Supply Chain

A supply chain consists of all parties involved in receiving and filling a customer
request. It requires transformation of components, natural resources and raw
materials into a finished product that has to be delivered to the customer. Such
activities begin when a customer has placed an order and end when the customer
pays for his/her purchase. Most of the supply chains actually work as supply
networks. There has to be a constant flow of information and funds between different
stages. This makes the supply chains very dynamic in nature.
A typical supply chain involves the following stages:
Customers- The primary purpose of any supply chain is to satisfy the
customer needs, thus, a customer forms the most integral part of a supply
chain.
Manufacturers- They are the producers of the products or goods.
Wholesalers- Wholesalers are persons or firms that purchase large quantities
of goods or products from the producers, warehouse them and resell them to
the retailers. Wholesalers that carry only non-competing goods are called as
distributors.
Retailers- Retailers purchase goods from the wholesalers in large quantities
and then sell the smaller quantities to the customers. They can purchase
goods directly from the manufacturer.
Raw material/Component suppliers- They supply the primary components or
raw materials that are used by the manufacturers for production process. The
transformation process converts these into the finished products which are
finally delivered to the end customers.
Its not necessary that all these stages have to be present in a supply chain system.
There are firms like Dell that do not have a distributor, wholesaler or a retailer in their
supply chain.

Some Industries where SCM plays an important role:
Automobile industry
Mining industry
Retail industry


Executive Summary
In todays world of extreme competition Automobile Industry is witnessing a shift in
its production model. Automobile companys earlier on used to follow lean supply
chain approach wherein production was done on the basis of forecasts. This used to
result in either stock and inventory pile up in case of demand being less than
projected demand or shortage in case of unprecedented excessive demand. This
would lead to losses for both company and customers alike. In order to encounter
that companies these days are trying to focus on implementing the Agile supply
chain which is much more demand driven and not driven by forecast. We have
analyzed one such implementation enforced by Toyota motors a leading Japanese
Automobile Manufacturer in U.K. Toyota motors was initially following the forecast
based lean supply chain management system which they later on changed to Agile
Supply Chain. Toyota Motors had to modify their existing systems and implement
new systems in order to implement this Agile model. But with the help of meticulous
planning, cooperation of existing employees and persistence of the management
Toyota was successfully able to implement this model . Toyota was also helped in
this models implementation to a large extent by Information Technology as certain
procedures used to make supply chain Agile involved extensive usage of IT.
Implementation of Agile supply chain has helped Toyota to reduce its stock pile up
and shortage of demand and hene has helped in Increasing its operational profits.
Also by implementation of this system Toyota has been able to increase customer
goodwill owing to the fact that the waiting period for its cars is very less irrespective
of the season .

A case study on Supply chain
Introduction:
Due to the fierce competition and ever rising customer demand, companies need to
have more responsive supply chains in order to have a substantial advantage over
their competitors. This report is based on a case study that aims to investigate the
strategies adopted by a leading Japanese car manufacturer located in the UK in
formulating and implementing a lean supply chain.


Literature review:
Academicians define supply chain as the integration of key business processes from
end-user through original suppliers that provide products, services, and information
that add value for customers and other stakeholders (Lambert et al. 1998, 2006).
The lean system was first adopted by the Toyota Production System in (Ohno,
1988).The focus of lean supply chains is the elimination of all waste, including time,
to enable a smooth schedule to be established (Naylor et al., 1999). Lean
manufacturing implies a zero inventory, just-in-time (JIT) approach that has brought
mass production to high levels of efficiency (Womack et al.,1990). The idea of lean
manufacturing (Womack et al., 1990) and the concept of lean thinking (Womack
and Jones, 1996) have attracted much research interest in the last decade, and
indeed influenced and positively impacted many market sectors ranging from
automotive to construction (Aitken et al., 2002), especially in those industries where
low cost is the crucial factor for market winners (Mason-Jones et al., 2000b, Aitken et
al., 2002, Christopher and Towill, 2001).However, lean is not the universal solution
for all supply related issues as companies demand more responsive and flexible
supply chains in todays dynamic environment. An agile company will be more
flexible and responsive. Creating a balanced approach towards the implementation
of this technology is likely to be more fruitful.


