International Supply Case Study
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Transcript of International Supply Case Study
International Supply Case Study
BMW
Outline
• BMW- The company
• Build-to-Order & BMW
• BMW Spartanburg Plant– Products– Sourcing– Capacity
• Managing Supply
BMW History
• Founded in 1917• Built engines for military aircraft• 1940’s WW2: repairs, manufactured spare parts, agricultural
equipment and bicycles• 1950’s build motorcycles• Then the cars…• 1970’s: South Africa Plant• 1992: US Plant• 1994: Purchased Rover group (Rover, Land Rover, Mini,
MG)• 1998: Rolls Royce (2003)• 2000: Sold Rover except Mini
BMW Business Interests
• Automobiles– BMW– Mini– Rolls Royce
• Motorcycles
• Financial services
BMW
• “The BMW Group is the only manufacturer of automobiles and motorcycles worldwide that concentrates entirely on premium standards and outstanding quality for all its brands and across all relevant segments.”
• Premium sector of the international automobile market
Z4
X5
X3
6Series
BMW Group.Brands and Models.
Motorcycles
1 Series 3 Series 5 Series 7 Series
Source: Goudiano CSCMP 2005
BMW Group Development and Production Network
Z8Dingolfing
Munich
Leipzig
Regensburg
Spartanburg
Rosslyn
Graz (external production)
Berlin
Oxford
Goodwood
Shenyang
Source: Goudiano CSCMP 2005
Production Volume
Total: 1119.1
Production Volume
Ford’s Worldwide vehicle unit sales of cars and trucks in 2004 (in thousands):
The Americas 3,915
Ford Europe and PAG 2,476
Ford Asia Pacific and Africa 407
Total 6,798
Challenges
• Excess capacity => Price pressures• Customer expectations
– Personalization– Innovation– Service
• Cost effective factories with flexible manufacturing abilities
• New technologies and material• Regulations• ….
Build to Order
• Convert orders to products• No finished goods inventory• “Build-to-Order is the capability to
quickly build standard or mass-customized products upon receipt of spontaneous orders without forecasts, inventory, or purchasing delays.” (D.M. Anderson)
• Demand pulls production• WHY BTO?
Why BTO?
• LEAN!!!• 'Lean production is aimed at the elimination of
waste in every area of production including customer relations, product design, supplier networks and factory management. Its goal is to incorporate less human effort, less inventory, less time to develop products, and less space to become highly responsive to customer demand while producing top quality products in the most efficient and economical manner possible.'
Why BTO?
• Other Alternatives– Build to Stock/Forecast
• Assign to dealers
• Sell from available stock
Built-to-OrderBuilt-to-Forecast
Sale from stock Customized vehicle
Built-to-Order vs. Built-to-Forecast
– higher level of customer satisfaction due to personalization– better inventory management – less sales incentives
Customer StorageProduction ProductionCustomer Customer
Increasing Product Complexity
• Product variety & Part complexity
– 1032 possible combinations of products at BMW
– 1017 possible combinations of BMW 7 series
– ~70 million configurations of the Ford Escape
– >240 configurations of Toyota Scion
Ford Escape• 5 models (XLS manual, XLS automatic, XLT automatic, XLT sport, Limited automatic)• 2 drive options (Front-wheel drive or four-wheel drive)• 2 engine sizes (2.3L or 3.0L)• 9 exterior color options (Dark Shadow Grey, Titanium Green, Redfire, Blazing Copper,
Sonic Blue, Dark Stone, Black, Silver, Oxford White)• 3 interior colors (Black, Flint, Pebble)• 2 transmission options (4-speed, 5-speed)• 4 wheel options (15” aluminum, 15” styled, 16” aluminum, 16” Bright Machined aluminum• 2 choices of tires (BSW or OWL)• 4 options of electronics (AM/FM Single CD with clock, AM/FM 6-CD, AM/FM Single-CD
Cassette, Audiophile 6-CD)• 4 options of seats (Cloth, Premium cloth, leather trimmed, premium leather)• 5 special package options (Cargo convenience, convenience, leather comfort, safety,
towing) representing 32 different possibilities • 4 different upgrades (Spare tire, moon roof, roof rack and side step) representing 16
further options.
