1、1Auto Logistics and Supply Chain Management Summit 2003The Practice of VMI in China2AgendanOur understanding of the automotive logistics needsnWhat is VMI definition,procedures and benefitsnChallenges of VMI in ChinanCase studynBrief introduction to China Logistics Company3An automotive OEMs logisti
2、cs needs cover both inbound and outbound operations of parts and finished vehiclesPlantSuppliersConsolidation and Loading CenterService Parts Distribution CenterLogistics for Production PartsLogistics for Service PartsLogistics for Complete VehiclesDealerDealer/Service StationBonded Warehouse for Im
3、port PartsOur understanding of the automotive logistics needs4Supply chain management(SCM)is the strategic management tool that coordinates the material and information flows across the value chain to support adaptiveness 5“Demand-pull”value chain requires the companies to be flexible and able to“co
4、ntrol”a large part or the entire supply chainSuppliersManufacturingDemand indirectly drives manufacturing volume through forecastsWarehouseWholesale/Retail“Supply-push”Logistics ChainSuppliersB2B ExchangeManufacturingDirect Delivery“Demand-pull”Logistics ChainManufacturing driven by actual demand Th
5、e rate of supply was set by the manufacturer in advance,based on expected demand It was the role of the logistics providers to ensure a just-in-time supply of components The rate of manufacture is determined on a real-time basis by the rate of demand While this model is more efficient,it requires pe
6、rfect integration of all logistics operations within one processSource:Lehman Brothers,A.T.Kearney Analysis6Third-party logistics providers(3PLs)can directly,or through a partner network,provide a range of services Procurement Payables management Supplier payment and consolidated invoicing Vendor pe
7、rformance monitoring and exception reporting Joint process improvement with vendors Overall freight coordination Full load truck carrying Less-than-load truck carrying Small lot(less than 150 pounds)carrying Order consolidation Delivery scheduling Expediting special/rush orders Returning and reproce
8、ssing undeliverable orders Delivery tracing Performance and exception monitoring and reporting Overall inventory management Optimizing supplier order schedules Optimizing dealer order schedules Certification of incoming shipments Bar coding Performance and exception monitoring and reporting Tracking
9、 and Reporting Systems accessible via Internet Material Resource Planning Order preparation/assembly/consolidation Sourcing of packaging materials Printing of corrugate and/or linerboard materials Labeling Shrink wrapping of cases and palletsFreight and Distribution CoordinationWarehousing and Inven
10、tory ManagementMinor Assembly and PackagingProcurement7Difference between traditional business model and VMI modelTraditionalVMIPurchase Order PlacementWhen a customer needs product,they place an order against a manufacturer.Under VMI,the vendor generates the order,not the customer.Inventory Transpa
11、rencyOnly order is transmitted to supplier when product is needed.The vendor can view the“real-time”stock level of every item that the customer carries as well as true point of consumption data.Inventory ReplenishmentThe customer is in total control of the timing and size of the order being placed.T
12、he vendor is in total control of the timing and size of the order being placed.Inventory PlanThe customer maintains the inventory plan.The vendor is responsible for creating and maintaining the inventory plan.8Simplest VMI workflowManufacturerSuppliers2341The manufacturer approves the purchasing ter
13、ms with suppliers,including the commonly agreed inventory responsibility and maintenance scheme.The manufacturer sends product activity data to the supplier.This product activity is based on warehouse movement of product consumed at the assembly line level.Based on the agreed inventory maintenance s
14、cheme,the supplier edits,approves and releases the suggested purchase order.The manufacturer approves this purchase order and send it to the supplier.9Consolidation and Loading Center is commonly used to reduce the complexity in coordinating multiple vendorsnQuality of delivery services from vendors
15、 to line-side might be different nVendors shipping volume might be very small given more frequent“demand-pull”ordersnVendors might need a large line-side buffer to comprise a full-truck load and make-up a safety stocknLarge line-side area is needed to accomplish unpacking,kitting,and possibly sequen
16、cing of parts before feeding to assembly linenIndividual vendors might rent warehouses for themselves,with limited scale to share with other vendors nConsistent delivery service to line-sidenOptimal shipping volume to reduce transportation cost and inventory costnReduced requirement on line-side war
17、ehouse space nCoordination between suppliers and production line possible to promote synchronization and JITHow Consolidation and Loading Center Approach HelpsPotential Issues in Simplest VMI Model10Win-win situation can be achieved for both manufacturers nPlanning and ordering costs for the manufac
18、turer go down due to the responsibility being shifted to the vendornImproved customer service vendors can better respond to customers inventory needs in terms of both quantity and locationnReduced demand uncertainty by constantly monitoring customers inventory and demand stream,the number of large,u
19、nexpected customer orders will dwindle,or disappearnThe manufacturer is more focused than ever in providing good service and the overall service level is improved by having the right product at the right timenSpeed and accuracy of data processing are improved due to computer-to-computer communicatio
20、nsnReduced total logistics cost and improved cash-flow11 and vendorsnSmoothing demand the supplier is able to smooth the peaks and valleys in the flow of goods,and therefore to keep smaller buffers of capacity and inventory.nBetter coordination the supplier has better opportunities to co-ordinate th
21、e shipments to different customers,such as scheduling-either postponing or advancing-shipments according to production schedules,customer inventory situations and transportation capacitynReduced inventory requirements by knowing exactly how much inventory the customer is carrying,a vendors own inven
22、tory requirements are reduced since the need for excess stock to buffer against uncertainty is reduced or eliminatednSpeed and accuracy of data processing are improved due to computer-to-computer communicationsnReduced total logistics cost and improved cash-flowThe binding of customers to vendors on