Issue at hand:
A Japanese vehicle manufacturer (VM) is based in UK since 1980s. Its car plant
factory is said to be the largest in the UK. By 2007, it has produced 400,000 vehicles
per year. It produces a wide range of mainstream cars and trucks.
Conventional supply chains have been forecast-driven, but agile supply chains are
more likely to be demand-driven and information-based.
VMs are forced to seek competitive advantage not simply by following the lean
principles that everyone already knows and uses, but by defining other domains of
competition. Implementing the lean supply chain effectively is a big challenge for the
firm.
Lean production model might face challenges regarding mass customisation. Lean
does not guarantee responsiveness and flexibility.





Strategies taken by the company to make its supply chain
more responsive

The company has decided to make its supply chain agile. An agile supply chain is
intended to be information-based and driven by demand, rather than being forecast-
driven. Some features of an agile supply chain:
It is flexible
It can rapidly change its product mix or volume
Highly responsive
Well suited for dynamic environments that require product variety

In order to achieve a responsive lean total supply chain the entire supply
chain has been divided into 3 parts:
1. Upstream Sourcing and components
2. Midstream - Manufacturing
3. Downstream - Distribution

Approaches for a lean upstream supply chain:
The companys plant does not see lean practice as a destination, but as a journey of
constant improvement.
Supplier Location: The geographical closeness of the plant with the supplier
parks avoids transportations delays and helps in JIT delivery.
Minimum inventory: The company shows that it is favourable to maintain the
minimum inventory in the entire supply chain. A production plan information is
shared by all the parties and thus only what is needed is produced or
delivered.
Just In Time (JIT): The JIT approach adopted by the plant eliminates the
wastage of equipment, labour, materials, etc. Production plan is shared with
the suppliers and its 3
rd
party logistics (3PL) electronically so that only the
needful amount is produced and delivered. Some components are only stored
by the assembly line for 12 minutes before being used.




Approaches for a lean midstream supply chain:
Real time demand form forecasts: This plant collects orders on a daily
basis, those orders will go in the main scheduling system and structure the
weekly/monthly forecast, and generate the production plans.
This enables the company to form the production plan largely based on actual
market demand.
Strive for reduction in complexity: The company intends to be flexible
enough to give customers what they want, but does not want to end up with a
pipeline of stock that it doesnt need.
It manages to have better standardization of the products, therefore the
complexity and specifications of each vehicle can be added in at the very last
point of the production line.
Build-to-order balanced with build-to-stock: In this plant, it has got over
65% build-to-order, which means 65% vehicles on the production line have
already been purchased by the customers. The remainder of production is
build-to-stock and is based on the predicted sales forecast. These forecasts
are based on historical data and the daily orders.
The milk run delivery: In the past the 200 plus suppliers, both from
European and the UK delivered their parts by themselves each day or
every two days to the plant.
Now a 3PL firm collects parts from each supplier and delivers them to the
plant. This is called milk run delivery strategy and has reduced transportation
costs.
Mass customization: Specification is added in at the last point of fit. The
strategy of delayed vehicle differentiation at the point as closer as possible to
the customer is so that the required vehicle can be customized quickly and
inexpensively. This company works closely with its suppliers and third party
logistics based on their production systems.
Information sharing with suppliers and third party logistics: This
company works closely with its partners and shares information with them.
Suppliers and 3PL can easily check inventory, order information and
production plans, and can quickly respond to the market demand and
customer specifications.
Supplier management: The company believes in having a strict quality and
delivery key performance indicators. In this plant, 97% of parts and
components are delivered on time, and over 98% of cars enter the finished
vehicle compound within two hours of their allocated slot. The strict supplier
management ensures a smooth operation and production, and enhances the
quick response to the market demand.
Flexible work practice: In order to deal with the variable workload, the plant
has adopted flexible work schedules. Production employees have Fridays off
which can be paid back by them when the company needs them to work on
additional shifts during some weekends. There is a philosophy of 1 man 3
jobs and 3 men 1 job in the company. A flexible workforce is an important
factor in the company achieving a quick response to the volatile market
demand.
Resilient systems: If anything goes wrong, there will be a back-up plan or
solution to solve the problems and to ensure the smooth operation of the
production line. The resilient systems ensure the smooth operation of the
production schedule, and avoid the waiting time caused by unexpected
events. For instance, if there is a delay in a delivery, all the parties involved
will automatically apply the back-up plan to ensure the delay is minimized.


