Integrated Logistics for DEP GARD - Case Study Example

Case Study Overview: Guard automotives manufacturing (GARD) is one of the original equipment manufacturing (OEM) for US automakers basically producing variety of plastic products for the automobiles. To produce plastic products GARD needs a best quality polymer which is the basic requirement to produce plastic products. GARD has been basically dependent on the Dupont engineering polymers (DEP) for the raw material DEP is supplying polymers to GARD since last 15 years but this time with the change in management, Dupont has been awarded one year contract instead of 2 years generally. Richard Binish who has been appointed by GARD wants to review these contracts and revive supply chain. Basically a lot has been changed in supply chain management and Binish wants to review all this supply chain with the change in situation (current market trends). Banished trimmed GARD’s products line and primarily based it on faster moving products with higher moving velocity. Now more and more suppliers with specific criteria have come up and everyone’s product is comparable. At present, GARD wants to review its supply chain with the improvement in its service window, and minimum threshold percentage. DEP’s polymers having 6 major compounds which has been sourced from three firms as 60%, 25% and 15%. DEP has standardized its purchasing criteria and generally maintains a 7 days supply of each compound DEP is not using JIT because of bad experience, but it relies on electronic linkages for procurement. Most customers’ orders are produced with in 6 to 8 days of order. In addition to it, DEP takes 3-6 days for shipment from its warehouse. Transportation and distribution which is done by DEP truck service to customers mostly within 200 miles through twice a week delivery routes. This needs maximum 6 days. So DEP supply chain is too much time consuming and hence needs to be streamlined. 1. SCM OF DEP SCM OF GARD Buyers ± 2 days Basically in this case study, the kind of relationships between buyer and supplier is adding value to the supply chain, GARD and DEP’s long relationship and understanding as well as DEP’s knowledge about the requirement and quality with arm’s length purchasing relationship is adding value to the chain, value in a supply chain is not simply the organizational value but it is the value created across different organizations that combine to create the supply chain. Inside an organization Porter (1980) identifies nine keys areas that need to be examined when examining how value may be created. He divided these 9 areas into what he referred to as: Primary activities and support activities. The primary activities included: inbound logistics, processes, outbound logistics, marketing & sales, customer service. The support activities included: technological developments, human resource management, procurement and firm infrastructure. Basically in the case study, procurement stage of DEP is adding value to the chain because it provides certain option to purchase six basic compounds from 6 companies having different percentage of order completion as well as supply time. So we can analyze and reach out a suitable combination of companies and products to minimize the supply time and increased percentage of supply. DEP’s supply bid has been divided into three parts and maximum quantity suppliers’ supplies 60% whereas the remaining two are supplying 25% & 15% respectively. Firms’ basic infrastructure with electronically connected procurement with marketing/sales department can easily assess demand of the market and proper information system can act fast. DEP is also adding value through outbound logistics with its own hired truck fleets. DEP also maintains inventory for 7 days so that they may have enough time for reordering and to get supply of raw material. The stages including inbound logistics, more time in warehousing activities as well as truck services time (twice a week) are some stages which are basically not adding the values in the supply chain. More lead time or processing time as well as warehousing time add negative value to supply chain. 2. Measuring performance is critical to the success of organizational strategy. In measuring supply chain performance there are two critical focal points: the customer and the competition. Basically five key areas are chosen to evaluate performance i.e. cost, speed, quality, reliability and flexibility. Within the speed factor we analyze cycle time with delivery lead time (Min., Max & Average). Within the reliability factor we include percent of orders in time. It is useful to measure performance through time to judge how well an organization performs overtime. Now in the case study if we analyze primary suppliers (60% of business) we can easily find out that taking all the six basic compounds in mind the 60% raw material has been supplied by the three companies i.e. company 1, 4 & 5. Suppliers Chemical compounds A B C D E F Company 1 60% (3-8 days 93% 60% (2-9 days) 94.5% Company 4 60% (4-9) days 96.5% 60%(2-9) days 97% Company5 60% (4-7 days) 98.3% 60% (4-6 days) 97% Now if we analyze the table we will find that for all the six basic compound the minimum cycle (delivery time from order) is of 4 days i.e. if all the six compound ordered simultaneously the time period taken by all the compound A, B, C, D, E, F respectively 3, 2, 4, 2, 4 & 4 maximum delivery time from order is 4 days with average fill rate of 96.05. So the maximum performance cycle taking primary DEP suppliers (60% of business) is 4 days and 96.05%. Minimum performance cycle has to be calculated as all the 6 products A, B, C, D,E, F takes maximum delivery time as 8, 9, 9, 9, 7, 6 days respectively. So the maximum time taken for delivery is 9 days with the same percentage of fill rate. So the minimum performance cycle will take 9 days & 96.05 % fill rate. 3. Now we have the maximum performance cycle at the 4 days and 96.5% fill rate at 60% of business. This could be set as the benchmark for all the supply chain activity in DEP. Macneil et al. (1994) suggests that “a bench marking is a method for continuous improvement that involves the systematic evaluation and incorporation of external products services and processes recognized as best practice”. If we compare this bench mark with 25% & 15% of business volume we will find that for all the six basic compound at minimum delivery time is 7, 9 & 6 days and 4, 4 & 11 days respectively. So the maximum performance cycle take 9 days and 11 days for 25% and 15% business which are much above the bench mark of 4 days. Fill rate at 25% is 96.93%. It has been obvious from the result that at 25% business maximum performance cycle is of 9 days and fill rate at 96.93% and at 15% business it is of 11 days & 96.03. So with 25% and 15 % of business performance cycle could not be improved upon. If these suppliers could improve their delivery time from order especially for 25% suppliers and bring down from 9 days to at least 4 days and being the fill rate higher than benchmark it could be trade off with more share in the supply form the 15% competitors. 