nuggets on auto industry
TRANSCRIPT
©2012 Vector Consulting Group. All Rights Reserved.
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VCG employs the 'Theory of Constraints’ philosophy to bring about quantum jump in performance of organizations in its target industry clusters.
LEVERAGING THE POTENTIAL
RetailConsumerGoods
EquipmentManufacturing
Engineering& Construction
Automobile &Auto Components
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Nuggets on Auto Industry
©2012 Vector Consulting Group. All Rights Reserved.
Auto Industry Constraints
3
Despite putting efforts of few decades into Lean and JIT, the fact remains, that most auto supply chains have months of excess inventory hidden in warehouses of the weaker partner in the supply chain; while the stronger one manages the mess of frequent rescheduling and stock-outs.
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How to create a win-win supply chain that covers not just the supplier's supplier but also the OEM, distributer and
the retailer?
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Auto Industry Dilemma
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Current auto Industry reports suggest that the average inventory for car dealers has nearly doubled from 20 days to 40-50 days. On one hand we can blame the demand situation for this. But how is that the industry which claims to have implemented Just-in-Time is facing this situation?
#1
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Evaluating Operation Performance
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Auto component manufacturers usually tend to evaluate their operation performance by analyzing the delivery as per the monthly/weekly schedules of OEM. When the schedules are highly erratic at a daily level, the KRA is not an indication of how well one has met the needs of OEM.
The only right measure is the guarantee for availability, despite the erratic schedules.
#2
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Selecting the Right Partners
7
It is high time Auto companies realize the fact that proximity is not just a matter of geography.
The ability of a partner to react to the changing requirements is dependent not on the geographical distance but on the level of inventory between the two entities.
#3
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Inventory Management
8
Auto companies produce according to market forecasts and like any forecast it isn’t exactly accurate.
But at the same time, they want JIT delivery of components. Resultant effect is high inventory at the component vendor’s warehouse.
#4
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Inventory Management
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Most auto OEMs have very low component inventory where there is maximum chances of aggregation, while they have
much higher level of finished goods inventory.
#5
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Inventory Management
10
Auto manufacturers ignore the fact that if inventories are pushed on to the dealers, it makes them incapable to respond
to the market needs.
#6
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Wrong Assumption of Implementing JIT & TPS Principles
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By asking the suppliers to keep the excess and unwanted component inventory at the transporter's godown, while having lean inventory of components in their shop-floor, most auto OEMs tend to think that they have implemented the principles of JIT and TPS.
#7
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Wrong Assumption of Implementing JIT
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Just by moving the component inventory Just in Time from the transporter warehouse to assembly plants, OEMs can’t claim to
have implemented JIT.
To get the real benefits the principle of pull has to be implemented in the entire supply chain.
#8
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JIT Approach
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Just-in-time means that, in a flow process, the right parts needed in assembly, reaching the assembly line at the same time they are needed and only in the amount needed. A company establishing this approach throughout can approach zero inventories. From the standpoint of production management, this is an ideal state.~ T. Ohno
Most Auto companies have taken the above statement literally and implemented the pull system only between the vendor warehouse and their assembly point, while at the distribution side, it is a typical push system.
#9
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