Harrisons logistics management and strategy, competing through the supply chain (3rd edition) 1

• Contents , Forew ord >V Preface Au thor's acknowledgements Publisher's acknowl edge ments xvii xix xx How to use this book xxili Plan of t he book xxv Part One COMPETING THROUGH LOGISTICS , Logistics and the supply chain Introdu ct ion 1.1 1.2 1.3 1.4 log istics and the sup ply cha in 1.1.1 Definitions and concepts 1.1 Supply chain; struc tu re and tiering Material flow and inform ation flow 1.2.1 Material flow 1.2.2 Information flow Competing t hrough logistics 1.3.1 1.3.2 1.3.3 Hard objectives Support ive capab ilities Soft o bjectives 1.3.4 O rder w inners and qu alifiers 3 12 12 14 15 16 18 22 23 l ogistics strategy '.4 Defining 'strategy' 25 26 , 4.2 1.4 27 Align ing st rategies Different iatin g st rategi es Summary Discussion questions References Suggested further read ing Putting the end-customer first Int rodu ct ion 2.1 The market ing perspecti ve 2.1.1 Rising customer expec tations 2.1.2 The information revo lut ion 2.2 Segment ation 2.3 Quality o f service 2.3.1 Custo mer loyalty 28 30 31 31 32 33 33 34 35 35 36 44 45 viii Contents 2.3.2 Val ue disciplines 2.3 Custome r relationsh ip management (CRM) 2.3.4 Measuring service quality 2.4 Setting priorities for logistics strategy 2.4 Step 1: Diagnose current app roach to market seg mentation 2.4.2 Step 2a: Understand buying be haviour 2.4.3 Step 2b: Customer value analysis 2.4.4 Step 3: Measure logistics strategy driver 2.4.5 Step 4: Spec ify future approach to ma rket segmentation Summary Discussion questions References Suggested furthe r read ing Value and logistics costs Introduction 3.1 Where does value come from? 3.1 Return on investment (ROJ) 3.1 Financial ratios and ROI drivers 3.2 How can logistics costs be re presented? 3.2.1 Fixed/variable 3.2.2 Direct/ind irect 3.2.3 Engineered/discretionary 3.3 Activity-based costing (ABC) 3.3.1 ABC example 3.3.2 Cost-time profile (CTP) 3.4 A balanced measurem ent portfolio 3.4.1 Ba lanced measures 3.4.2 Supply chain management and the balanced scorecard 3.4.3 Supply chain financial model 3.5 Supply chain operations reference model (SCOR) Summary Discussion qu estions References 46 47 50 50 50 52 53 54 54 57 58 63 64 65 65 66 67 69 71 71 76 78 81 82 83 85 86 87 88 89 93 94 95 Part Two LEVERAGING LOGISTICS OPERATIONS Managing logistics internationally Introduction 4.1 Drivers and log istics implications of internat ionalisation 4.1.1 l ogistical implications of internationalisation 4.1.2 Time-to-ma rket 4.1.3 Global consolidation 4.1 Risk in international log istics 99 99 101 102 105 106 10 Contents 4.2 The tendency toward s internationalisation 4.2.1 Focused factories: from geog raphical to produ ct segmentation 4.2.2 Centralised inventories 4.3 The challenges of international logistics and location 4.3.1 Exte nded lead time of supp ly 3.2 Extended and unrelia ble transit times 4.3.3 Multiple consolidation and break points 3.4 Multiple freight mod es and cost option s 3.5 Location analysis 4.4 Orga nising for internation al log istics 4.4.1 Layering and tiering 4.4.2 The evolvi ng role of individual plants 4.4.3 Reconfiguration processes 4.5 Reverse logistics 4.6 Managing for risk readiness 4.6 Immediate risk read iness 6.2 Structural risk readines s 4.7 Corporate social responsibility in the supp ly chain Summary Discussion questions References Suggeste d furthe r reading Managing the lead-time frontier Introduction 5.1 The role of time in compet itive advantage 5.1 Time-based compet ition: definition and concepts 5.1.2 Time-based initiatives 5.1.3 Time-based op portun ities to add value 5.1.4 Time-based opportunities to reduce cost 5.1.5 Lim itations to time-based approaches 5.2 P:D ratios and differences 5.2 Using time as a performance measure 5.2.2 Using time to measure supply pipeline performance 5.2.3 Consequences when Pctlrne is greater than Dctime 5.3 Time-based process mappi ng 5.3.1 Stage 1: Create a task force 5.3.2 Stage 2: Select the p rocess to map 5.3.3 Stage 3: Collect data 5.3.4 Stage 4: Flow chart the process 5.3.5 Stage 5: Distinguish between value-addin q and no n-value-addinq time 5.3.6 Stage 6: Construct th e time-based process map 5.3.7 Stage 7: Solution ge ne ration lx 111 111 112 115 116 116 116 117 118 120 120 121 122 129 30 130 131 132 136 137 37 37 139 39 140 140 141 14 144 146 146 147 148 150 153 154 154 155 155 155 156 156 x Contents 5.4 Managing timeli ness in the logistics pipeline 5.4.1 Strategies to cope when p-urne is greater tha n D ctirn e 5.4.2 Practices to cope when P-time is greater than D-time 5.5 A met hod for implement ing time-based practices 5.5.1 Step 1: Understand your need to change 5.5.2 