrics, Electronics & Communication Equipment industry Chemicals / Pharmaceutical USA Europa Japan Tigers Consumer goods Seite 7- Delivery Time international [calendar days]

8 Focus of Supply Chain Management 70% 60% 50% 40% 30% 20% 10% 0% USA Today Europe Today Japan Today Tigers Today in future (expected in 5 years) local national regional global Complex procurement-, production- and distributions systems require global Supply Chain Management throughout all countries -Seite 8-

9 Integrated Information- and Communication System Strategic Analyses Supply APS ERP Planning and Decision Support Transaction Management 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 planningand analysis capacities as well as optimization functions -Seite 9-

10 SCM: The Bull-whip-effect actual apparent Necessary capacity 150% 100% 50% Time Material shortage Distorted demand Excessive ordering Increase of reserve inventory Unreliable delivery Causes of the bull-whip-effect: Independent updating of demand forecasts Clustering of demands Price fluctuations Quota orders and bottleneck risks Incentive structures The independent planning in each phase increases market fluctuations, the result is a high inventory within the Supply Chain -Seite 10-

11 APS Systems Today Strategic Strategic Management Planning/ Tactical Operations Supplier Management PDM Planning & Scheduling Production System ERP Transportation Planning Transport System Electronic Commerce Stockmgt. WH Mgt. Demand Planning Order Management Cust. Mgt. Purchasing Manufacturing Logistics Distribution Advanced Planning and Scheduling Software -Seite 11-

12 APS Vendors Ability To Execute Ability To Execute Vision i2 SynQuest SAP Baan Logility P-Soft Numetrix Paragon 1998 Baan P-Soft SAP Manugistics i2 Manugistics SynQuest Logility Paragon Ability To Execute Challengers LPA Baan Peoplesoft WebPlan Mercia Numetrix Demand Mgmt APS Niche Players Leaders i2 Manugistics SCT/Fygir Paragon SAP SynQuest Thru-Put Aspen Tech/Chesapeake Logility Visionaries Numetrix Vision Vision Source: Gartner Group -Seite 12-

13 APS Systems Tomorrow Strategic Planning/ Tactical Operations Synchronization and Integration Financial Analyses Operative Finance Strategic Management Supply Chain Planning Suite Supplier Mgt. Product Developm. Product Data Mgt. ERP Productions Control International Logistics Distribution Control Asset Management Customer Mgt. Market Analyses Product Life Cycle Mgt. Personalmgt. Financemgt. Purchasing Manufacturing Distribution Customer Service Market Traditional Supply Chain Management Solutions Advanced Planning and Scheduling Software -Seite 13-

14 Potentials of the Supply Chain 143 Billion Euro Revenue 9 Billion Euro Logistics Costs Suppliers OEMs Retail Network management Distribution management Start-up management Order management Aftersales management In the OEM sector of the German automotive industry there is a variable costs volume of more than 9 Billion Euro logistics costs * Case study: German automotive industry -Seite 14-

15 Contents Present Situation, Targets and Potentials in the Supply Chain Global Supply Chain Management in the Industry Network Management Order Management at Mass Customization Global Aftersales Systems Conclusion -Seite 15-

16 Global Procurement- and Production Network Europe Plants 1st tier suppliers 2nd tier suppliers Example network: 14 plants (assembly and production) 1,800 direct suppliers -Seite 16-

17 Parameters to Be Influenced in Logistics Networks source relation node relation destination parameter x x x x x x x x x x x x x Throughput time Inventory costs Handling costs Transport costs Necessary Investment main focus Warehouse of network management Consolidation point Cross-docking point Relation Supplier plant Support for long term and strategic decisions Assembly plant Time to change or relocate Decision for single Supply Chains must be made in the context of the entire network Optimal structures can be gained through pro-active network management -Seite 17-

18 Tool: Supply Network Navigator Navigation in pilot tool: Geographical focus Supply Network Navigator Map Navigator Map Navigator Standard Standard Supply Supply Chain Chain Navigator Navigator Detailed analyses possible Structure Element Navigator Structure Element Navigator Supplier Navigator Supplier Navigator Supply chain focus Parts Parts Navigator Navigator Simulation Simulation Navigator Navigator Tool SNN enables static simulations for optimization -Seite 18-

