global logistics & supply chain management -...
TRANSCRIPT
1
Global Logistics & Supply Chain
Management
Contents Part A............................................................................................................................................................. 2
1. Calculation of Economic Order Quantity and Reorder level ................................................................. 2
2. Calculation of the Economic Review Period in weeks and maximum stock Level ................................ 3
3. Advantages and disadvantages of Re order Level System and Reorder Cycle System ......................... 4
Part B ............................................................................................................................................................. 6
Introduction .............................................................................................................................................. 6
2.1 Importance of Logistics and SCM in the dynamic environment of automotive sector. ..................... 6
2.2 Contribution of ‘Postponed Manufacturing’ and ‘Postponed Purchasing’ to the dynamics of supply
chain integration. ...................................................................................................................................... 9
2.3 The impact of the ‘modular’ supply chain concept at both MCC and the VW Resende Plant in
Brazil. ....................................................................................................................................................... 12
2.3.1 Impact of modularization in MCC .............................................................................................. 12
2.3.2 Impact of modularization in VW Resende Plant in Brazil .......................................................... 13
References .............................................................................................................................................. 14
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Part A
1. Calculation of Economic Order Quantity and Reorder level
Economic Order Quantity (EOQ)
According to Kamal (2009) economic order quantity is the inventory related equation,
which is applied for minimizing inventory holding costs and ordering costs of a
company.
Economic Order Quantity (EOQ) calculation:
Bought-in cost or the purchase cost = £40
Hence, Annual cost of holding one unit = 10% of £40,
= £4
Ordering cost per order = £15
Therefore EOQ = √ (2 * annual quantity * ordering cost / carrying cost)
= √ (2 * 40*48 * 15 / 4)
= √ (14400)
= 120units per order.
As per the above problem, the EOQ of garment retailer is 120 units per order, which
means the quantity of material to be ordered by garment retailer at one time is 120 units
so as to minimize cost of ordering and carrying the stock.
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Reorder level, M
According to Halderman (2011) reordering level is the level at which garment retailer
need to place new order.
Reorder level, M = (Annual demand * Lead time) + k (standard deviation * SQRT of
lead time), where k= 1.75
= (1920*1) + 1.75 *7.25 *1
= 1920 + 12.6875
= 1932.69 units
As per the above stated problem, the re order level of garment retailer is 1932.69 units.
At this level, the production and processing in the garment retailing may not stop
functioning due to shortage of raw materials.
2. Calculation of the Economic Review Period in weeks and maximum stock
Level
Economic Review Period
In the view of Gobetto (2013), economic review period is the period at which, the
company need to make review on their inventory for eliminating and reducing the
abundance and insufficiency of stocks.
Economic review period, R = Annual weeks / r,
Where, r = √ (annual demand * ordering cost / 2* carrying cost)
= √ (1920 * 4/ 2 * 15)
= √ (256)
= 16
4
Hence, Economic review period, R = 48 / 16
= 3 weeks
As per the above stated problem, garment retailer need to review the stocks in every 3
weeks.
Maximum Stock Level
This is the stock level, over and above which the organization must not maintain any
more units of inventory, says Gobetto (2013).
Maximum stock Level, S
= weekly demand (R + lead time) + k * standard deviation * √ (R + lead time)
= 40 (3+1) + 1.75 * 7.25* √4
= 40 * 4 + 25.375
= 184.375 units
3. Advantages and disadvantages of Re order Level System and Reorder Cycle
System
Reorder level system
Advantages
This method is suitable for different types of stocks within the same business.
Inventory related costs can be minimized through EOQ model
Optimal reorder quantity and appropriate reorder point can be calculated through
EOQ model to ensure prompt replenishment of inventory without shortages.
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It is suitable for organizations like retail garment sector, in which the owner can
take decisions about how much inventory to order each time and how much to
keep on hands etc.
Disadvantages
Variable demand, ordering costs etc may sometime leads to the non accuracy of
EOQ calculation.