Step 2: Understand your processes 5.5.3 Step 3: Identify un necessary process steps and large amounts of wasted time 5.5.4 Step 4: Understand the causes of waste 5.5.5 Step 5: Change the process 5.5 Step 6: Review changes 5.5.7 Results 5.6 When, where and how? Summary Discussion questions References Suggested further read ing Supply chain planning and control Int roduction 6.1 The supply chain 'game plan' 6.1.1 Planning and control within the focal firm 6.1.2 Managing inventory in the su pply chain 6.1.3 Inter-firm plann ing and control 6.2 Just-in-time (lIT) 6.2.1 The just-in-time system 6.2.2 liT and ma terial requirements planning (MRP) 6.3 lean thinking 6.3.1 The seven wastes 6.3.2 Application of lean thinking to business processes 6.3.3 Role of lean practices 6.3.4 Design strategies 6.3.5 lean product design 6.3.6 l ea n faci lity design 6.3.7 l ea n thinking summa ry Summary Discussion questions References Sugges ted further reading The agile supply chain Int roduction 7.1 The concept of agility 7.1.1 Demand characteristics and supply capabilities 7.1.2 Classifying operating environments 161 162 163 164 165 165 166 166 166 166 167 167 168 169 169 169 171 171 173 173 177 181 184 185 190 192 194 195 196 197 197 197 198 198 199 200 201 203 203 204 206 214 Contents xi 7.1.3 Preconditions for su ccessful agile pract ice 7.1.4 Summary 7.2 Agile drivers and practices 7.2.1 Joint decision making to improve external network integration 7.2.2 Developing measures to put the end-c ustome r first 7.2 Shared goals t o improve virtua l int egrat ion 7.2.4 Boundary-spanning SOP to improve process integration Summary Discussion questions References Suggested fu rt her reading 214 219 19 222 223 224 225 226 22 228 229 Part Three WORKING TOGETHER Integrating the su ppl y cha in Introduction 8.1 Integrati on in t he supply cha in 8.1 Internal integrat ion: f unction to funct ion 8.1 Inter-company int egrat ion: a manual approach 8.1 Elect ronic integration 8.2 Efficient consumer response (ECR) 8.2.1 Category management 8.2.2 Cont inuous replenishment 8.2 Enab ling technolog ies 8.3 Collabo rative planning, forecasting and replenish ment (CPFR) 3.1 Benefits of electro nic collaboration 8.4 Vendor -m anaged inventory (VM I) 8.4 How VM I work s 8.4.2 Potential benefits 8.4.3 Potential problems in setting up a VM I system 8.5 Quick response (QR) 8.5 JITI QR relationship 8.5.2 Role of enabling technologies 8.6 Managing supply chain relatio nships 8.6 Creat ing closer relatio nships 8.6 Facto rs in forming supply chain relat ionship s Su m mary Discussion questions References Suggested further reading Purchasing and supply relationships Introduct ion 233 233 234 35 23 238 242 243 243 244 248 252 252 253 253 254 255 256 256 257 257 258 260 26 262 263 265 265 xll Contents 9.1 9.2 Choosing the right supp ly relationships Pa rtnerships in the supply chain 9.2.1 Economic justificatio n for partnerships 9.2.2 Advantages of partnerships 9.2.3 Disadvantages of partn erships 9.3 Supply base rationalisation 9.3.1 Supplier management 9.3.2 lead suppliers 9.4 Supplier networks 9.4.1 Supplier association s 9.4.2 Japanese keiretsu 9.4.3 Italian districts 9.S Supplier development 9.5.1 Integ rated processes 9.5.2 Synch ronous production 9.6 Implementing strategic partnerships Summary Discussion questions References Suggested further reading 266 274 274 274 275 275 76 276 277 277 280 28 284 285 285 286 290 291 292 293 Part Four CHANGING THE FUTURE 10 Logistics future challenges and opportunities Introduction 10.1 Internal alignment 10.2 Selecting collaborative oppo rtunities upstream and downstrea m 10.3 Managing wi th cost-to-serve to support growth and profitability 10.4 The supply chain manager of the future Summary Discussion questions References Suggested further reading Index 297 297 298 302 305 308 310 31 310 310 311 \ Supporting resources Visit www.pearsoned.co.uk/harrison to find valuable o nline resources For instructors • Comp lete, downloadable Instructo r's Manual, containing teaching notes, notes on case studies and teach ing tips, objectives and discussion points for each chapter • Downloadable PowerPoint slides of all figures from th e book For more information please co ntact your local Pearson Education sales representative or visit www.pearsoned.co.uk/harrison Plan of the book Part One COMPETING THROU GH LOGISTICS I Chap t er logistics and the supply chain I Chapter Putt ing the end-customer first Chapter Value and log istics costs Part Two LEVERAGIN G LOGI STICS OPERATIONS Managing logistics internationally Chapter Chapter Manag ing t he lead-ti me front ier Chapter Supply chain planning and control The agile supply chain Chapter Part Three WORKING TOGETHER