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Analysing Supply Chain of Automotive Industry
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  • 1. NANYANG TECHNOLOGICAL UNIVERSITY SCHOOL OF MECHANICAL AND AEROSPACE ENGINEERING T MA6535- Management of Global Manufacturing“Analysing Supply Chain of Automotive Industry with the context of Global Manufacturing” COURSE COORDINATOR Associate Professor Sivakumar Appa Iyer TEAM MEMBERSRAMANATHAN RAMANATHAN G1101248A M.Sc., Logistics (Full-Time)KANNAN SOMASUNDARAM G1101243E M.Sc., Logistics (Full-Time)MOORTHY ASHOKANSAMIDURAI GOVINDARAJU G1101249J M.Sc., Logistics (Full-Time)MUTHU KUMARMAHESWARAN MASILAMANI G1102334J M.Sc., Logistics (Full-Time)KANNATHASAN NARESHKUMAR G1102357G M.Sc., Precision (Full-Time)
  • 2. Introduction:Ikeda Hoover Ltd (IHL) was established in 1986 to supply seating modules on asynchronous basis to Nissan’s UK plant located in Sunderland. The companyundertakes cutting and sewing, injection moulding, welding and assembly activitieswithin a single plant located within five minutes of the Nissan car plant. It is a jointventure company between Ikeda Bussan of Japan and Johnson Controls Inc. USA.Ikeda Bussan is a major seat and interior trim manufacturer in Japan supplying Nissan,Honda, Mitsubishi and other Japanese and world customers. Ikeda Bussan is in turn asubsidiary of Nissan.Johnson Controls is a multinational organization with 12 billion dollar annualturnover. Its Automotive Division has expanded extensively from America in toEurope with foam, cut and sew, and seat assembly plants. Their major customersinclude General Motors, Ford, Rover, Nissan, Honda, and Renault. The joint venturewas formed in 1986 to supply Nissan Motor Manufacturing UK Ltd. (NMUK) withcar seats on a synchronous just-in-time basis, initially for the Bluebird. Presentproduction is for the Micra, and new Primera which was launched in 1996. Newproducts include the Primera estate, to be launched in early 1997, and the third modelrecently announced by Nissan.The way it works with IHL and Nissan Manufacturing UK (NMUK) is by computerlink. Nissan downloads information onto our computers, informing us exactly wheneach car has joined their production line. The computer at NMUK tells Ikeda HooverLimited (IHL) what seat to make i.e., variant, colour and other specifications, toenable the correct seat to be put together. We have no more than approximately twoand a half hours in which to manufacture and deliver the seat to the Nissan assemblyoperator at lineside. In this way the NMUK and IHL production lines aresynchronized. As each seat at IHL is a particular car at Nissan, there is no end of linestock at IHL. The seats have to be produced right first time, every time. IHL is,therefore, at the leading edge of the European Automotive supply industry.Objective:In this case study the characteristics of synchronous manufacturing, supplier-buyerrelationship, and modular supply model with an automobile content is examined. In adeeper extent the essential difference between the traditional just in timemanufacturing and the synchronous manufacturing are examined taking the buyersupplier relationship in to account. Analyzing the buyer supplier relationship and themanufacturing strategies leads to the development of the modular supply model since
  • 3. the buyer supplier relationship may change. Moreover, the growth of modular supplymodel is likely to require a reappraisal of supply chain relationship as both the natureof buyer – supplier change and a new tier-one position is established that moves themodular suppliers close to the buyers.The objective of our work is to further study the modular supply chain model withmany parts outsourced to low cost manufacturing facilities, OEM setting up the plantin low cost manufacturing cities, mass customisation employed by the OEM to targetniche customers with respect to the current globalised scenario. We would like tostudy the impact of ever increasing oil prices and labour wage increase in thetraditional low cost manufacturing facilities which makes the manufacturers to studythe impact of outsourcing rather than going to the low cost manufacturing facilitiesblindfolded. With this context we would like to propose the future supply chain modelon the basis parts divided as strategic and non strategic components.Buyer – Supplier Relationship:The relationship between a supplier and buyer can be a complex one. Each partywants to maximize its time, resources, and cash investment; these may be competingpriorities that can strain the relationship. The summary of the automotive buyersupplier relationship is presented here in order to provide an idea of the existing buyersupplier relation between IHL and Nissan. The buyer supplier relationship varies withrespect to the geographical nature and commercial contexts.The Toyota Australia’s case study suggests that there are difficulties associated withmoving from “arm’s length” to “obligation “buyer supplier relationship. Thesedifficulties helped them to develop a new approach which involves the supplier tolearn about the principles Toyota Production System from showcase. Within U.Kautomotive context, Leverick and Cooper (1998) demonstrate that there is trend incloser buyer supplier relationship between the indigenous suppliers and primarycustomers. The selection of right partner, ensuring effective communication ofsensitive issues and partnership monitoring, helps in success of closer relationship.According to Spekman the closer buyer supplier relationship should be encouragedonly for the components that are consider strategically critical to the buyer and the noncritical components should adopt more traditional open market negotiation approach.Lamming provides an overview of the buyer supplier relationship in automotiveindustry for decades. In 1970’s the buyer supplier relationship was characterized asadversarial contractual relation (ACR). In the later part of 1970’s the trend startedchanging and the buyer started demanding quick cost reduction, open booknegotiation and adherences to strict quality control regimes. After mid 1980’s theystarted realizing the close buyer supplier relationship could actually improve theperformance of both parties.
