Managing the links between manufacturing and logistics service

Transcription

1 Abstract no Managing the links between manufacturing and logistics service Yong Lin 1, Jing Luo 2, Shihua Ma 3, Li Zhou 4 1,2,4 School of Business, University of Greenwich, 30 Park Row, Greenwich, London, SE10 9LS, UK 3 School of Management, Huazhong Univeristy of Science & Technology Wuhan, Hubei, China, [email protected], 2 [email protected], 3 [email protected], 4 [email protected] POMS 22 nd Annual Conference Reno, Nevada, U.S.A. April 29 to May 2, 2011 Abstract As the product variety increased in the automotive manufacturers, the boundaries of manufacturing and its correspondent logistics services become increasingly complex and vague over time. This paper aims to develop a framework to effectively design and manage the manufacturing-logistics service links between the automotive manufacturer and its logistics provider. The results identified and categorized the links into three layers, including product-services links, manufacturing process-service delivering process links, and manufacturing information system - logistics information system links. Enabling approaches and mechanisms to coordinate and manage the links to facilitate the 1

2 interactions between manufacturer and logistics provider are summarized to provide practical directions to operations managers. Case study is conducted within the context of Chinese automotive industry. Data are mainly collected through semi-structured in-depth interviews, field visit and other secondary documentations are used as well. Keywords - Manufacturing, Logistics, Service, Link, China Introduction Logistics is regarded as one of the enablers of the successful manufacturing operation. In particular in the automotive industry, with its complex product and manufacturing process, outsourcing logistics activities to third party logistics (3PLs) providers (Bask, 2001) plays a critical role in automakers operations management. Due to the different operational natures of these two industries (manufacturing and service industries) and increased product variety in the automotive industry, not only the boundaries between products and services, and its correspondent manufacturing processes and service delivering processes, but also the boundaries between manufacturing information systems and logistics information systems become increasingly complex and vague over time. Effectively designing and managing the manufacturing-logistics service links plays a critical role in the success of both the automaker and the 3PL provider. This paper aims to explore how to effectively define and manage the manufacturing-logistics service links to improve operational efficiency and gain competitive advantage in both the automotive manufacturing industry and logistics 2

3 service industry. Enabling approaches and mechanisms to coordinate and manage the links to facilitate the interactions between manufacturer and 3PL provider are summarized to provide practical directions to operations managers. Literature Review Along with the globalization of the economy, logistics is increasingly reviewed as essential to the firm s success of global manufacturing (Fawcett, 1992), and it is regarded as a strategic weapon to achieve competitive advantages. Furthermore, the logisticsmanufacturing interaction (Fawcett et al., 1993; 1995; 1997) plays fundamental role to the competitive and financial performance. Funk (1995) evaluates the impacts of the logistical complexity on JIT manufacturing implementation and its organization structure. A design method is developed to design manufacturing and distribution structures for multinationals (Vos, 1997). With the increasing importance of logistics in the manufacturing company s operational performance, inter-functional links between logistics and other functions are broadly studied. In the literature, most of the research are focused on the links between logistics and marketing (Lynagh and Poist 1984; Voorhee, et al. 1988; Murphy and Poist 1994; Kahn and Mentzer 1996; Stank, et al. 1999; Ellinger, et al. 2000; Gimenez and Ventura, 2005; Lyncha and Whickerb, 2008), and links between logistics and purchasing (Bowersox and Daugherty 1987; Buxbaum 1995; Pearson et al., 1996; Christopher and Towill 2001; Fawcett and Magnan 2002; Cole and Baron 2003; Pagell, 2004; Ashenbaum and Terpend, 2010). 3

4 In the era of supply chain management, inter-organizational links between two or more firms are valuable to optimize both internal and external operations in both companies, the focus on links should also be extended from internal to supply chain context (Peck and Juttner, 2000). Stefansson and Russell (2008) identify two types of supply chain interface: physical interface and information interface, and show how they are critical important to buyers, receivers, carriers, and 3PLs to achieve high efficiency in supply chain management. Within the automotive industry, outsourcing logistics to 3PL is a common practice, which ensures the automaker can focus on manufacturing. Due to the product variety and complexity, the operational activities of both manufacturing and logistics delivering are also very complex. Moreover, the information flow and its management are correspondently complex, in particularly different information system adopted in manufacturer and 3PL provider is a big challenge for their collaboration and performance improvement. This paper will focus on the inter-firm links between manufacturer and 3PL provider from the views of product/service, process, and information system. Methodology Case study method is adopted to address the contemporary nature of the research questions (Yin, 1994). The case in this research is defined as a supply chain with a 3PL provider A and its customer the auto manufacturer B, both from east of China. Company A is a leading logistics company in China but only starts providing automotive logistics service 5 years ago. Company B is a leading truck manufacturer and is acquired by a top 4

