Product Development and Supply Chain Design in the US Automotive Company - Case Study Example

Title: Supply Chain Management Name Institution Date of submission Table of Contents Table of Contents 2 Abstract 3 Introduction 4 Automotive Manufacture Case study 5 Product development and Supply Chain Design 6 Supply Chain and Inventory Management 8 Analysis of the supply chain 8 Suppliers 9 Inbound logistics 9 Production 10 Inventory management 10 Conclusion 11 References 13 Abstract The purpose of this report is to assess the effectiveness of UPS Supply Chain Solutions in the automotive company in United States. This paper examines the automotive company case in the United States by focusing on the analysis of the UPS Supply Chain Solutions team. The finding from the case shows that the company has challenges on two important subsystems in the supply chain-inventory management and supply chain management. The research only focused on the situation in the automotive company. This paper is useful to the companies and individuals who are interested in improving the performance of their supply chain. This paper uses the findings from the automotive company case and supported by the theories learned in class. Keywords: Supply chain management, inventory management, automotive company, logistics, costs, effective. Introduction The contemporary global market comprise of empowered consumers who are creating dynamic markets. According to Kerber and Dreckshage (2011) the international trade is becoming more essential to the automotive industry because about 57% of the demand is now needed by the in the new and emerging markets. The main challenge to the automotive industry is the securing of the regulatory approval in the emerging markets for their products portfolios. The nature of the automotive products, however, has the experience of working in diverse bodies. Supply Chain Management (SCM) has been taken as the success factor in the automotive industry. Base on the theory of Supply Chain Management, SCM allows organizations/companies to capitalize on their unique set of skills to promote competitive advantage. Effective management of the global supply chain is not the core competency of the organization (Müller, 2011). However, the changing trend of the consumers in the global market and the increase in industrialization is the most current development in the automotive industry. Even the multinational automotive industries find several aspects of SCM trying. Basically, the Supply Chain Management worries can be addressed through effective procedures, processes and expertise. The Automotive Parts Company in the United States is faced by various business challenges which include the economic slowdown, rising of the competition in the market and the expiry of the lease on the Southeast and West Cost distributors. The UPS Supply Chain Solution Team reviewed the supply chain of the company by focusing on the company’s distribution network and cost. As a solution, the UPS decided to change the number of distribution centers as well as their location. This paper examines the aspects of an automotive manufacturing company. UPS supply chain Solution case study will be used as an example in the SCM in the automotive industry. Automotive Manufacture Case study The Automotive Company serves the customers in the North America. It is the leading competitor in the market operating with four factories in the United States. The four factories supply the automotive parts to the customers through five distribution centers in the United States and Canada. Since the company wants to improve the performance of its supply chain, it has bring in UPS Supply chain Solutions consulting Service Company. The distribution of the products in the North America is not effective as such and therefore the UPS Supply Chain Solution Company has been recruited the improve the performance in this region. The automotive manufacturing company hired the UPS to analyze the challenges of the distribution network and later to recommend the strategies for improvement. From the company’s data, the current network shows that distribution centers close to factories uses the effective model. It is therefore recommended that the company maintain the Southeast and West Coast distribution facilities. Also, the findings from analysis showed that there is an opportunity for saving in the areas of inventory and inbound transportation. It is therefore clear that the company can save by better controlling the inventory flow and fleet management as well as eliminating the unnecessary inter-facility transport. Product development and Supply Chain Design The company is operating with specialty products-the automotive parts. From the analysis of UPS Supply Chain Solutions Company, the company needs to focus on two major areas, the distribution networks and the management of inventory. According to Martínez Sánchez and Pérez Pérez (2005) there is a change in the international distribution in the last two decades in the automotive industry. The heightening of the United States automotive firms has caused the international differences when it comes to distribution