23、ce relationship is established,customers will be reluctant to endure the amount of work needed to switch vendors12Currently,most automotive manufacturers in China consider Consignment Inventory as VMInVMI are usually used as a method to realize“zero inventory”while the parts are sitting in manufactu
24、rers warehouse,vendors are forced to finish the transfer if parts ownership until assembly is donenConsignment Inventory,on the other hand,are the exact practice of most vendors and manufacturers vendors are not involved in inventory and logistics decisionsChallenges of VMI in China13This concept/be
25、lief reveals the transactional relation between suppliers and manufacturersnPrice-driven sourcing decision without in-depth understanding of cost structurenLogistics cost and material cost are commonly added up as a lump-sum“CIF price”nFew suppliers are willing to“open cost”to their customers unless
26、 margin is very thinnSupply chain management targets forcefully drive suppliers to reduce price to maintain business relationnPayment terms and payment situation constrain suppliers from getting inventory information under consignment inventorynInventory movement means actual consumption of products
27、,immediately starting the manufacturer payment cyclenNeither manufacturers and suppliers make significant investment in building EDI to facilitate data sharingWithout transparent data sharing and collaborative supply chain planning,lose-lose situation arises due to higher operation(transaction)cost
28、14To avoid the potential conflict between manufacturers and suppliers,an independent third party can be employed to help manage the VMI initiativenThird-party consolidates the shipment from various suppliersnThird party facilitate the information exchange between manufacturer,consolidation and loadi
29、ng center,and the suppliersnInformation is neutral to both suppliers and manufacturers,signaling transfer of ownership according to pre-agreed termsnThird-party can help manage inventory,unpacking,kitting,sequencing and delivery to line,milk-running the inbound parts and potentially placing purchase
30、 order on manufacturers and suppliers behalfnOwnership remains unchanged before or after VMI is implemented15However,internal resistance against outsourcing the VMI service remains generally very strong nNo common understanding of how third-party can help smooth the VMI operationnStaff currently in
31、charge of inbound logistics are afraid of losing jobsnGeneral belief to hold potential“profit”within the companynNo cost benchmark to compare the overall cost under third-party managementnResistance to share inventory data with third-partynA cultural adjustment as well as a significant reorganizatio
32、n of everyday job duties is required to accomplish a major change of company operationsVMI will achieve its acceptance gradually,especially after the anticipated competitive environment in 2-3 years16A Chinese OEM outsourced its inbound logistics to China Logistics for operating assets,skills and be
33、tter managementOEM Inbound LogisticsnThe OEM was preparing for mass production of a new passenger car model on a totally new plantnIn the past,the suppliers were asked to deliver all components to the line side warehousenThere are not enough in-house operation staff and space to cope with expansion
34、of productionnThe management of the OEM would like to focus on manufacturing of vehicles,while outsource most of its logistics to third partynChina Logistics refurbished a 4,500 Sq.M.warehouse situated 8 km from the assembly line nIn addition,emergency orders can be dispatched within ten minutes of
35、notification and delivered to line side within 30 minutesnParts are stored,picked and marshalled according to where they are used on the assembly line,with loads configured in direct-to-line ordernScale ramped up from 40 units per day in November 2002 to 180 units in March 2003nIn a typical week,the
36、 China Logistics team handles more than 3,000 different product lines and makes some 250 just-in-time deliveries to lineside receiving points China Logistics ApproachSituationSelected Case Studies17There are several different factors to consider in designing an appropriate inventory level Orderto-de
37、livery lead time Order size and frequencyAnnual throughputPer SKU demandComplete vehicle sales volumeCar parc(penetration rate)Total number of SKUs Kitting or other needs Purchasing lead time Transportation lead time Purchasing order size and frequencyCustomer NeedsVolume ForecastSKU ComplexityInbou
38、nd ProcessSolution SelectionTotal Cost Transportation cost Warehousing cost Labor costLevel of Integration Source of materials(external suppliers or OEM factory)Location of suppliersOEM Inbound Logistics18Current Operational Characteristics related to Materials Management20+domestic and 50+overseas
39、suppliersSupplierSupplier1 1Customer involving:nLogistics DeptnQuality DeptnPlanning DeptSupplierSupplierX XSupplierSupplier2 2SupplierSupplier3 3SupplierSupplier2222nnOperational characteristics:Component Supplier Inbound LogisticsAt present,Customer X directly contact a multitude of suppliers,to P
40、lace P/O;Monitor P/O status,change P/O if necessary;Receive and unpack parts,store and pickingInspect and sort parts;Deliver to assembly line;Check documentation and finally pay invoice.It involves functions across the customer:Production PlanningQuality ControlLogistics and Materials ManagementITFi
41、nance19Major capacity and quality issues arises when 50%annual growth is anticipatednUnder-capacity for warehousing spacenThere are constraints as production capacity needs to be boomed to meet increasing customer demandsnManufacturing flexibility is lownWhen parts ordered before are already on thei
42、r way while production plan needs to be changed,either the parts have to go back or the production plan has to remain unchanged since there is no space for the unwanted partsnWhen parts received are found defected production has not been able to swift to alternative plan as there is little other sto
43、ck in the factorynQuality has been compromised:nAs there is little stock on hand some parts with defects have to be repaired and used,hence quality is not at its best from time to timenCommunications consume plenty of timenEach function may have to contact suppliers for their own responsibilities to
44、 conduct the previously mentioned activities making the operation less smoothComponent Supplier Inbound Logistics20Project Roll-out ScheduleContract negotiation Supplier agreement negotiation SetupGo liveMain tasksWarehouse decorationOffice set-upWMS System fine tuningStaff trainingProcurement of equipmentsInternal SOPQuality inspection capabilities improvementComponent Supplier Inbound Logistics