Chapter Integrating the rupply chain : Chapter Purchasing and supply relationships Part Four CHANGING THE FUTURE Chapter 10 logistics futu re chlil lenge s lind opportunities i COMPETING THROUGH LOGISTICS Our model of logi stics structures the supply network around th ree main factors: the flow of materia ls, the flow of information and the time taken to respond to demand from source of supply The scope of the network extends from t he 'focal f irm ' in darke r red at the ce ntre across sup plier and customer interfaces, and the refore typically stretches across functions, org anisations and borde rs The network is best seen as a system of interde pe nde nt processes, where actions in one part affect those of all oth ers The key 'initiator' of the network is e nd-custo mer demand on the right: only the end-customer is free to make up their mind w hen to place an order After that, the system takes over Chapter expla ins how networks are structu red the di fferent ways in w hich they may choose to compete, and how thei r capabi lities have to be aligned w ith the needs of t he end -customer Chapter places the end -customer f irst in log istics thinking, and develops the theme of aligning logi st ics strategy w ith marketing strategy Chapter considers how value is created in a supply network, how logistics costs can be managed, and how a balanced measurement portfolio can be designed ~ , • E ~ 0 S-• d E • ::> ~ ~ • , • • E Info rma tio n flow • E Mat erial flow (s upply) ~ E • ~o ~ • s ~0 ~ • ~,•E -l: • ~ ~ Time Just-In-time (liT) 185 The push a pp roac h is a common way fo r processes to be man aged, and often seems a sensible o ptio n If some of the people in a facto ry o r an offi ce a re idle, it seems a good idea to give them wo rk to The assu mption is that those products can be so ld at some poi nt in the future 1\ similar assu mption is that building up a stock of fi ni shed goods will q uic kly he lp to satisfy the cus tomer This arg ume nt seems pa rtic ularly att racti ve wh ere manu fact u ring lead times arc 10n oR, if qua lity is a problem , or if mach ines often b reak down It is bette r an d safer to make products, just in case there is a problem in the future Unfor tuna tely, this a rgum ent has severe limi tatio ns Pus h sched uling and its associat ed invento ries not always help co mpa nies to be mor e respo nsive All too ofte n, the very prod ucts the organ isation wants to sell arc unavailable, whitt.' there is too much stock o f prod ucts that a rt.' not selling And build ing up stock certain ly does no t he lp to make mo re producti ve use of spare capacity Ins tead it ca n easily lead to excess cos ts, and h ide opportunities to im prove processes 6.2.1 The just-in-time system Com pa nies ach ieve the a bility to produce and deliver just-in-time to satisfy act ua l dema nd because t hey develop a prod uction system that is capa ble of wo rking in th is way Such a system can be envisaged as a number of · fd t.:t Ul ~ ' l ll d ( interact with each o th e r, as sho wn in Figure 6.5 This shows Hf ca pability as fo unded o n layer s of factors t hat interact toget her to form a system that is des igned for fl ow Excellence in each of the six factors dete rmines t he effectiveness with wh ich J IT ca pab ility can be ach ieved : that Is, how easy it is to get to th e top of the pyramid Levell lost-i n-time Le vel J Level Figure Min imum defects ' - := _ - ,~ Simplic ity and visibility M inimu m dow nt ime The pyramid of key factors t hat underpin JIT Faetor Th e top of the pyramid is full capability for just-in-time supply This is the level a t which a foca l firm can produce a nd deliv er accord ing to the dem a nd that is placed o n it, The relationships operat ing with in a nd between levels an d fo rm the system that ultima tely unde rpin s the achievem ent o f ) IT They are co mplex, 186 Chapter · Supply chain planning and control and in some cases th ere is a long tim e delay between tak ing ac tions a nd seeing the effects Factor The two factors delay an d inventory interact with t-ach o ther in a system of positive amplification: t hat is, th ey go up together and th ey go down together This interrelationship results in either a virtuous cycle, wh ere th in gs keep getting better, or a vicious cycle, wh ere th ey keep getti ng worse For exa mple, extra delay in a process will result in ext inv entory bei ng held to compe nsate for th e delay Add ing more inv ent ory cau ses further delays as products take longer to flow through the process, wh ich leads to the need for more invento ry Conversely, if delays a re reduced th en less inventory is nee ded, which results in fewer delays, mea n ing that inven tory can