The EOQ calculation may goes wrong, and creates issues to the inventory
management of the garment retailer , during the situations of varying demands or
changing ordering cost re-order occurs.
Reorder Cycle System
Advantages
The periodic analysis of inventory in cycles reduces the accumulation of outdated
stocks.
The garment retailer will be provided with larger discounts from the suppliers,
when the products ordered are in larger quantities.
Disadvantages
The calculation of reorder quantities are not up to the optimum level of calculated
EOQ
Varying needs and demands leads to the complications in setting appropriate
periods for review.
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Part B
Introduction
In the view of Gobetto (2013) being world’s largest industry, the automotive industry
contributes their best for the critical development of nation and for the prosperity of
global economy, through their single manufacturing activity. The liberating technology
and constantly changing nature of automotive industry generated revenues in the record
level. Halderman (2011) states that, the extensive interconnection of automotive
industry with various industries and culture fabric played pivotal role in the development
of the economy. As a result of globalization, the manufacturing costs exhibited slight
rise and demand graph found to be shifting in this industry. In order to establish new
markets in the potential areas, the supplier, distributors and dealers are always
searching for the opportunities.
In the view of Biesebroeck and Sturgeon (2010) the efficient logistics and supply chain
management (SCM) essential for automotive industry are made with the effect of
globalization and through the above stated variations in the manufacturing and demand
graphs. The importance of logistics and supply chain management in the automotive
industry will be evaluated in this study based on the topic ‘Individual analysis of Smart
Car and Smart Logistics at MCC case study’.
2.1 Importance of Logistics and SCM in the dynamic environment of
automotive sector.
According to Samson (2011) the pattern of automotive industry flows starts from
supplier to manufacturer, then to wholesaler, then to retailer and finally to customer. The
SCM in this industry deals with direction and control of materials; finances required etc
are handled by the SCM in the organization, when the business flows from one party to
another. In the view of Sinha (2011) the elements such as planning, execution and
control of all the activities related to the flow of goods between the parties is managed
by the logistics, which is the core part of SCM in the organization.
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According to Blanchard (2010) as a result of globalization the automotive industries
monitors the strategic techniques of potential competitors while considering the varying
needs and wants of customers everyday and this current scenario resulted to the failure
of segregation of any organization from the automotive sector. The impacts on
automotive industry are mainly from global economic trends, advanced technologies,
competitions etc.
According to Sturgeon et al. (2009) the net outcomes of globalization, privatization and
liberalization made the automotive industry as highly competitive industry. The major
contributions made by globalization, privatization and liberalization to automotive
industry consists of factors such as availability of raw materials, low tariffs, convenient
transportation facilities, delivery facilities, improved communication etc. According to
Leeman (2010) with the result of globalization, the availability of products and services
increased due to increase in the customer needs and wants. In order to fulfill the
requirements of customers, the automotive industry begins to move global with supply
chain management and logistics. The automotive industry is capable to innovate and
develop their idea in one nation, manufacturer it in another nation and sell the end
products to some other nation.
In order to improve the quality and to reduce the costs, the need for restructuring the
internal business process and integration of operations with the help of SCM and
logistic emerged due to the combined effect of above stated matters. In the view of
Boyer and Verma (2009) introduction of new products and services is carried out rapidly
in the automotive industry due to enhanced manufacturing technology and assurance of
fast progressing of product availability everywhere in the global markets. According to
Kotabe and helson (2014) the automotive industries have gained degree of
consideration among other similar organizations with the help of their SCM and logistics
tools. The SCM and logistics tool of automotive industry is capable enough to identify
and meet the external demands such as customer’s needs and grievances.
