Supply Chain Management - Supply Chain Cost Models in Automotive Parts Manufacturing - Assessment Answer

Supply Chain Management Assignment

Assignment Task

Introduction

When it comes to the subject of supply chain costs in automotive manufacturing, there is very little study published and the research that is published rarely embodies thecontext of supply chain management, which is surprising considering that supply chain management is rather significant especially in the field of manufacturing and its potential for improving profitability. The stats on supply chain costs is typically broken in various places in the operation because of the vast nature of supply chain management, which can lead to poor understanding and poor control of supply chain management cost drivers, and eventually result in underestimating the significance of supply chain management and its possibility for improving the profitability of operations. Supply chain management can be viewed purely as a necessary cost, in worst cases.

Research Context

This research is authorized by an automotive manufacturing company, Pro CV and Steering. The company management were interested in developing a tool to calculate and model total supply chain for a while before this study was initiated. At Pro CV and Steering, the tool should be able to measure supply chain costs and key performance indicators on part numbers, numbers, and an overall level. The model should exploit data from the company's database and provide information in support of

management decision making in supply chain management, and especially in

procurement and logistics. Earlier study on supply chain models exists, but not near to Pro CV and Steering's case. Previous studies in the field of supply chain modeling and simulation include; the bullwhip-effect (Bolarin & Mcdonnell 2008), automotive transportation and inventory optimization (Mula et al. 2013), models for materials planning in the automotive industry (Mula et al. 2014), automotive distribution network (Turner & Williams 2005), and supply chain cost analysis on an aggregate level (Bottani & Montanari 2010).

The Research Problem

Pro CV and Steering is an automotive engineering and contract manufacturing company located in Johannesburg, South Africa. With annual revenues of over R10 million and proving work for 30 employees, Pro CV and Steering is considered a medium sized company in Johannesburg. Pro CV and Steering has a long history in automotive manufacturing starting with the production Driveshafts in 1980. With acquired expertise in engineering and manufacturing, Pro CV has focused especially on manufacturing premium car parts.

This expertise has also made Pro CV one of the leading suppliers of select automotive parts in Johannesburg. Today Pro CV describes itself as a "first-class service provider for the automotive industry", with customer references to Toyota and GM. Its current manufacturing contract with Toyota dealerships in Gauteng started in 2002. During this period of time, Pro CV have manufactured around 15 000 driveshaft parts for various dealerships in Gauteng.

Aim of the Study

The study aims to improve clarity within the company's supply chain operations and disclose the connections between key supply chain cost drivers by adding to the knowledge of Pro CV and Steering concerning the modeling of total supply chain costs by identifying and describing the key supply chain cost drivers and key performance indicators. In addition to this, while keeping a low risk of production disturbance and maintaining high service quality, the aim of the study is to help Pro CV and Steering find rational means to achieve cost reductions and make the company's supply chain operations more efficient. The model is valid in practice and able to provide authentic and functional support for management decision making whereby the added value of the total cost of ownership model will be assessed, and to determine whether the possible benefits make it worthwhile to develop and maintain such a model.

Research Objectives

How to generate a tool for calculating and modeling supply chain costs?

• What are Pro CV and Steering's key supply chain cost drivers, and how do theycorrespond?
• How can the costing model be used to increase value to Pro CV and Steering'sbusiness?

• Introduction

When it comes to the subject of supply chain costs in automotive manufacturing, there is very little study published and the research that is published rarely embodies the context of supply chain management, which is surprising considering that supply chain management is rather significant especially in the field of manufacturing and its potential for improving profitability. The stats on supply chain costs is typically broken in various places in the operation because of the vast nature of supply chain management, which can lead to poor understanding and poor control of supply chain management cost drivers, and eventually result in underestimating the significance of supply chain management and its possibility for improving the profitability of operations. Supply chain management can be viewed purely as a necessary cost, in worst cases.

• Research Context: Background

This research is authorized by an automotive manufacturing company, Pro CV and Steering. The company management were interested in developing a tool to calculate and model total supply chain for a while before this study was initiated. At Pro CV and Steering, the tool should be able to measure supply chain costs and key performance indicators on part numbers, supplier numbers, and an overall level. The model should exploit data from the company’s database and provide information in support of management decision making in supply chain management, and especially in procurement and logistics. Earlier study on supply chain models exists, but not near to Pro CV and Steering’s case. Previous studies in the field of supply chain modeling and simulation include; the bullwhip-effect (Bolarín & Mcdonnell 2008), automotive transportation and inventory optimization (Mula et al. 2013), models for materials planning in the automotive industry (Mula et al. 2014), automotive distribution network (Turner & Williams 2005), and supply chain cost analysis on an aggregate level (Bottani & Montanari 2010).