be furth er reduced Making su re th is relationship operates as a virtuous cycle of reducing dela y and inventory instead o f a vicious one where they increase depends on th e underpin ni ng factors in level Factor Defects lead to delays, either th rough requiring rework or n ecessitati ng increased product io n to com pensa te for scrap Till: likeli hood of defects leads to safety stocks being held as a buffer against pot ential problem s This th inkin g amplifies quali ty problem s by increasing th e time between a defe ct occu rring and its dis-covery Not only is the cause hard er to identify, but more product ion will be affected The att itude that holding inventory can m itigate th e effect of quality problems is fundamen tally fl awed It sta nds in opposition to th e on ly successful approach to defect imisation, where problem s are quick ly identified, their causes a rc traced, and pe rma nent solutions are devised and ap plied Factor Machin e downtim e relates to a number of issues: • unplan ned downtime - that is, breakdown s; • planned ma in tenance; • changeover time s Down time, and particularly th e risk of unplanned downtime, is a key cause of th e need for safety stocks in a process Othe r JfT tools and tec h niques can help to m in im ise the probl em s here For exa mp le, total productive maintenance n-P\f; Nakajima , 1989) seeks to answer th e question 'What ca n every one to help preven t breakdowns?' Regu lar planned preventive maintenance, closer cooperation between production an d maint enan ce personn el, a nd equipment sourci ng for ease of ma intenance are so me of the actions th a t ca n be take n in respon se In other words, increasin g planned ma int enance cost s o ften results in reduced overall costs of machine downtime Minimising cha ngeover time is a J IT too l tha t can be used not o nly to reduce lost prod uction time but also to improve prod uction flexibility Inflexible facilities delay the rap id production of custo mer orders Just-in-time (lIT) 187 Factor Where the fl ow through a process is easily see n, people in the process will have a better understa nding of thei r colleagues' work and how they themselves affect o thers A simple process results from having first focused o perations a round a family of compatible products Layou t is then o rganised to bri ng together all the people and eq u ipment needed to undertake the process These are arran ged so that there is a logical flow between the process ste ps Arran ging the process so that th e stations for undertaki ng the steps an' close together no t o nly hel ps to red uce inventory but a lso will itsel f be made easier wh en inventory is low A simple process will be more visible, allowing it to be bette r main tained Not on ly sho uld there be fewer things to go wrong, they will be mo re obvious when they do, and will be easier to fix This attribu te helps to m in imise both machine dow ntime and product defects Maintenance of the process is underpinned by hou sekeeping and cleanliness This sta rts wit h designing processes a nd facilities to create o rder There is a place for everyt hi ng, and everythi ng has its place O rderliness de pe nds on a thinking workforce that s accepted o wners h ip and responsibility fo r o rganising the work pla ce Att entio n to detail in terms of 'respect for human ' issues is a n essential part of JIT philosophy (Harriso n and Storey, 2000) Faetor The leve ls of wo rk in progress a nd o ther types of inventory haw a signifi cant impact upon the visibility of a process It becomes inc reasingly difficult to see the flow of a process as inve ntory increases This ma y bellterall y tru e o n a sho p fl oor o r in a warehouse, where piles and stacks of goods can isolate wor kers The same is true in offices wh en the process fl ow becomes lost in asso rted piles of wo rk on people's desks In order to highlight the limitations of push producti on we next consider the case of how a focal firm took a rather traditional approa ch to respo ndi ng to new demands bei ng placed o n the production proces s Smog Co The Smog Co production system This is the case of Smog Co., a small supplier of well-engineered components Smog produces a range of produ cts grouped into families Production of one of the higher volume product families has been organised into a flow process made up of four steps, which follow one after the other in sequence Changeover from one product to another is relatively simple, but takes around 10 minutes per machine To minimise delays caused by changeovers, products tend to be made in batches These batches move from one step to the next, where they queue on a first in, first out basis to be worked on, afte r