  • 4. The close buyer supplier relationship is complicated, but the best partnerships can beattained by focusing on three critical and intertwined business tenets:  Compliance with local and international regulations  Conduct that breeds honesty, respect and open dialogue  Strategic financing that benefits both parties.Synchronous Manufacturing:Synchronous Manufacturing is an operational strategy that incorporates leanprinciples, but adds flexibility to the process. Where lean manufacturing is orientedtoward a repetitive manufacturing environment, synchronous manufacturing applies tolow-volume/high mix type of order characteristics. It also applies to environmentswhere a large degree of customization or "customerization" is required, or a make-to-order environment.Lean manufacturing applies best when the order characteristics are high-volume/low-mix. In these cases, components are identical, or differences lie in scale or size. WIPinventory is low in variety and can be controlled with ease. In contrast, in a low-volume/high-mix environment, the componentry tends to vary greatly, and the WIPinventory mix is characterized with a much greater variety, and is more difficult tocontrol.Synchronous manufacturing employs the synchronization between customer ordersand work stations. In other words, the first order worked on in the first work station isthe first work order worked on in the second station, and so on. This requires a goodsystems scheduling algorithm often using a first-in/first-out method to schedulingcustomer orders. Synchronous manufacturing can be applied within an AgileManufacturing strategy.Synchronous scheduling is often mixed in the same manufacturing environment withKan-ban signals, but at a later stage in the manufacturing process. For instance, aprocess that begins by taking raw steel and producing blanks can be scheduled usingKan-ban pull devices.
  • 5. The primary difference between the JIT and synchronous manufacturing environmentis the issue of supplying the exact needs of the customer. IHL is a true synchronousmanufacturer for Nissan; it manufactures and delivers up to 200 seating variation forthree models that are produced at Nissan’s plant. As the body of the car passes overthe transceiver in the assembly line, the Nissan computer system transmits data to allthe first tier suppliers. As IHL being the first tier supplier receives the data within 3seconds.This is the data that has been transmitted. The data provides vehicle specificinformation relating to fabric color, head rest requirement, front and rear seatrequirement, the vehicle chassis code, time the order has been received and commentsrelating to the individual seats.IHL buys the seat frame that forms the backbone of the seat and does some additionalwelding operations with the help of robots and manual work. IHL has three assemblylines for three different models. Once the seat frame is ready then the assemblyprocess begins. Since it’s synchronous in nature, the three assembly lines are mirror toNissan’s assembly line.Once the process is completed the seats are picked off from the three assembly linesand quality check is done so that no faulty seat is sent to Nissan. Correct alignment,correct mobility and visual precision are checked. When the seats pass the tests it ismade to rejoin the assembly line. The critical success to the synchronousmanufacturing is the low parts per million rejection rate. Nissan insists the first tiersuppliers for the PPM to be less than 50. In order to reduce the possibility of gettingdamaged while transporting, IHL has built a vehicle especially for this purpose.The flowchart below depicts the process that takes place at IHL.