• The Research Problem

Pro CV and Steering is an automotive engineering and contract manufacturing company located in Johannesburg, South Africa. With annual revenues of over R10 million and proving work for 30 employees, Pro CV and Steering is considered a medium sized company in Johannesburg.

Pro CV and Steering has a long history in automotive manufacturing starting with the production Driveshafts in 1980. With acquired expertise in engineering and manufacturing, Pro CV has focused especially on manufacturing premium car parts. This expertise has also made Pro CV one of the leading suppliers of select automotive parts in Johannesburg.

Today Pro CV describes itself as a “first-class service provider for the automotive industry”, with customer references to Toyota and GM. Its current manufacturing contract with Toyota dealerships in Gauteng started in 2002. During this period of time, Pro CV have manufactured around 15 000 driveshaft parts for various dealerships in Gauteng.

• Aim of the Study

The study aims to improve clarity within the company’s supply chain operations and disclose the connections between key supply chain cost drivers by adding to the knowledge of Pro CV and Steering concerning the modeling of total supply chain costs by identifying and describing the key supply chain cost drivers and key performance indicators. In addition to this, while keeping a low risk of production disturbance and maintaining high service quality, the aim of the study is to help Pro CV and Steering find rational means to achieve cost reductions and make the company’s supply chain operations more efficient. The model is valid in practice and able to provide authentic and functional support for management decision making whereby the added value of the total cost of ownership model will be assessed, and to determine whether the possible benefits make it worthwhile to develop and maintain such a model.

• Research Objectives
• How to generate a tool for calculating and modeling supply chain costs?
• What are Pro CV and Steering’s key supply chain cost drivers, and how do they correspond?
• How can the costing model be used to increase value to Pro CV and Steering’s business?

Significance of the Study

This research study will contribute to the advancement of modelling supply chain costs in the automotive manufacturing not only in this industry but also in other manufacturing companies nationally. I hope that this research will motivate the supply chain management to be drawn to this new method of modelling and to adapt it as an effective strategy that will advance the operations. The results to be considered consist of the following: the improvement of supply chain costing models; identifying key supply chain cost drivers; improving profitability in manufacturing operations; reducing operation costs and provide functional support for management decision making.

• Literature Review

The concept of Supply Chain Management (SCM) is gaining increased importance in today’s economy, due to its impact on firms’ competitive advantage. SCM describes the discipline of optimizing the delivery of goods, services and related information from supplier to customer, and is concerned with the effectiveness of dealing with final customer demand by the parties engaged in the provision of the product as a whole (Cooper et al., 1997). Efficiently and effectively managing the flow of material from supply sources to the ultimate customer involves proper design, planning and control of supply chains, and offers opportunities in terms of quality improvement, cost and lead time reduction (Persson & Olhager, 2002), rapid response to changes or new developments (Bowersox & Closs, 1996). According to Lambert, (2001), managing the supply chain involves three interrelated topics, namely (i) defining the supply chain (or supply network) structure, (ii) identifying the supply chain business processes and (iii) identifying the business components. The first topic, in particular, encompasses a set of decisions concerning, among others, number of echelon required and number of facilities per echelon, reorder policy to be adopted by echelons, assignment of each market region to one or more locations, and selection of suppliers for sub- assemblies, components and materials (Chopra & Meindl, 2004; Hammami et al., 2008). Moreover, different supply chain configurations react differently to the bullwhip effect, a well- known wasteful phenomenon involved by lack of information sharing across the supply chain. Hence, they result in different levels of safety stocks required (Lee et al., 2004).

A supply chain is the set of structures and processes an organization uses to deliver an output to a customer. The output can be a physical product such as an automobile, the provision of a key resource such as skilled labor, or an intangible output such as a service or product design (Sterman, 2000). A supply chain consists of the stock and flow structures for the acquisition of the inputs to the process and the management policies governing the various flows.

Each of these processes features a number of clearly defined characteristics, which represent a wide range of topics to be investigated. Research on supply chains represents an attractive field of study, offering numerous approaches to organizational integration processes. Some of the problems regarded as most important, which focus any research project in the field of supply chains, are those related to demand variability and demand distortion throughout the Supply Chain. Forrester (1958) analyzed Supply Chain and the different levels existing in it, as well as the participant companies and the role played by each of them inside the chain as a global group, and observed that a small fluctuation in a customer’s demand was magnified as it flowed through the processes of distribution, production and supply. This effect was identified and also studied by Burbidge (1991) and it is known as the Forrester Effect. That amplification is due -according to Forrester- to the problems derived from the existence of

