UCL. Advanced Supplier Parks: smart Hambach. Université catholique de Louvain Louvain School of Management / CESCM JCAL 15 FELUY, BELGIUM

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1 UCL Université catholique de Louvain / CESCM JCAL 15 FELUY, BELGIUM Advanced Supplier Parks: smart Hambach Per AGRELL per.agrell@uclouvain.be

2 Outline Supplier parks Smart Product concept System partners Assembly Investment policy Incentive alignment Support functions Logistics Some hindsight analysis Summary 2 UCL/LSM/CESCM/AGRELL

3 Supplier parks Cluster of suppliers located adjacent to or close to the final assembly Single logistical node in the OEM supply chain Common facilities management Coordination options for Parts inventories Information systems Support functions: Catering, human resources, 3 UCL/LSM/CESCM/AGRELL

4 Why supplier parks? Cost reduction in logistics Labor cost reductions Productivity increases 4 UCL/LSM/CESCM/AGRELL

5 5 UCL/LSM/CESCM/AGRELL

6 Structure and Supply Chain 1. Maximum simplification of MCC s management: One headquarter in Bienne One production site, Hambach One technical center Few representatives 2. Simplified manufacturing process Five sub-assembly modules 3. Easiest adaptation to customer choices Cost-Volume-Profit CVP Analysis Dealer network Internet sales 6 UCL/LSM/CESCM/AGRELL

7 The modular concept: body panels 7 UCL/LSM/CESCM/AGRELL

8 ForTwo 3 rd generation 8 UCL/LSM/CESCM/AGRELL 70% part commonality with Renault Twingo III Renault gasoline engines Smart Hambach plant

9 Supplier integration Onsite suppliers Magna System Chassis (the spaceframe) Magna Unipart (doors) Surtema Eisenmann (the paint shop) Plastal (plastic body panels) Mannesmann VDO (cockpit) ThyssenKrupp Automotive (powertrain and rear axle) Cubic Europe (surface decoration) Offsite suppliers (close to plant) Faurecia (seats) Continental (tires) 9 UCL/LSM/CESCM/AGRELL

10 Smartville layout, Hambach 10 UCL/LSM/CESCM/AGRELL

11 Inbound supply Delivery of modules by a system partner for assembly E.g the whole back part of the car with the engine Delivery of parts by a system partner for assembly E.g., the body panels intended to be fitted onto the car body Delivery of parts by an external supplier for assembly E.g., AC units Delivery of small parts to partners for assembling their modules E.g. bolts, (average rotation speed: 3 days) 11 UCL/LSM/CESCM/AGRELL

12 Assembly line performance Assembly time/car 4.5 hours Assembly stations 140 Cycle time 102 s Employees in assembly UCL/LSM/CESCM/AGRELL

13 Body shop 137 robots 108 body components 2,300 welding spots 13 UCL/LSM/CESCM/AGRELL

14 Production planning Three week frozen, rolling horizon Quoted delivery time: 3-4 weeks WIP 8h of prod: cars Finished cars 4-5 days of prod 2,500 cars Order regime: ATO + dealer replenishment Demand season: April-June ERP system Baan 14 UCL/LSM/CESCM/AGRELL

15 Just in time Just in time No incoming inspection, no part registration by smart 70% of components enter assembly buffer without stockage Modules are made on-site, conveyer to assembly line Just in sequence Exact sequence set one day ahead Module production time: up to 10 days Assembly flow time : 4,5 h 15 UCL/LSM/CESCM/AGRELL

16 Infrastructure Plant area 695,000 m2 (2013) Buildings 150,749 m2 (2013) All owned by common holding company Leasing to all users including smart! Strict centralized environmental design criteria Construction materials, water, energy, noise, 16 UCL/LSM/CESCM/AGRELL

17 Principles for incentives Onsite suppliers cannot supply offsite Pay on sell-through ATO, payment after final test Supplier owns all process inventory Supplier owns all specific equipment MCC reimburses annual depreciation Holding company owns all land and buildings: leasing Dealer take ownership after 24h 17 UCL/LSM/CESCM/AGRELL

18 Customized supplier deals Each supplier is different The details of their agreements are customized ThyssenKrupp Smart owns parts, subcontractor for module assembly Plastal Smart holding owns machines and buildings 18 UCL/LSM/CESCM/AGRELL

19 Electrical smart Source: 19 UCL/LSM/CESCM/AGRELL

20 Capacity utilization Standard capacity ,000 cars/yr Hambach volume 98,239 cars (2013) 20 UCL/LSM/CESCM/AGRELL

21 Investments for ForTwo Electrical Total budget: 200 MEUR Daimler 100,000 h of training New paintshop 50 MEUR (2013) Suppliers: Panopa: + 2,770 m2 warehouse Magna Chassis 1 new assembly line ThyssenKrupp 2 new buildings Plastal stock 17,000 to 26,000 m3 21 UCL/LSM/CESCM/AGRELL