In the view of Shah (2009) the supply chain management is the integral part of
automotive industry for increasing their operational efficiency. This strategic tool
undertakes all the essential activities related to manufacturing, warehousing, and
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transportation, distribution, marketing and sales of the products of an organization. In
the view of Sturgeon et al. (2009) before getting transformed in to final products, the
automotive industry deals accessory parts and with the raw materials needed for
molding components such as steel, glass, alloy, rubber, plastics etc. According to Boyer
and Verma (2009) the management of the activities carried out in the industry and
actual delivery of finished goods to end consumers at their location are the major
functions performed by the SCM and logistics in the automotive industry.
In the view of Kamal (2009) the SCM and logistics have benefited the automotive
industries to rank top among other organization, with the increase in the inventory
turnover about 18.2% and through increases in the best delivery of about 97%. Boyer
and Verma (2009) states that, even though automotive industry highly relies up on its
assets, materials, and labor, the application of SCM and logistics plays pivotal role in
enhancing the operational planning and execution of the plans at every level of the
industrial activities.
In the view of Kotabe and helson (2014) the automotive supply chain management
consists of three categories namely, Tier 1-3 (suppliers of components), Car
manufacturers (referred as OEM) and Retailers (distributors and dealers).
Synchronization of supply with the demands of customers, effective utilization of
inventories and elimination of wastes are the major functions carried out by SCM in
automotive industry.
From the view of Sturgeon et al. (2009) it is revealed that, Information and
Communication Technology, also known as ICT is the recent innovation in the logistics
of automotive industry. The global communication between manufacturers and suppliers
is enhanced with the effect of this innovation. The ICM benefited the automotive
industry to pass clear and concise communication between numerous customers
located at multiple areas and also this innovation benefited the industry to enhance the
internal business systems of the suppliers. With the help of ICM responses, services,
feedbacks, reviews are quickly made than before.
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It is observed from the case study that, in order to reduce cost and time along with the
improvement of quality in product and services, the MCC has chosen to outsource the
supply chain management activities in the organization. As stated before by Boyer and
Verma (2009) it is the SCM, which enabled the MCC to procure materials and supplies
from distant and multiple areas through various suppliers.
From the case study it is found that, MCC consists of 140 assembling activities.
According to Boyer and Verma (2009) a detailed plan which includes the activities and
duties of every process or party is constructed by MCC for the SCM of the company,
and this road map enabled MCC to process with manufacturing and assembling
activities at respective rates. Dynamite Nobel, Bosch, Magna Door Systems, Krupp etc
are the various suppliers delivered by MCC with the help of their SCM in the company.
While analyzing the case study, it is revealed that, the efficiency of SCM in MCC
ensured 80% of smooth flow of supply which is around 40% of product value from the
seven integrated suppliers of the company. It is similar with the case of non integrated
and other suppliers of MCC.
According to Golinska (2013) the free flow of communication takes place between
employees, distributors, suppliers, partners and customers situated at multiple
locations, by the MCC, with the help of ICT, and it is evident from the analysis of
logistics in company. By making use of ICT, the company identifies the suppliers, who
maintains lower level of quality and thereby MCC stops the lifetime contracts with them.
The logistics system in MCC calculates the frequency and size of every module and
helps the company to evaluate and analyze the volume of output of each component.
According to Boyer and Verma (2009) advancements in automotive supply chain
management and logistics and latest technological innovations are inevitable in the
strategic concern of every organization, and this fact is concluded from the case study.
2.2 Contribution of ‘Postponed Manufacturing’ and ‘Postponed Purchasing’ to
the dynamics of supply chain integration.
According to Golinska (2013) it is the automobile sector which emits wastes, gases and
other factors, which makes the environment highly polluted. The current approach of
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industrial world gives more emphasis on the customer- friendly and eco- friendly
approaches and this truth is to be specially mentioned in case of automobile sector.
According to Kotabe and Helson (2014) the extreme competition in the automotive
sector made the companies to customize their products at highly competitive prices.
The competitions among the organizations in automotive industries to meet customer
demands and needs through customized products and competitive pricing leads to
company’s additional cost and time and have great impact on the profitability of firm.