lead times in delivery ("non-zero lead times"), and the inaccuracy of the forecasts carried out by the different members of the chain regarding the variability of the demand received. Most of the research on demand amplification has focused on demonstrating its existence, identifying its possible causes, and developing methods to reduce it. Lee et al. (1997a) identified four main causes of amplification: wrong methods of demand forecasting, anticipation of supply shortage, batch ordering and price variation. Demand amplification occurs mostly due to finite perturbations in final demand and in lead time all along the supply chain, which is always anticipated and in interaction with other causes. By his seminal work “Industrial Dynamics, A Major Breakthrough for Decision Makers” in 1958, Jay Forrester is viewed as the pioneer of the modern-day supply chain management. His work on the demand amplification as studied via systems dynamics simulation has explored these supply chain phenomena from many viewpoints. How industry is facing this phenomenon (called Bullwhip Effect) has been broadly studied by Lee et al. (1997a), who present some considerations on the Bullwhip Effect in supply chains in details, too. Our study has also been motivated by many other production – distribution considerations about the Bullwhip Effect on the supply chain perturbations, such as those exposed by Lee et al (1997a), and especially the results of

Disney (2001, 2002, 2003a, 2003b) and other researchers on this phenomenon from the Cardiff Business School.

Disney (Disney et al, 2004) remarks on the interest of using new supply chain management structures, such as EPOS (Electronic Point of Sales), VMI (Vendor Management Inventory) (based on collaborative structures among the members that make up the Supply Chain), Reduced and E-shopping, for the analysis of the Bullwhip effect.

In this paper, a Supply Chain Management model has been used parametrizable according to the different scenarios we wish to simulate. So the VMI and EPOS collaborative structures have been the scenarios used in this study. After the simulation of both scenarios, the results have been compared with those obtained from the simulation of a Traditional Supply Chain (Campuzano et al., 2006) in section 5 of this paper, in order to analyze the effect of using

these collaborative strategies in the reduction of the Bullwhip effect and inventory cost.

The behaviour of the scenarios under study is analyzed by means of a simulation model based on the principles of the system dynamics methodology. The simulation model proposed by Campuzano (2006) provides an experimental tool, which can be used to evaluate alternative longterm decisions such as replenishment orders, capacity planning policies, or even inter-organizational strategies (“what-if” analysis), since this methodology allows to study the interdependencies among all the modelled echelon

• Research Design and Methodology

8.1) Research Methodology

Quantitative Study

8.2) Research Philosophy

Positivism as a concept of sociological research was conceived and developed by Auguste Comte who embarked on a difficult journey of trying to qualify sociology as a natural science. Since the natural phenomena that occur around us as a part of nature life that of lightening or reproduction can be studied on the basis of empirical and observational evidence. Comte also tried to prove that even sociology: the study of society, social groups and social institutions can be studied using an objective methodology. Further both Comte and later Durkheim who established sociology as a formal discipline believed that the advancement of a certain discipline can be measured by its ability to apply scientific reasoning to explain social phenomenon. (Philosophical Biographies: Sociology and Linguistics 1841-1917)

8.3) Sampling Strategy

Non-probability Sampling – Convenience

Members for these interviews are selected on availability even though members are selected from a specific department.

8.4) Data Collection Instruments

In total, 15 questions are set out for an informal interview-based schedule and questionnaire survey.

8.5) Data Analysis

There are basically two ways to analyze data from decision support systems. The first is to use some business analytic tools to analyze data extracted from ERP systems. Techniques such as queries, statistical analysis, data mining and online analytical processing (OLAP) tools can be used to ask specific questions about the data, determine trends and patterns, or hidden relationships in data, and navigate across dimensions of data using rollup and drill-down operations (Chaudhuri & Dayal 1997).

Another possibility for analyzing data is to use decision support systems that can e.g. create reports based on defined problems. These kinds of systems include calculators that can conduct total cost calculations or find optimal solutions based on exact algorithms, and simulation models that take into account complex dynamics of several variables, simulate different scenarios and provide their outcomes. By discreetly adjusting input parameters, different outcomes and decisions can be compared. Simulation models, however, are typically time consuming and require much computational power in order to be run, which can make comparison a time-consuming task. Often the used analytical tools are a combination of the techniques described, and the used methods are also dependent on the type and complexity of the problem to be solved. (Simchi-Levi et al. 2008, p. 422-424.)

8.6) Pilot Study

10 Participants will be used to conduct this “pilot study”

A pilot study is a mini-version of a full-scale study or a trial run done in preparation

of the complete study. The latter is also called a ‘feasibility’ study. It can also be a specific pre-testing of research instruments, including questionnaires or interview schedules. (Compare Polit, et al. & Baker in Nursing Standard, 2002:33-44; Van

• Ethical Considerations

A draft covering letter to respondents, informing them of the aim of the study will be issued before interviews and surveys take place to ensure the following: ensure respondents are aware that no harm will come their way; their responses will be confidential; and to get general permission and consent from them to perform the surveys. (Please see Draft Covering letter in Appendices)

• Proposed Timetable