which they move to the next step This process is shown in Figure 6.6 Key measures of the perfo rmance of th is process are the utilisation of people and of machines The objective is to keep utilisation of both as high as possible In this situ- 188 Chapte r Supp ly cha in plan ning and control Ste p Figure 6.6 Step The Smog Co Production Step Step p roce~~ ation, if people or mach ines are idle - and material is availa ble - they are used to make something Naturally it would not make sense to make just anything Instead, the prod uction manager has a feel for what is need ed, and uses a forecast from th e sales de partment to make an early start on prod ucts that it is conside red will be req uired in the near future Fred Hollis, the Smog production manage r, felt pleased with performance as he looked out across the factory He was pleased because his machines and people were busy, there were plenty of finished goods on hand , wh ich the sates team could use to supply custom ers, and there was stock to call upon if product demand increased Everything seemed to be under trol Changes to customer requ ire ments The motivation to change from th e current system has been low in the past, as the process at Smog Co is a reliable one, which has worked well for the company The 'b ig t hree' custo mers, who take th ree-quarters of sales, tend to order th e same things in similar quantities one week in advance of de livery With a production lead time of three wee ks, Smog Co uses a forecast to sched ule produ ction and make sure that finished goods stocks will be available to mee t predicted demand Consistent dema nd mea ns tha t forecasts are often close to real demand, so stockouts are rare In fact the only time this occu rred was an incident a couple of years ago, when a key mac hine went down and a spa re part took a long time to source Current inventory levels now include safety stoc k to provide cover against a similar problem in the future When the co mpany found that certain finished goods were selling slowly, the sales team was particularly good at finding a way to move them Someti mes prices were cut; at other times sales used special promoti ons If prod uction was too high, or the forecast was a bit optimistic, then there were ways of selling surplus stoc k, and the sales team seemed to enjoy the cha llenge Recently, howe ver, this well-understood position began to change The main custom ers started to use a number of new strategies to com pete with each other First one and the n a second of them anno unced that it will be red ucing the call-off time for its prod ucts from one week to two working days At the same time th ey are all looking for a per cent cost red uction, and are deman ding quality imp rovements A ' t d it io n a l' reaction to customer demands for better service The com binatio n of demand s for better services caused Smog managem ent som e concern The obvious response to the changes in ordering patte rns was to increase stock levels to cater for unexpected variations in demand This approach had wo rked before, Just-in-t ime OIT) 189 when it was used to justify the safety stocks that covered production problems It seemed worth t rying again , so stoc ks were increased Thing s went well over the first few mon ths, d uring which t ime delivery performance remained good, while the customers went ahead with their plan to reduce the order lead time Keeping up with these orders provided the production manag er with a few heada ches Preventing stockouts led to an increase in the number of batches being expedited throug h the factory This d isrupted the production plan, increased the number of mach ine changeovers, an d lowered prod uctivity As a result, overtime increased in order to maintain output The higher level of inventory mean t that q uality problems were harder to detect In one case a new operator missed a drilling operation By the time the first customer discovered the error, nearty two weeks' worth of production had to be recalled and reworked The higher inventory levels were also taking up mo re space Fred Hollis had submitted a requisition to the finance director to pay for more sto rage racking The extra racks were necessary becau se existing ones were full, and parts stored on the floor were suffering occasional damage in an increasingly cramped factory Some parts were recently returned by a customer, who felt that damaged packaging ind icated damaged products Nat urally, Fred was conce rned when his req uest for more storage space was turned down owing to spending reductions impo sed in respon se to price cuts de manded by custo mers Reflecting on what had happe ned at Smog, the increase in stock levels had badly