5 3 auto group company in China. The case choice satisfies the requirements of significance for case selection. Data are mainly collected through semi-structured in-depth and focused interviews, and field visit and other secondary documentations as well. The interview detail is listed in Table 1. Table 1. Interview list Company Interview Number of Average time Average time Role of interviewee type interviewee (hrs/person) (hrs) Focused CEO interview CFO Transportation 3PL provider manager (Company A) In-depth Warehouse interview manager IT manager CFO responsible Focused for supply and interview logistics management Manufacturing manager Manufacturer Logistics manager (Company B) who responsible for In-depth inbound logistics interview Planning manager who responsible for information management Total Total interviewee 18 Total hours 107 hrs The interviews are conducted with a pre-designed guideline to ensure the data reliability and construct validity (Yin, 1994). Two types of interviews, focused interviews and in-depth interviews are adopted to extract personal insights from the top level managers and operational, technical and procedural issues from middle level. All the collected data are coded and cross verified with other sources. Findings 5

6 With the case study results, three physical links and three information links between manufacture and 3PL are identified as shown in Figure 1. In this research, only 3PL provider and manufacturer are included, the supplier are excluded, which could be one of the future research direction with further case study. 3PL provider (A) Automaker (B) Logistics planning system Manufacturing planning system Logistics executive system (1) Logistics executive system (2) Manufacturing scheduling system In-transit warehouse Central warehouse Daily delivery Assembly line Sub-Assembly line Regularly delivery Daily delivery Physical Flow Information Flow Physical Link Information Link Figure 1. Supply chain mapping of the case 1) Product/service Company A and B are both leading company in their own industries. After being acquired, company B starts producing new products designed by the R&D department in its father company, which is far different from their previous products. Hence company B 6

7 is still in an early stage of the learning curve, even they have two product engineers, two manufacturing engineers, and one quality engineer from the father company to offer supports, but the manufacturing and logistics support from the previous logistics providers are not in a mature stage. That is the reason why company B choose A as the logistics service provider to improve logistics efficiency and enhance manufacturing performance. Company A is a leading logistics company with over 30 year histories of providing transportation and warehousing services to auto component suppliers. With the most recent strategic plan, company A decides to expand their business to automotive industry. These two companies are located in the same city, when company B send enquiry to A, they are quite happy to get on board with company B. Due to the first time directly providing services to automaker, company B works hard to make sure the logistics service is matched with the product characteristics. For example, they start using flat truck to delivery components to company B to satisfy the JIT (Just-in-Time) production demand. That means high frequency (hourly, or every 15 minutes) and small batch (even only one package unit) delivery, and it is quite different from their traditional logistics services to other industry customers, which are regularly (daily or weekly) and bulk (normally full truckload) delivery. Furthermore, company A organizes a team with five logistics engineers to understand the products and production processes in company B, and then redesign the logistics services and solutions together with the engineers from company B. 2) Process 7

8 With JIT logic applied in company B, all the required components and modules are delivered with a punctual schedule following the manufacturing pace. Hence company A has to redesign their slow pace process to catch up with the fast pace process in company B. For example, as required by company B, company A builds a small assembly line to complete some sub-assembly processes to deliver ready-to-assemble modules to the final assembly line in company B like other components daily delivered. In order to improve the responsiveness, company A cuts many approval processes to shorten the response cycle time, and line managers have been authorized with more power to quick response to any emergent situation, such as quick-in order, quantity or time changes, transport accident, and quality complaints. After re-engineering the processes of logistics service delivering, including order processing, transportation, inventory management, warehouse management, and material handling, the service processes are more seamlessly linked with the manufacturing process. As described in Figure 1, there are three key links between 3PL provider and automaker, including the link for daily delivery, daily delivery with sub-assembly, and regularly (weekly) delivery. 3) Information management Accompany with the process changes, there is a big challenge in company A, they have to redesign the information system to make sure the seamless information sharing. For example, company A only checks the inventory level weekly, but with the requirements from company B, they should have the real-time inventory information to make sure they can quickly replenish the inventory when the inventory level reaches the re-order point. 8