4. If I was Tom Lippet, I would have made several changes in DEP’s operations. As we calculated that at 60% business we have much improved delivery time from order as at present 4 days with 96.03% fill rate. Other suppliers have to be evaluated on these parameters. On the basis of these benchmarks presently at the 25% business and 15% business max, performance cycle is of 9 days and 11 days, which is increasing the cost for the company. I must curtail the orders of 25% & 15% business in favour of 60% business holder. I may try to improve the fill rate which is good at nearly 96% and above. In the present situation most of the DEP activities are dependent upon telephonic conversation where as it is high time to improve and integrate e-business with SCM. Sharing of information, direct and continuous connectivity with suppliers improve the supply. Basically integrating supply chain with e-business has varied impacts. It saves time & reduces cost. It integrates the whole system and provides two way communications with suppliers, vendors and also with customers. It reduces errors, improve order window, and provide new channels for marketing like (B2C & B2B). The next area of improvement will be to plan activities to maximize efficiency of deliveries and minimize their cost. Moving goods around supply chain is a very costly business. Contracting third party suppliers for logistic have several benefits. Engaging logistics providers who can provide additional services e.g. Quality control, ticketing, labeling and packaging, could minimize the time taken in delivering product to buyers. In the present situation as we know warehouse takes 3-6 days and transportation is taking not more than 6 days and that means it take 4 days to 12 days which may be very higher. The complete chain takes 14 days to 31 days at minimum and maximum level. This variation in timing is the cause of concern which could be minimized through e- procurement also. To make these changes certain obstructions may come up. If we depend more upon the major suppliers, in the longer run it may monopolize the activities and we may loose bargaining power. Developing infrastructural facilitates like computerization and other ICT costs much to the organization. 5. To sell the changes proposed by Binish, I would like to highlight the benefits of the new proposed suppliers’ management. The supply network costs can be lowered in a number of important ways which include: The new system improves forecasting of buyers demand with the improvement and sharing information with supply partners improve scheduling and inventory management. As the study cites DEP could not be able to implement JIT and presently stocking one week material. So by proper information sharing and scheduling the inventory cost could be minimized. Implementing electronic data interchange between supply chain partners facilitating more effective communication and removing errors through single source data entry, reducing purchasing time and paperwork. The new system is likely to improve transportation possibly through outsourcing to reduce cycle times. This new system will establish better supply chain relationships (transactional, cooperative, collaborative competitive or strategic partnership and for alliances). The proposed system will focus on lowering cost and other objectives such as quality, reliability, dependability and responsiveness. The qualifying criteria must be keeping in mind 3 days window must be as following: 1. Delivery of A: On-time considered 3 days from date of order + 1 day 2. Delivery of B: On-time considered 3 days from date of order + 1 day 3. Delivery of C: On-time considered 3 days from date of order + 1 day 4. Delivery of D: On-time considered 4 days from date of order + 1 day 5. Delivery of E: On-time considered 4 days from date of order + 1 day 6. Delivery of F: On-time considered 4 days from date of order + 1 day 7. Minimum acceptable fill rate on all the chemical compounds will be 95%. Any order below these criteria could not be accepted and order winning criteria must be above the minimum criteria. This situation will change over time and will improve systematically. These activities basically improve the responsiveness of first, second and third tiers suppliers within the supply chain. It also improves transport costs and times & inventory costs. It ultimately improves upon faster cycle times and/or increasing through put reduces the time cost elements. This also improves profitability and return on investment by lowering total cost. Reduction in cycle time improves performance of supply chain management considerably. According to Cox (1999) the predominant orthodoxy of supply chain management thinking is devoted to, “discovering tools and techniques (quick response, lean supply, co-makership, agile manufacturing, value streams) that provide increased operational effectiveness and efficiency through out the delivery channels that must be created internally and externally to support and supply existing corporate products and service offerings to customers”. To be effective in developing supply chain strategies it is not necessarily collaborative approaches that succeeds according to Cox (1997). Cox’s view is supported by Cousins (2002). First, partnership relationships do not exist but there is a range of collaborating relationships which are all competitive. Second, organizations do not trust each other; they manage risk based on business objectives they have set themselves. Third the more importantly, the relationship itself is a process not an entity and as such focuses on definable outcomes. Now it is the utmost need to identify the power within supply chain and perhaps Binish has analyzed these factors and trying to implement these with keeping in mind the power of supply chain must be with him. ******************************************************************* References: 1. Cousins, P. D. (2002). A conceptual model for managing long term inter-organizational relationships, European Journal of Purchasing and Supply Management, 8 (2), 71-82. 2. Cox, A. (1997). Business Success: A way of thinking about strategy, critical supply chain assets and operational best practice. Lincolnshire: Earlsgate press. 3. Cox, A. (1999). Power, value and supply chain management. Supply management: An International Journal, 4(4), 167-175. 4. Macneil, J., Testi, J., Cupples, J. and Rimmer, M. (1994). Benchmarking Global Manufacturing. Australia: Longman. 5. Porter, M.E. (1980). Competitive Strategy- Techniques for analyzing industries and competitors, New York: Free Press. Read More