affected competitiveness Smog Co was experiencing the consequences of trying to forecast de mand and using the forecast to de termine wha t to make Their ' make to stock' a pproach was respon sible for: • • • rem oving the company's a bility to be respo nsive to changes in either quantities or product mix; increasing costs and making quality problems worse; burying underlying production prob lems under inventory, and thereby preventing efforts to uncover a nd resolve them In co nclusion, wh ile the company had bee n motivated by its customers to change, the direct ion it took seemed to have caused many problem s (Source: after an original by Paul Chap man) Questions l ist the actions that Smog Co took to respond to the new dem ands being placed on it by customers Group yo ur responses under the headings of stock levels, level of exp editing, and storage space Briefly describe the effects that t hese act ion s had on prod uction performance Use the 'Pyramid of key factors t hat un de rpin JIT' to de scribe the factors that caused these act ions to affect the com pany's ability to respo nd to the demand s being placed on it by customers 190 Chapter · Supply chain planning and control 6.2.2 [l'F and material requirements planning (M RP) As we saw in section 6.1, material requirements planning (Nf RP) was conceived in order to an swer th e questions how many? and when? in ordering parts that are directl y used to ma nufacture end products MRP is a logical and systematic way of planning materials It lin ks down stream dem and with manufacture and i th upstream supply It ca n hand le deta iled parts requ ireme n ts, even for products that arc mad e infrequently and in low volumes On th e other hand , NfRP is based on a centrally cont rolled , bureaucratic approach to material plann ing Although it is based on a pull scheduling logic, it instructs processes to make mo re part s whether or not th e cus to me r (the next process) is capa ble of accep ting them Typically, MRP adopts pu sh sched uling charactertsttcs It remains insensitive to day-t o-da y issues at shop floor level, and contin ues to assume that its pla ns are bein g carried out to the lette r In other words, ~1R1' is good at planning, but weak at control Meanwhile, jlT pull sched uling is good at ndling relati vely stable demand for part s that a re made regularly It is sensi tive to problem s at shop floor level, and is desig ned not to flood t he n ext proce ss with parts that it can no t work on On th e other hand, ] IT pull scheduling is not good at predicting requ iremen ts for the futu re, especially for parts and products th at are in irregula r or spo radic demand J IT Is good at cont rol bu t weak at plan ning The re a re clear opportu n ities for putt ing toget her the stre ng ths o f both systems, so that th e weaknesses of one are covered by the strengt hs of the othe r For exam ple, even in system s with great variety, ma ny of the parts are common So ]IT can be used 10 control th ose parts, wh ile a much dow nsized NfR I' plan s what is left jrr has become associated with the japanese way of cutting out waste, doing th e simple things well and getting bette r every day The pillars of Toyota Produ ction System (TPS) are JIT and iidoku, Jidoka means human ising the man-mach ine interface so that it is the man who ru ns the mach ine, not vice versa NfRP s become associated with th e Western way of automating our way out of troub le, and by investi ng in bigger a nd better systems that co mpetitors cannot afford to match Let us next review ho w th ese two d ifferent approaches apply in motor manufacture by comparing Ford (wh ich has developed its own version of TPS called Ford Production System Fl'S) and Toyota Ford and Toyota A car assembly plant is built around a simple sequence of tasks that starts in the press shop and ends as a car rolls off the final assembly line Figure 6.7 shows these basic tasks in summary form Wh ile these basic tasks are the same for both Ford and Toyota, the way they are managed by the two firms is quite different We compare policies and practices in relation to small cars like the Ford Fiesta and the Toyota verts: • Ford has been driven by a long-term strategy in Europe It has invested heavily in fixed assets, and does not seek an early return on them It has been struggling with Just-in-time (lIT) Body in while assembly ~I 191 Painted body ~ Trim and tina l store assembly pressed pa Parts supply t Press shop Part s ordering Figure • Basic t asks in a car assembly plant a capacity that was de signed for a 15 per cent market share when current loadi ng is only per cent It seeks to make a step change in the production process th rough high capital