This scenario paved the way for the idea of Postponed manufacturing and Postponed
purchasing, in the automotive sector.
According to Kotabe and Helson (2014) various factors must be taken in to
consideration, especially, if the automotive organization is involved in the car
manufacturing sector. Even though the customers have alternate choices, the colors of
the models have great influence on the selection of customers. According to Joshi
(2013) the dealers of the cars are required to maintain colors of models around eight.
This leads the manufacturer to produce eight times the different inventories. The current
scenario is solved with the help of postponed manufacturing process.
According to Joshi (2013) postponement strategy makes delay the creation and delivery
of final product. Until the order is placed by the customers for the customized products,
the SCM in organization makes delay on the processes carried out to create the
products. This method is known as postponed strategy. Sehgal (2010) mentions that,
reducing the multiple inventories at various stages of SCM and avoiding the activities
considering the future orders are the main reason behind the concept of postponement
strategy. Postponement manufacturing and postponement purchasing is mainly
considered in this part of the study.
In the view of Zott (2010), the supply chain will be more differentiated, when the
products move down the supply chain. This concept is achieved, when the products or
models move from point of departure closer to point of purchase.
The requirements needed at the each stage of processing are maximized with the
application of value added service in the postponed manufacturing process. In the view
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of Shah (2009) with the reduction of complexity of manufacturing process, the
integrated supply chain management is benefited by postponed manufacturing process.
In the view of Chopra and Meindl (2012) the decisions associated with particular
demand by respective customers or the parties is essential for both the processes of
postponed manufacturing and postponed purchasing. These processes have both
advantages and disadvantages. Reduction of the errors, that are emerged during the
period of forecasting and the availability of variety of products are the major advantages
of postponed manufacturing and purchasing.
From the case study, it is revealed that, the MCC, even in a flow- shop style, assembles
the cars with respect to needs and wants of customers and provides them with the
customized cars. With reference to Zott (2010) the supply chain of MCC is flow down ,
due to the differentiation of body parts, and the customization of cars according to
demands of customers are done by the ‘Smart Centres’. The risks associated with
variety and inventory is reduced with the help of postponement manufacturing. The
virtual specification of Bill of Material is carried out by the customer, and thus the lead
time of customers in MCC comparing with VW is considerable less. The application of
principles of postponement in the plant layout design of MCC benefitted the company to
have control over the processes and material flow, which leads the MCC to keep low
inventory in a JIT (Just-in-time) environment).
In MCC, the modules are brought in to the company also when the final assembly
process starts. The manufacturer starts to assemble the modules just 1.5 hours before
the final assembly process. In the view of Feng and Zhang (2013) postponement
purchasing in MCC reduces the complexity in manufacturing process. The main benefits
of this approach include elimination of wastage of inventories, time and cost saving,
better product customization, effective utilization of resources etc. In the view of
Rushton, Croucher and Baker (2014), postponement purchasing strategy enables the
company to deliver the future demands and customer specifications and product
expectations in detail with more accuracy. According to Zott (2010) the postponement
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purchasing approach benefits the company to save their time for future innovations and
to identify the potential needs of customers for the improvement of their products.
2.3 The impact of the ‘modular’ supply chain concept at both MCC and the VW
Resende Plant in Brazil.
According to Feng and Zhang (2013) coordinating with the suppliers to deliver the
products within short time frame is known as modular supply chain management. In this
process, the complexity and speed of manufacturing process benefits the suppliers to
create and develop the components quickly.
2.3.1 Impact of modularization in MCC
In the view of Danese, Romano and Bortolotti (2011) MCC considers outsourcing as an
important approach in their industry, and for their enhancement of efficiency, the
company integrates their suppliers in to smart plant. The suppliers prepare main
modules, that are assembled by the MCC’s employees on the chain and thus the
outcomes and investments are proportionally shared between MCC and module
suppliers.