22 Human resources Smartville staff 1,500 (2,200) (750 Daimler) Common access to market place and cantina No smart access to suppliers premises Each supplier responsible for social policy and contracts HR conditions similar or identical, in particular holidays smart HRM leads HRM meetings for 11 suppliers. 22 UCL/LSM/CESCM/AGRELL

23 Smart logistics partners Rhenus Parts to assembly TNT Spares & accessories Mosolf Delivery of cars Panopa Internal logistics Consolidated shipments 23 UCL/LSM/CESCM/AGRELL

24 ForFour 2 nd generation Partnership Renault-Daimler Platform Renault Twingo III Renault plant Novo Mesto (Slovenia) 24 UCL/LSM/CESCM/AGRELL

25 smart models smartville City-Coupé Smart K (JP) City-Coupé Fortwo smartville new lines Roadster Crossblade 2002 Fortwo ED NedCar Forfour UCL/LSM/CESCM/AGRELL 38

26 Hindsight analysis 26 UCL/LSM/CESCM/AGRELL

27 Sales start slow 27 UCL/LSM/CESCM/AGRELL

28 Financial problems Distribution Too expensive (location) for the volume Demand Stagnant in Europe (mobility problems not solved) Production Too high fixed costs (low volume utilization) 28 UCL/LSM/CESCM/AGRELL

29 Which were the growth segments in automotive #!!$!!!" Source: National Stats, BE, Belgian immatriculations,!$!!!" +!$!!!" *!$!!!" )!$!!!" (!$!!!" " '9'" '!$!!!" &!$!!!" %!$!!!" #!$!!!"!" -./0" #,,&" #,,'" #,,(" #,,)" #,,*" #,,+" #,,," %!!!" %!!#" %!!%" %!!&" %!!'" 29 UCL/LSM/CESCM/AGRELL

30 Demand changes Source: EAAuto, UCL/LSM/CESCM/AGRELL

31 Conclusions 31 UCL/LSM/CESCM/AGRELL

32 Summary The smartville plant shows a unique combination of: Postponement delays value-added operations to permit pull operations Modularity combines customization values with economies of scale in mass markets Spatial integration with dedicated infrastructure replacing inventory with information, strong internal coordination Value chain configuration aligning the interests of the suppliers with the OEM Organizational integration creating direct multi-level links and information flow, creating trust and informal collaboration, increasing speed 32 UCL/LSM/CESCM/AGRELL

33 Prof. Per J. AGRELL Center for Supply Chain Management Université catholique de Louvain POB L B-1348 Louvain-la-Neuve 33

34 Discussion questions 34 UCL/LSM/CESCM/AGRELL

35 Case question 1 Why should MCC assemble cars itself when suppliers are integrated in the site? VW for example, at its truck plant in Latin America, involves suppliers in assembly, thus further lowering the financial commitment of the OEM. In line with the question whether carmakers should assemble cars at all, or should leave this to suppliers, an interesting topic is how to assure a lead over suppliers when these perform most of the value-adding activities and how to maintain an integrated environment. One might reason that suppliers are becoming too smart and might (in a consortium or stand-alone) by-pass MCC and gain the lead over the supply chain. The LEAR Corporation, for example, is a consortium of suppliers that used to supply car-interior parts to manufacturers and is now beginning to supply entire car interiors and becoming increasingly dominant in the relation with manufacturers. 35 UCL/LSM/CESCM/AGRELL

36 Case questions 2 How can MCC control and assure performance in the supply chain, not on the basis of ownership but through co-operation with suppliers? 36 UCL/LSM/CESCM/AGRELL

37 Case question 3 MCC is heavily focused on integrating the flow of information between players and levels in the chain, but how to measure and assure the performance of partners? so, how? As another example of problem solving in a partnership, the relation with the supplier of doors was terminated after lasting quality problems. Should MCC, in case of disturbances, take over the operation and regain control, or should it stick to its policy of supplier involvement? If so, how to select a supplier shortly before the product launch? UCL/LSM/CESCM/AGRELL

38 Case question 4 On the principle that at MCC cars are produced to customer order, the order-delivery lead-time can be seen as worldclass and ahead of other manufacturers. However taking into account that a) it is by now possible to have order specific modules, for example dashboards, produced at two-hour notice; and b) the final assembly time of a Smart is less than 5 hours, one could question why a client order-delivery lead time of two to three weeks is a challenge for MCC, and why the company does not strive for shorter lead times. 38 UCL/LSM/CESCM/AGRELL

39 Case question 5 The modular product concept of MCC permits customisation of the product in the dealer-channel through production postponement. However, at present the final assembly is done at the plant in Hambach. What is the rationale behind that decision? 39 UCL/LSM/CESCM/AGRELL

40 Case question 6 An important consideration is how to cope with possible extensions of the Smart product concept in the future; how can short cycle and lead times be maintained as product variety and complexity increase? 40 UCL/LSM/CESCM/AGRELL