investment Its investment policy has therefore been technically oriented, seeking the 'be st' technical solution for each task For example, Ford 's body shop is almost fully automated with robots tha t are flexible across different parts When production is cha nged between one part and another, the robots must be reprogrammed This places high emphasis on technical support for the software, and makes Ford dependent on given equipment supp-ers The layout is designed around the robots, and for fixed volumes Toyota has expanded cautiously in Europe Its investment policy has been step by step, and it has sought to make early returns Key to Toyota Production System (TPS) are process and qual ity disciplines through liT and jidoka Toyota 's ph ilosophy is more people-oriented: shop floor people are heavily involved in improvement activities as well as in production work Toyota's body shop has maybe one-third the number of press shop robots as Ford, and tends to use Simple multi-welders at low initial cost It is relatively easy to swap suppliers.Tooling must be changed when produ ction ischanged between one batch and another, but people are trained to go for fast setups and to improve the process The layout is designed around people and volume flexibility Having learned much from its sta ke in Mazda, Ford launched its own version of just-int ime called Ford Production System (FPS) a few years ago Ford has done much to reduce prod uct complexity This is basically measu red by the numbe r of different body styles that are poss ible Both Ford and Toyota have th ree basic body styles, But Ford limits variation to left-hand/right-hand drive and sunroof/no sun roof versions Since these are mu ltiplicative, 12 body shells are possible Toyota in additi on has variations to allow for different en gine types and air conditioner types, together with spo iler/no spoiler versions In tota l, th is means that Toyota has over 70 body shell variations When multip lied aga in by the number of pa inted body colours (say 10 for bot h firms), Toyota ends up with hundreds more pa inted body options than Ford This contributes to a surprising difference when it comes to bu ilding the car: • Ford treats t he painted body as a commodity Once they have been painted, bod ies are kept in the painted bod y store, which is a buffer between the body shop and final assembly The Ford syste m calculates the number of each pa inted body type that shou ld be in the store to meet foreca st final assembly requiremen ts The troub le 19 Chapter Supply chain planning and co ntrol • is that the store can be full of the wrong bodies, which means that it is impossible to build the current orders Up to th is point in the sequence , the emphasis is on numbers, not on the end-customer Bodies are not given a vehicle identification number (V1N) - which allocates the body to a particular customer order - until the painted body is removed from the store and dropped onto the trim and final assembly nne Toyota treats the body shell as a customer's car from the start The VlN is added as the first process at body in wh ite assembly, when panels are welded together to make the shell In turn, this drives discipline and focus in the pa int shop, and helps to improve first time th rough (FTT) in the paint process The sequence of bod ies through trim and final processes is thereby more pred ictable, allowing more precise ma terial control downstream The parts ordering process for auto assembly is particularly challenging, because some 2,000 individual parts are needed for each vehicle Most of these parts are added at the trim and fi nal assembly stage TPS already has a nu mbe r of advantages when it comes to this task First, the more pred ictabl e sequence of pa inted bodies into trim and final means that there are few last minute schedule changes Second, TPS sets stable lead times that are fixed at certain times for each part Third, supplier lead times are allowed for Ford, o n the other hand , leaves schedules uncommitted until parts are co llected The Ford call-ott quantities are set on the day of collect ion and not allow for \uP prier lead times Figures 1.8 and 1.9 compare what happens from a supplier point of view - there are huge differences between scheduled and actual demand Question what changes would you propose to both TPS and to FPS in order to cope with customer demands for increasing product variety and more rapid model changes? 6.3 lean thinking Key issues: What are the principl es o f lean thinking, and h ow can they be a pplied t o cutting waste out o f sup ply chains? As stated in the introduction to this chapter, leall lhi llk illS (Krafcfk and MacDuffie, 1989) developed as a term USl.'