9 Hence company A asks its warehouse management software supplier to develop new functions in the software to achieve real-time inventory information monitoring. Even this works with other new functions developed to facilitate the process reengineering, and there are several conflicts still existed and need to be solved. The most difficult part is the adaption issues of two different information systems. Company A has a logistics planning system and a logistics executive system provided by a national software supplier, and company B has an ERP system with planning and scheduling functions provided by an international software provider. Due to being developed by two different programing languages, these two systems are not adaptable with each other. Fortunately, both company A and B are positive working on solve this problem. They work with the original software providers to develop several interfaces to link these two systems together to ensure the seamless information sharing. The interfaces perform linking function at three levels including, monthly planning level, weekly scheduling level, and daily executing level (see Figure 1) Discussions and the framework of the manufacturing-logistics service links The major purpose of this research is to identify the links between manufacturer and 3PL provider and to explore how to effectively design and manage the performance of these links. The results show there are three key types of links separately in three levels of product/service, process, and information management. Based on the case study results, the manufacturing-logistics service links are summarized in the framework presented as in Figure 2. 9

10 Logistics provider Manufacturer Product/service Services Links Product Process Services delivering Links Manufacturing Information Management Logistics information system Links Manufacturing information system Figure 2. Framework of the manufacturing-logistics links Types Product/service Links Dimensions Product/service specification New product/service design Process Daily deliverymanufacturing process Information management Daily deliverymanufacturing process with subassembly Regularly deliverymanufacturing process Management process Table 2. Managing the links Link specification The link sharing the product specification and service specification The link between new product and the correspondent new logistics service design The link between the daily (hourly, quarterly) delivery and the final assembly process The link between the daily (hourly, quarterly) delivery after sub-assembly and the final assembly process The link between the regularly (weekly, every two days) delivery and final assembly process The link between management process dealing with emergent situations Information flow The link between the logistics information flow and manufacturing information flow Information tools The link between different information tools used in 3PL and automaker Information system The link between different information system Enabling technique Strategic relationship with information sharing Get 3PL provider early involved into the new product design, and working with 3PL to help in its service design Real-time inventory information sharing, information visibility Real-time inventory information sharing, information visibility Inventory control and monitoring Close collaboration between the middle level managers Planning, scheduling, and executing information sharing Collaboration on adopting new information technologies Well-defined interface between different software system Management implication Top management support and involvement is helpful to effectively manage this strategic links. Work together to design product and service. Work together to design and reengineering the logistics service processes. Collaboration between two companies at the middle level. Process integration in company level. Positive attitude is necessary to problem solving on the links between two different information system Interface sometimes is needed to link information two systems 10

11 Based on this framework and case study results, the link specification, enabling technique, and management implication are summarized in Table 2. Link specification specifies the boundary and defines the links, enabling technique includes the approaches and mechanisms to coordinate and manage the links to facilitate the interactions, and management implications are summarized to provide practical directions to the product/service designers, process engineers, and operations managers. Conclusions This paper conducts a case study to explore the links between manufacturer and 3PL provider within the context of automotive industry. As the forefront nature of the research questions, the research results are believed to contribute both academics and managers. This research will contribute to theory by establishing a framework for better understanding how the manufacturing-logistics service links are defined and how it can be effectively managed. It also suggests some guidelines for further research. In addition, the research results, in particular the proposed framework and the management implications provide practitioners with some implementation directions. Reference Ashenbaum, B. and Terpend, R. (2010), the purchasing-logistics interface: a scope of responsibility taxonomy, Journal of Business Logistics, Vol. 31, No. 2, pp Bask, A. H. (2001), Relationships among TPL providers and members of supply chains - a strategic perspective, Journal of Business & Industrial Marketing, Vol. 16, No. 6, pp Bowersox, D. J. and Daugherty, P. J. (1987), Emerging Patterns of Logistical Organization, Journal of Business Logistics, Vol. 8, No. 1, pp Buxbaum, P. A. (1995), Linking Purchasing and Logistics, Distribution, Vol. 94, No. 1, p

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