These options lead to 70 million ~ 5x2x2x9x3x2x4x2x4x4x32x16
BMW 7 Series
350 Model Versions
... leading to e.g. 1017 theoretical combinations only for the BMW 7 Series
175 InteriorEquipment Options
Source: Goudiano CSCMP 2005
500 Extra Equipment Options
90 Standard Exterior Colors
Product Complexity
• A finite set of part numbers
• “Infinitely” many end products
BTO & Product Complexity
• BTO makes it possible to– Address tremendous product variety – Face the challenges of managing the
variability in component demand.
Savings through BTO
• In the U.S.• Potential savings through BTO~ $1500/car*
• Average incentives per car sold ~$1900 in 2002*
*Miemczyk and Holweg J. Bus. Logistics, 2004
Obstacles/ Requirements
• Inability to supply customized vehicles within “acceptable” timeframes– Avg. Leadtime for customized vehicles:
6-10 weeks!!!
• Short OTD• Process/Product/Volume flexibility• Flexibility from suppliers• Flexibility from logistics operators
Current BTO Levels
1999: % BTO Avg. New Vehicle stock in days
• U.S.: ~ 5%60-90 days
• U.K.: ~33% 64 days
• Europe: ~48% 55 days
• Japan (Toyota): ~60%20 days
Source: Miemczyk and Holweg (2004)
BTO & BMW
• BMW
• BMW’s operations in SC Plant
• BMW’s challenges in BTO
• Available levers for control
BMW USA
BMW USA
• Z4
• X5
BMW
• “Every customer receives his/her personalized vehicle at a compulsory date – at best at his/her preferred date”
– 100% delivery punctuality– Flexibility for order change
Why offer flexibility?
0102030-1,0
-0,5
0,0
0,5
1,0
1,5
2,0
2,5
days before order freeze
Comfort seatadjustable electronically
Xenon lights
Independent vehicle heater
Navigation systems
Equipment changes in % (accumulated)
Flexibility
%
Source: Goudiano CSCMP 2005
BMW USA
• ~140,000 vehicles in 2004.• KOVP (Customer-oriented production and
sales)• Over 6000 part numbers for X5 • 70% are option driven• Flexibility for order change • 40% of parts from Europe
KOVP
Process Monitoring and Target Control
Distribution Process and Hand-over
Sales Processes andOnline Ordering
Production- Production- and Supply- and Supply- ProcessesProcesses
Dealer SalesSystem
ProductionSystem
SalesSystem
Dealer
Planning
Dealer orderPurchasingLogistics ProductionDistributionHand-over
Ord
erin
g
Del
iver
y
Sales Processes andOnline Ordering
Optimize the whole process
KOVPThe Push-Pull Interface
Production System before KOVP
Start Order AssignmentSort Sort
Early Order Assignment
Bodyshell work Paint shop Assembly
Production System with KOVP
Frozen Horizon
Sort
Late Order Assignment
Start order assignment
OSM
Bodyshell work Paint shop Assembly
Push Pull
Flexibility for Order Change
Reduction of Leadtime
Ordering/Scheduling
Production/Distribution
15 WD 28-32 WD
13-17 WD
Before KOVP: Order freeze
Process Feasibility
Supplier /Body shell work andPaint shop
Change flexibility till 6 WD
Distri-
bution
Assem-bly
Hand-over to Sales
3 WD 10 WD1 2 WD4 WD
Breakthrough target KOVP :
BMW USA
• ~140,000 vehicles in 2004.• KOVP (Customer-oriented production and
sales)• Over 6000 part numbers for X5 • 70% are option driven• Flexibility for order change • 40% of parts from Europe
Sourcing
• Why source from Europe
– Relationship with suppliers– Tooling is already there– Social responsibility issues
Why serve global markets?