19 Optimization in Global Networks Case Study 1. Potentials due to optimized combination of parts and standard supply chain Supply Costs 1998 Example: Fiber glass module, current supplier location Australia Volume: 918 m³ per year -79 % Australia Europe Supplier location 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 AUS AUS 70% 6 days 30% 30 days air 2,5d sea 23,5 road 0,5d road 3,5d 2,5d 2,5d road 0,5d road 0,5d Plant 3. Integration of supply- and customer networks - for instance, two South America suppliers deliver 40% of the volume -Seite 19-

20 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 Case Study -Seite 20-

21 Contents Present Situation, Targets and Potentials in the Supply Chain Global Supply Chain Management in the Industry Network Management Order Management at Mass Customization Global Aftersales Systems Conclusion -Seite 21-

22 Range of Order Management Customer Dealer Sales Production Puchasing Supplier Requirements planning Long-range planning Production planning Master planning Ordering Sales planning Planning of parts Parts approvals Scheduling Demand planning Daily buckets Delivery forecast Quota fullfilment Quota planning Sequencing Call-off Ordering system Order management - Order receipt - Weekly buckets - Transfer to manufacturing The optimization of order management requires the integration of the entire Supply Chain -Seite 22-

23 Complexity of Mass Customization Mass production Lead time Model variants Production of 250-3,000 cars/day/plant Body shop h 8-4,000 Several models are built in different plants Paint shop 8-35 h ,000 Assembly h Customization 80% of all cars are customer specified Each model can be painted in 25 standard colors and 300 customer specified colors Hundreds of special options and a high number of combinations Plant A Module production Plant B Body shop Paint shop Assemby Plant C Engine assembly Body Shop Paint shop Assembly Plant D Module production Plant E Paint shop Assembly Plant F Assembly Customer specified mass production and the historic evolution of production structures are the main forces for complexity -Seite 23-

24 Starting Point Conventional Ordering Case Study 40 % 35% on time 35 % 30 % Percentage of Deliveries 25 % 20 % 18% early 47% late 15 % 10 % 5 % 0 > >4 Delivered versus promised (weeks) Result of causes analysis: Considerable deficits in the field of order management -Seite 24-

25 Main Deficits at Order Management Case Study Dealer, sales and manufacturing optimize themselves independently from each other according to different criteria Customer requirements Profits Capacity utilization Lacking visibility of information on demand and capacity beyond functional borders Demand Lacking demand information Customer Dealer Sales Manufacturing Procurement Supplier Lacking capacity information Capacity Especially in case of high variant variety the order management is not able to meet the requirements -Seite 25-

26 Realization of Online Direct Ordering Customer Dealer Sales Manufacturer Sales Dealer Customer 3rd step 2nd step 1st step Sales Order management Available-to-promise Quota management Change management Profit optimizing Order management Sequencing Manufacturing Daily buckets Sequencing -Seite 26-

27 Plant Complexity Case Study Body shop Paint shop Assembly Model A Buffer Model A, B,C, D Buffer Model A Model B, C, D Model B Model C A, B, C, D Model D (from a different plant) Model C Model specific lines Line split up Line merging Parallel lines Rework Drop back Parallel lines Take out / put in Different cycle times -Seite 27-

28 Paint shop: Lead Times Case Study Probability Distribution Function 100 % 80 % 60 % 40 % 20 % Lead Time [h] -Seite 28-

29 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 Sensational improvements in respect of costumer service, flexibility and costs -Seite 29-

30 Contents Present Situation, Targets and Potentials in the Supply Chain Global Supply Chain Management in the Industry Network Management Order Management at Mass Customization Global Aftersales Systems Conclusion -Seite 30-

31 Application of SCM at Aftersales Demands Standard- & Special materials Regular Orders Rare demands Final storage Special designs Urgent demands Replenishment orders Special designs Counter purchasing Free garages Inspections Repairs Supplier Supplier Manufacturer Dealer Customer Service level High quality Short delivery time Cheap first cost prices Service level High quality Short delivery time Cheap first cost prices Instantaneuos or 24 hour delivery service high availability Immediate parts availability Quick repair Expectations Costumer requirements are met through early demand identification -Seite 31-