According to Feng and Zhang (2013) the modular supply chain consists of tier 1 to 3
suppliers and OEM. The tiers represent commercial difference between manufacturer
and suppliers. The tier 1 suppliers make own designing decisions and engineering
structures with the guidance of development center where as tier 2 procures parts for
the assembling of the products and provide it to tier1. When the tier 1 develops and
assembles the product using the component parts received from tier 2, the manufacture
and deliver of the final product is completed. With the help of this concept, the MCC can
create finished vehicle quickly and can easily make available for delivery. The essential
components for constructing the products such as dashboard systems, seating
modules, break control systems; ABS, complete frontier rear ends etc are easily made
available by the module suppliers of MCC.
According to Zott (2010) the implementation and resigning of products with complex
functions can be easily developed in MCC within short time frame through
modularization concept. Modularization of suppliers in MCC increased their quality in
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products and improved the dynamic flexibility of production. The modularization in the
MCC is technologically advanced and cost efficient and have lesser lead time
approximately two to three week while comparing with VW. The major benefit of
modular concept in MCC is, the manufacturer is able to prepare car with more
efficiently, by meeting all the needs and specification of customers, with least cost and
time. The least cost production helped the MCC to introduce smart car in the market
with moderate rate.
The demands of MCC in markets have simultaneously increased, with the increase in
customer demand. In the view of Danese, Romano and Bortolotti (2011) the major
impacts of modularization in MCC includes, reduced face to face communication,
financial risks, ownership and partnership conflicts, logistics constraints etc.
According to Rushton, Croucher and Baker (2014) the reduced frequency of face to
face communication, between integrator and module providers indulged in designing
and implementing process of products and components leads to central issue for the
organizational flexibility. The company keeps observation on the overall management of
the company, whereas the modular suppliers undertake all the tasks starting from the
development of the product to the finishing stage. Thus the company and suppliers
have equal value in the performance of the company and this leads to emergence
conflicts related to the ownership and partnership among company and the suppliers.
According to Rodrigues (2014), the market changes and viabilities lead to the
emergence of logistics constraints in the company.
2.3.2 Impact of modularization in VW Resende Plant in Brazil
According to Rodrigues (2014) the modular consortium in the Resende plant, Brazil, the
Volkswagen (VW) reduced the labor costs and increased their efficiency in assembling
the body parts of the products. The fractal concept of modularization allocated the
employees in the VW in to eight subcontracting firms; in order perform the tasks
assigned to them. Supply of components, coordinate the final assembly, installation
process etc are the functions performed by the modular suppliers in VW for the delivery
of their products within the short time.
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VW have entered in to the contract with the three suppliers namely US, Japan and
German companies. In the view of Danese, Romano and Bortolotti (2011) the tasks can
be carried out in parallel to one another and the ability to produce the modules
independently of each other are the main benefits of modularity in production. The 7
modular workshops of subsystems of VW bring component suppliers in to factory for
assembling the products, at least cost and time.
The VW acts as only an external observer, and all the integral activities were performed
by the modular supplier of the company. According to Boyer and Verma (2009) all the
activities, beginning from the development of the products up to finishing stage is done
efficiently by the suppliers of the modular concept of VW. Even though the VW and the
suppliers have the equal role in the development of the products, the conflicts related to
ownership and partnership arises.
According to Sharland (2012) logistical constrains are one of the impact of
modularization. The downsizing of economy during recession, significantly impacts the
logistics and manufacturing capability of the VW. The shortage of parts, non availability
of materials, reduced customer demands will affect the functioning of modular suppliers.
The automakers cannot afford the immediate changes in the market condition and so
thus current scenario hugely impacts the logistics capability of VW.
According to Sharland (2012) the modularization in both MCC and VW helped the
companies to gain competitive advantage in the global market. This concept improved
the cooperation of suppliers and co workers involved in the process of production and
assembling of the products. The modularization concept provided more advantages to
MCC than the VW.
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