Approaches for a lean downstream supply chain:

Swift transit: A transporter comes to the plant in every two hours, and each
one can take about 8 to 10 vehicles depending on the model.
Finished vehicles are constantly transferred onto the lorries.
DC and ports location: The distribution centre (DC) is only one mile away
from the plant which makes it very convenient. In addition, the plant and the
distribution centre are close to large ports and other transportation networks
and major roads.
Sharing transportation: This company uses third party logistics to ship
vehicles to overseas countries. To reduce the cost in transportation, the third
party logistics will combine vehicles with the same destination and share
containers to eliminate the cost. In addition, each shipment will try to avoid
coming/going with empty containers.



Role of IT in Upstream Supply Chain:
The company assigns a RF code to the parts and inventory. This helps in
easier tracking of parts. An RFID tag attached to an automobile during
production can be used to track its progress through the assembly line. It
reduces labour costs, simplifies business processes, and reduces inventory
inaccuracies. It ensures the security of the inventory.
Just in time: There is a JIT tracking of the inventory and computer data
shows whether the inventory stored is correct with the current quantity. The
JIT approach adopted by the plant eliminates the wastage of equipment,
labour, materials, etc. Production plan is shared with the suppliers and its 3
rd

party logistics (3PL) electronically so that only the needful amount is produced
and delivered. Some components are only stored by the assembly line for 12
minutes before being used.
Minimum inventory: Stocking is possible once again because of the unique
tracking system of parts employed by the company using the RF codes.
Parts and components are delivered quickly because of the package tracking
system.

Role of IT in Midstream Supply Chain:
Collection of Real Time Demands Electronically: Orders received
by dealerships are punched directly into a portal which sends the
order immediately to company production line.
Standardization Of products achieved by constant R & D with the
aid of simulation softwares like AutoCAD.
35 % of stock built on forecasts is aided by complex forecasting
softwares used to devise forecast.
Supplier manages timely delivery by delivery tracking system.
Information Sharing is done with suppliers and logistic providers
electronically.



Role of IT in Downstream Supply Chain:
Transportation network uses Information technology constantly in
order to keep track of inventory tracking mechanism.
Sharing of transportation is possible because of each company car
containers being assigned a unique code in order to aid in de-
boarding and dispatch of vehicles.

Business Benefits
The initial problem of varying waiting period due to varying
demand and hence Long waiting periods in festive season has
been taken care of now .
Since production is much more supply based hence stock and
inventory pile up has reduced a lot.
Since waiting period is less now chances of customers going
towards other cars is less and this has led to an increase in sale.
Implementation of above system has led to a much more cost
effective way of production and savings encountered by the
company is in a large number.

























REFERNCES
Responsive Lean Supply Chain - Case study in a Japanese vehicle
manufacturer in the UK by Wu.Ting
http://en.wikipedia.org/wiki/Supply_chain_management
Aitken, J., Christopher, M. and Towill, D. (2002) 'Understanding, Implementing
and Exploiting Agility and Leanness.' International Journal of
Logistics:Research & Applications, 5, 1, 59-74.
Mason-Jones, R., Naylor, B. and Towill, D. R. (2000a) 'Engineering the leagile
supply chain', International Journal of Agile Management Systems, 2, 1, 54-
61.
Mason-Jones, R., Naylor, B. and Towill, D. R. (2000b) 'Lean, agile or leagile?
Matching your supply chain to the marketplace', International Journal of
Production Research, 38, 17, 4061-4070.
Naylor, J. B., Naim, M. M. and Berry, D. (1999) 'Leagility: Integrating the lean
and agile manufacturing paradigms in the total supply chain', International
Journal of Production Economics, 62, 1-2, 107-118.
Ohno, T. (1988) The Toyota Production system: Beyond large-scale
production, OR:Productivity press, Portland.
Womack, J., Jones, D. and Roos, D. (1990) The machine that changed the
world, Macmillan, New York.
Womack, L. and Jones, D. (1996) Lean Thinking, Simon and Schuster, New
York.