Turning the Supply Chain into a High Performance Team

Summary - (Download PDF Version Here)

Coplenish helped this major auto company to develop an industry leading dealer forecasting, ordering, allocation, and secondary auction system linking dealers, distributor and manufacturing on to a common platform. This new platform dramatically improved the quality and speed of the information supply chain. The results:

• order-to-delivery cycle times reduced by 60%,
• in-transit delivery times reduce by 25%,
• inventory reduced by $900 million and
• logistics costs reduced by $13 million annually.

Situation

A strategic review completed by Coplenish consultants concluded that a global auto manufacturer needed to transform its supply chain into a strategic asset for competitive survival.

The company suffered from lack of focus on retail sales. Production drove sales: dealers were allocated vehicles and told to sell them, and sales and marketing had limited ability to influence volume or mix of vehicles in production.

Inventory represented a major drag on the company's balance sheet. Lead times between order and delivery exceeded 100 days. Global shipments of components and finished goods caused significant lead-time variability. Together these factors led to inventory that was 30% higher than that of key competitors.

Successfully changing this under-performing supply chain into a lean, market-focused asset was absolutely essential.

Collaborative solutions approach

Current Coplenish professionals led client teams of marketing, sales, manufacturing and information technology personnel to reduce costs and inventory by improving the quality and speed of the information supply chain.

This required substantial change in the working relationships between retail dealers, sales and marketing and production. Substantially more effective collaboration and communication was required to make retail demand the driver of the supply chain. In addition, physical process flows needed to be reexamined and changed to speed up cycle times and reduce variability.

The team changed the way the dealers and the manufacturer worked together and changed how the functional silos within the manufacturer worked together.

New, Higher Quality Systems

The team developed an online system for dealers to provide annual sales plans that showed their projections of sales by model by month. Monthly, the dealers update the next 90-day sales plan by vehicle model. These plans and forecasts are rolled up to become the company's wholesale plan. Dealers using the new online system then validate collaborative sales forecasts monthly. The dealers are encouraged to commit to hard orders and allowed to place unprotected soft orders. Dealers are able to modify orders and specs within production flexibility windows and place hard orders for other dealers' unprotected soft orders via the online order system.

In addition to the ordering system, the team rolled out an online auction system so that the dealers could bid on excess production vehicles, off lease vehicles and damaged vehicles creating market based pricing, instead of mass incentives, for these lower demand vehicles.

Higher Quality Information Processes

The increased involvement of the dealers has substantially improved the communication and collaboration between Sales and Manufacturing. Sales now has customer-based forecasts, which are much more reliable and therefore more compelling to Manufacturing. There is now an annual negotiation between the Manufacturing division and the Marketing and Sales division to agree on production volumes and flexibility. Volume and mix are also changeable two months in advance of production, based upon component availability.

Faster, higher quality physical processes

As part of the review process, a number of physical flows were redesigned to increase speed, frequency and reliability. The frequency of global shipments of vehicles and components was stepped up, reducing buffer stocks throughout the system. The port and railhead network was also restructured to increase flow-through speed.

Longer-term changes to increase plant flexibility were also identified, with the intent to put these in place as capital becomes available - financed in part through inventory reductions.

Continuous improvement

The manufacturer now provides annual, quarterly and monthly production plans to its suppliers. The improved visibility into demand has helped suppliers ensure availability of parts and capacity before problems arise. Because of these benefits, an ongoing dialog focused on increasing flexibility and shortening lead times continues between manufacturer and its component suppliers.

Results

• Inventory has been reduced by $900 million
• Logistics costs have been reduced by $13 million
• Dealer order to delivery lead times have been reduced from over 100 days to 40 days
• Volume and mix are now changeable on monthly basis
• Final specification freeze is down to 10 days from three months
• Flexibility to make production plan changes is now based on component availability rather than arbitrary, fixed percentages
• Daily changes to color and destination are now supported up to six days prior to production

The implementation process

Phase 1 - the conceptual redesign of supply chain activities and planning for implementation - required approximately six months to complete. Coplenish led client teams to reengineer key processes, define key specifications for new systems and structure the implementation and change management efforts.

Moving from Phase 1, planning, to Phase 2, implementation, was fast and effective because of the close involvement between Coplenish professionals and the client team members, and client personnel "ownership" of the redesign plan. The majority of Phase 2 changes were implemented within twelve months of the completed plan.