of automotive parts both in production and quality. Particularly, at the factory level, it is evident that there is an international difference when it comes to internal operations-most particularly the inventories and the distribution networks. There are four major concerns found by the UPS Supply Chain Solution consulting team. They include; 1. The distribution centers close to the factories exhibits an efficient model that optimizes the outbound transportation. For example, the closing of the Southeastern distribution center, which is the company’s largest distribution center, this will put an additional of $1.4 million on the total transportation costs. In response to this concern, Tummala and Schoenher (2011), states that the success of the companies depends on the ability to satisfy the consumers more than focusing on the competitors. As far as the UPS company is promoting the efficiency of the distribution network, the main goal of the company’s supply chain is to ensure that there is effective processes that creates value to the consumer. For this reason therefore, the UPS Supply Chain Solution decides to keep the Southeastern distribution center. 2. The UPS Supply Chain Solution Company recommends that the Canadian distribution center should be maintained. Though this my raise the cost of the automotive parts on the side of the customer, the customer on the other side will enjoy the reliability of the stores in Canada. From the analysis, shipping the goods directly the United States directly to the customers was more expensive than shipping goods in bulks to the Canadian distribution center. In this case, the most challenging part is the management of inventory and the distribution means to the costumers. 3. Inventory management and inbound transportation. Effective management of inventory is a roadmap to the effective distribution network of a company (Suvadarshini and Prasad Roy, 2014). In the case of the Automotive Company, the analysts found that the products were first delivered to the distribution centers before it is delivered to the customers. The issue of interest is ‘why have inventory?’ In this case, there are three major reasons to have inventory at different distribution centers; It is clear that the customer demand on automotive parts is rising. Therefore, having the stock place ensures that the pipeline of the products is constantly operating. The inventory will help the company balance customers’ capacities and demand, and, It allows balanced movement of goods in the distribution channel. 4. Fleet management: Effective fleet management defines company’s reliability in the market (Brandenburg et al., 2014). Fleet management depends on the nature of the product. In this case, the aspect of demands from the customers is a predictable demand. Therefore, the average products to be transported should be between 1% and 2%. Since the product cycle of the company is predicted to be more than two years, the supply chain is expected to maintain high utilization rate with a short lead-time focus. Supply Chain and Inventory Management According to Farahani et al., (2014), the top challenge of the automotive supply chain is the visibility. Research shows that although about 84% of the managers in the automotive companies have implemented supply chain information transparency, very few of them have extremely implemented effective handling of inventory in the distribution channel. Cutting cost in the supply chain is the main objective of UPS Supply Chain Solution Company. But the supply chain of the company looks in the right area? Are the targets selected strategically? Analysis of the supply chain The figure 1 below shows the physical flow of the company’s supply chain. This supply chain model involves the information and activities that relates to the physical movement of goods in the pipeline. From this model, the automotive parts are produced by the supplier and these parts are transported by the inbound logistics to the manufacturing plant. The parts are assembled and then later transported by the outbound logistics to the dealers. The main interest is the movement of automotive parts from the supplier to the manufacture. Suppliers According to Brandenburg et al., (2014), the main requirement that forms the supply chain is the incorporation of supplier production schedule into the consumer/customer production schedule. In the case of the automotive company in the United States, the distributers in Canada receive the parts through the outbound logistics. The suppliers are the four factories located centrally and it may take time for the parts to reach the distributers in the regions such as Southeastern and West coast. However, the local supply may be just two or three days to the manufacture. As recommended by the UPS Supply Chain Solutions, it is appropriate to hold stock to cope with the lead time when it comes to production schedule. According to Brandenburg et al., (2014), the design of the supply chain needs to take into consideration the dynamics and emergent nature of the supply chain itself. Therefore, the close proximity in terms of various stores both regionally and