  • 6. The benefits of synchronous manufacturing are generally higher flexibility, lowercosts, higher quality, lower inventory, and shorter lead times. The characteristics ofsynchronous processes are:  Make to order  Synchronized production  Just-In-Time materials/pull scheduling in early stages  Synchronized scheduling in later stages  Short cycle times  Highly flexible and responsive processes  Highly flexible machines and equipment  Quick changeover  Continuous flow work cells  Collocated machines, equipment, tools and people  Compressed space  Multi-skilled employees  Empowered employees  High first-pass yields with major reductions in defectsThe synchronous manufacture is logistically problematic for both buyers andsuppliers. To ensure that the system works properly it is essential to have an efficientmanagement of supply chain interface. With the context of Nissan an IHL, the buyersupplier interface is governed to a large extent by the Nissan’s Pre Production QualityAssurance Scheme. The quality, cost, delivery and other issues are focussed in thisscheme. This aspect of supply chain management is very critical to the success ofNissan.Modular Manufacturing:The term ‘modular manufacturing model’ refers to a model of a manufacturing systembased on modularization theory. The manufacturing system created based on design,construction, operation and control technology derived from this model is the‘modular manufacturing system’.The modular manufacturing model has in its background a paradigm as follows. Themanufacturing system (mechanical) and its information system reflect each other. Thisresults in a comprehensive model of representation, design, construction, control and
  • 7. operation, and the systems themselves, including exchange of information between thetwo systems. We may easily accept the idea that within the information system thatcorresponds to the physical systems (manufactured objects that have physical shapesand characteristics, manufacturing resources, manufacturing equipment, etc.),description and handling are performed in a unified manner. It follows, then, thatobjects and information are exchanged in a unified manner.In a traditional supply chain model, suppliers send basic parts for en element, such asan automobile seat, to the manufacturer. The manufacturer then assembles the partsinto a complete seat as the car is assembled. In modular supply chain, the suppliercreates the complete seat, and sends it ready to install.The benefits of modular supply chain management are, suppliers have considerabledesign and innovation leeway. Suppliers often provide design and cost savingdevelopment because they are given such a degree of freedom in production. Withlong-term commitments and aggressive cost goals, the suppliers and manufacturerswork together to create value. Modular components can be reused in a variety ofmodels of similar products, saving money and time.Modular supply chain management is a method of working with suppliers to deliverproducts in a shorter time frame. With the complexity and speed of manufacturingincreasing, modular supply chain management allows suppliers to create completecomponents quickly.The most striking example of modular manufacturing is the collaboration of MercedezBenz with swatch, the watch makers. A typical vehicle maker has to deal with 200-300 suppliers but Mercedez and Swatch built a smart car with only 25 modulesuppliers. The examples of smart modules are dashboard structure, body structure,breaking and the seat structure. Similar thing was carried out in Ford. Ford ka,replacement of Ford Fiesta. Modular manufacturing was introduced and the workerstrength falling from 3000 to 1200 and there was a reduction in the cycle time also.
  • 8. Conclusion:The above findings indicate that where a product is viewed as “strategic” by the buyerthen the mode of commercial engagement facilitates closer buyer supplierrelationship, particularly where modules are manufactured, supplied and fitted on asynchronous basis.Because of the natural disaster in Japan, Toyota motors are overhauling its supplychain. The disaster showed just how vulnerable carmakers supply chain systems areand Toyota has taken on board the harsh lessons it learned when rebuilding its supplychain system with a focus on diversifying procurement sources, boosting overseaspurchasing and standardising parts designs across the world.Considering the impact of ever increasing oil prices and labour wage increase in thetraditional low cost manufacturing facilities, emphasis on optimisation by regionwhich leads to producing a diverse array of parts and in case of any natural disaster inthe particular region the availability of certain modules will fail. In order avoid these,the architecture should be global and the parts design should be standardised in orderto hedge against the risk.
  • 9. References: 1. Correa, H and Miranda. (1998), “Supply network management in the Brazilian automotive industry”, Integrated Manufacturing System, Vol.9 No.5, pp.261-71. 2. Ford, D. (1998), “The development of the buyer-seller relationship in industrial markets”, European Journal of Marketing, Vol. 14 Nos 5/6, pp. 339-53. 3. Gules, H.K., Burgess., T.F. and Lynch, J.E. (1997), “The evolution of buyer-supplier relationship in the automotive industries of emerging European economies: the case of Turkey”, European journal of Purchasing and Supply Management, Vol.3 No.4, December, pp. 209-19. 4. Hines, P. (1996), “Network sourcing: a discussion of causality within the buyer- supplier relationship”, European Journal of purchasing & Supply Management, Vol.2 No.1, pp. 7-20. 5. Lamming, R. (1988),The Post Japanese Model for International Automotive Components Supply, MIT International Motor Vehicle Program, September. 6. Lamming, R. (1994), A Review of the Relationship Between Vehicle Manufacturers and Suppliers, Department of Trade and Industry, London. 7. Langfield-Smith, K. and Greenwood, M.R. (1998), “Developing co-operative buyer- supplier relationships: a case study of Toyota”, Journal of Management of Studies, Vol.35 No.3, pp.331-51. 8. Leverick, F and Cooper, R. (1998), “Partnerships in the motor industry: opportunities and risk for suppliers”, Long Range Planning, Vol.31, pp. 72-81. 9. Sako, M. (1992) , Prices, Quality and Trust:Inter-firm Relations in Britain and Japan, Cambridge University Press, Cambridge. 10. Schonenbeger, R. (1982), Japanese Manufacturing Techniques: Nine Hidden Lessons in Simplicity, Free Press, New York, NY. 11. Spekmen, R., Kamauff, J. and Myhr, N. (1998), “An empirical investigation into supply chain management: a perspective an partnerships”, International Journal of Physical Distribution and Logistics Management, Vol.28 No.8, pp.630-50.