• Tooling
• Volume
• …
BMW Sourcing
Wackersdorf
•Receive, Sort, Package•Handles >14,000 part numbers from other BMW plants and over 500 European suppliers. •Receives ~ 160 truckloads of parts per day •Ships ~ 75- 80 containers per day to the BMW assembly plants in Rosslyn, South Africa, Spartanburg, South Carolina and Shenyang, China.
BMW: Capacity
• Capacity is a major investment• Labor is highly skilled/ organized• Production set at “takt time”
– “A vehicle every 50 seconds”
• Capacity adjustments through adjustments to takt time, adding/reducing shifts, shutdowns…
• Same number of cars/day
Manage Capacity
• From day to day
– Mix of vehicles vary– Usage of parts vary
Manage Capacity
• Mix of vehicles Capacity orientedProduction planningSeasonality
Source: Goudiano CSCMP 2005
Manage Supply
• Over 6000 part numbers
• 70 % option driven
• Order changes
• 40% from Europe
0
30
60
90
1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96 101
106
Day
Dai
ly U
sag
e
Usage
Average Usage 32/day
Standard Deviation in Usage 18/day
SAME NUMBER OF CARS/DAY
Managing Supply
ForecastShipments
ArriveDecide Shipment
Quantities
Demand
Day 1 Day 10Day 40
Demand
Demand
Demand
Prepare Shipments
Challenge
• Huge number of parts: Complexity
• Order Flexibility: Variability
• Long LeadTimes: Variability
Levers for managing uncertainty
• Capacity– Capacity on Supply– Production Capacity
• Inventory
• Time – Order due date
Infinite
Constant
Given/Strict
Manage Inventory
• “Infinitely” many end products from finite number of parts
• Stochastic demand• Variable long leadtimes
• No shortages allowed: – Production in a predetermined sequence– Expedite
Demand Modeling
• Infinitely many end products
• Not enough data points to estimate distribution of product demand
• Instead: Components
Challenge
• Huge number of parts: Complexity
• Order Flexibility: Variability
• Long LeadTimes: Variability
• No shortages allowed
Some Tools & Mechanisms
• Safety Stock
• Forecast Accuracy
• Frequency
• Global Supply process
• …
Safety Stock
• Protection against variability– Variability in demand and– Variability in lead time– Typically described as days of supply– Should be described as standard deviations
in lead time demand
Traditional basics
Time
Sto
ck o
n ha
nd
Reorder Point
Order placed
Lead Time
Reorder Point
Actual Lead Time Demand
Actual Lead Time Demand
Order Quantity
Actual Lead Time Demand
Actual Lead Time Demand
Order-up-to level
T L
Safety Stock Basics
• Lead time demand N(, )
• Safety stock levels– Choose z from N(0,1) to get correct
probability that lead time demand exceeds z,– Safety stock is z
Safety Stock in Periodic Review• Probability of stock out is the probability demand in T+L
exceed the order up to level, S• Set a time unit, e.g., days• T = Time between orders (fixed)• L = Lead time, mean E[L], std dev L
• Demand per time unit has mean D, std dev D
• Assume demands in different periods are independent• Let Ddenote the standard deviation in demand per unit
time• Let Ldenote the standard deviation in the lead time.
Only Variability in Demand
• If Lead Times are reliable– Average Lead Time Demand
(T+L) * D
– Standard Deviation in lead time demand
(T+L)D
Lead Time Variability
If Lead Times are variable• D = Average (daily) demand• D = Std. Dev. in (daily) demand• L = Average lead time (days)• L = Std. Dev. in lead time (days)• Average lead time demand
D(T+E[L])
• Std. Dev. in lead time demand(T+E[L])2
D + D2 2L
• Remember: Std. Dev. in lead time demand drives safety stock
Levers to Pull
• Std. dev in lead time demand(T+E[L])2
D + D2 2L
Reduce Lead Time
Reduce Variability
in Lead Time
Reduce Variability in Demand
Reduce Time
between orders
Safety Stock
• Protection against variability– Variability in demand and
– Variability in lead time
– Typically described as days of supply
– Should be described as standard deviations in lead time demand
• Example: BMW safety stock
– For axles only protects against lead time variability
– For option parts protects against usage variability too