internationally offers an effective lead time for the automotive parts. Inbound logistics From the case, it is found that the only supply chain function that is outsourced particularly in Canada is transportation. According to Suvadarshini and Prasad Roy, (2014) logistics are the connecting elements between the systems in the supply chain. Apparently, the inbound logistic of the company is responsive. It is able to deliver the parts within the reasonable time that will reduce the holding of inventory that could have increased the cost in the supply chain. There are two major factors that determine the effectiveness of the company’s inbound logistic. One is that the number of suppliers is appropriate (four) and the fleet management activities are manageable-only the transport is outsourced. Production From this analysis, the model comprise of four main stages (Tummala and Schoenherr, 2011): Stamping the parts, welding the parts, painting the car and assembling the car. Once the parts have been supplied to the manufacture, they are assembled and taken to the dealers. Inventory management Issues such as long order delivery, unreliable production schedules and leads time are affecting the inventory of the automotive parts throughout in the supply chain. As UPS recommended, the building of buffer inventory and improved in flexibility when it comes to customer demands would improve the effectiveness of the supply chain both in terms of costs and reliability to the customers. The model below shows how the automotive company should effectively manage its inventory. Cost Activity Order cost Placing order, tracking shipment, receiving shipment, inspection documentation and invoice Carrying cost Warehouse, overhead, capital, insurance, labor and tax. Setup cost Labor and resources used. Table 1. From the above table 1, it is clear from the analysis that the company is a forecast-driven production system. In this case, the product is taken through the supply chain before the customer is identified. Basically, it is driven by the historical demands and therefore, the ‘endemic’ stock level of the cars in the region allows the suppliers to find the taste and preferences of the customers (Farahani et al., 2014). Though this approach provides products that are close to customer preference, the approach is expensive when it comes to logistics activities and production procedures. For example, holding stock for a long time increases the cost of inventory management, and thus affecting the effectiveness of the supply chain. Many companies may wish to avoid this approach but it does not make any economic sense to engage in make-to-order strategy. Conclusion In conclusion, this report is based on the theoretical analysis of the automotive company in United Sates. Challenges and issues relating to automotive supply chain have been reviewed. This report reveals that the market environment in which the automotive industry is operating is very competitive. The competitiveness is as a result of stiff completion, changing customer demands and fluctuating markets. Therefore, there is a need to develop an efficient and cost-effective supply chain meeting these challenges. The analysis of the supply chain focused on the two major areas which include inventory management and supply chain management. The model described four elements in the supply chain management that are very essential. These elements include, supplier, manufacture, inbound and outbound logistics. Effective management of these elements develops a high level of flexibility as well as reliability of the supply chain when it comes to the changing market. The UPS Supply Chain Solution Company considered forecast production schedule as the option to the suppliers. Although this approach is quite expensive, it only becomes a disaster there is no effective management of inventory and fleet management. The report has explained a model based on the theories adopted. However, the model has not been tested to show the applicability. References Brandenburg, M., Govindan, K., Sarkis, J. and Seuring, S. (2014). Quantitative models for sustainable supply chain management: Developments and directions. European Journal of Operational Research, 233(2), pp.299-312. Farahani, R., Rezapour, S., Drezner, T. and Fallah, S. (2014). Competitive supply chain network design: An overview of classifications, models, solution techniques and applications. Omega, 45, pp.92-118. Kerber, B. and Dreckshage, B. (2011). Lean supply chain management essentials. Boca Raton [Fla.]: CRC Press. Martínez Sánchez, A. and Pérez Pérez, M. (2005). Supply chain flexibility and firm performance. Int Jrnl of Op & Prod Mnagemnt, 25(7), pp.681-700. Müller, M. (2011). Essentials of inventory management. New York: AMACOM. Suvadarshini, A. and Prasad Roy, G. (2014). Supply Chain Management in OMFED-Creating Values through White Channels: A Case Study. Journal of Business and Management Sciences, 2(3A), pp.33-40. Tummala, R. and Schoenherr, T. (2011). Assessing and managing risks using the Supply Chain Risk Management Process (SCRMP). Supply Chain Management: An International Journal, 16(6), pp.474-483. Read More