32 Tool-based modelling of the Supply Chain Basic strategy of the Supply-Chain (eg. parts distribution) Top-Down Distribution structure Locations Transport routes Decentralization Process definition Product line management Inventory management Supplier Manufacturer Costumer Realization EDP tools and adaption Staff training Monitoring External factors Performance key data Number Distribution Service TNR Products Product line Number Distribution Service Bottom-up Integration of customers with specific requirements within a master plan -Seite 32-

33 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 Case Study -20 % 94 % 98 % Logistics Costs Customer Service SCM leads to significant service increase as well as to costs reduction -Seite 33-

34 Contents Present Situation, Targets and Potentials in the Supply Chain Global Supply Chain Management in the Industry Network Management Start-up Management Order Management at Mass Customization Global Aftersales Systems Conclusion -Seite 34-

35 Industry Vision: The e-supply Chain Supply Chain Connect Consumer Connect Material flow Information flow Customer 2 nd Tier Supplier 1 st Tier Supplier OEM Dealer/ Service Pr. Customer Customer Customer Procurement Planning and Scheduling Forecasting Product development Direct consumer relationship Factory direct Online auto retailers Web-enabled traditional dealers The main challenge is to create a highly flexible supply chain -Seite 35-

36 Today s System: Created for Make-to-Stock Instability Forrester Batching Push Volume Time Procurement First Tier Sequence Body, Paint, Assembly Constraints Production control Dealer & market allocation Push Padding Program planning Batching Push Trading Sales Stock Discount Dealer Customer Second Tier... Quality Labor Shutdown Complexity IT Body Paint Assembly Quality Distribution Center Wrong Stock Push Visibility Dealer Push Service level Due date Specially European carmakers are already selling a lot of customer designed cars within the traditional planning and fulfillment environment -Seite 36-

37 Future Development of Online Vehicle Transaction 8 [U.S. online new vehicle transactions] 7 6 Million of units (53 million online households)??? (26 million online households) Select vehicle Find dealer and price Finance deal Close deal directly Quelle: Forrester Research -Seite 37-

38 In Future: Fulfillment with Make-to-Order Capabilities Necessary Web-enabled, real time information flow Procurement Production control Program planning Sales Dealer Second Tier First Tier Customer... Body Paint Assembly Quality Distribution Center Dealer In future supply chain production capacity will be sold apart from on stock vehicles -Seite 38-

39 Planning and Forecasting the e-supply Chain Production start Supplier OEM Supply schedule generated from OEM schedule Supply Schedule Order Schedule Supplier plan generated from the OEM forecast Planning Forecasting Supply chain specific and lead time related t* t Specified orders are scheduled Web-enabled information flow provides real time demand forecasts to all supply chain participants Consumer input via online automobile configurations improves forecast accuracy -Seite 39-

40 Scheduling the e-supply Chain Supplier OEM Dealer/ Service Pr. Customer Web Planning Schedule check Feasibility Load balancing Scheduling Change and breakdown mgt. Stock allocation Request for due date and quote Order placing Status check Order change Request for due date and quote Order placing Status check Order change Order schedule Forecast 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 Suppliers generate their schedules directly from the OEM s scheduling engine Web increases information connectivity and makes planning and scheduling applications ubiquitous -Seite 40-

41 Inventory Across the e-supply Chain [Inventory level] Inventory reduction facilitated by improved forecasting and scheduling Today In future In future - without supply side improvement Inventory reduction facilitated by transformation from push to pull Supplier OEM Dealer Customers demanding their new cars at once will still remain Exact stock allocation will be a major challenge within the new competitive environment -Seite 41-

42 Valuing in the Industry European value chain* Value proposition [Billion ] [Billion ] 116,2 61,5 341,7 Billion 4,9 2,5 1,1 Inventory 164 Back end cost savings 7,8 5 Stock-outs Mix losses Discounts Supplier OEM Dealer 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 Industry -Seite 42- * all data for 1998; **does not include start-up and spare parts potentials

43 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 -Seite 43-

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