Certain issues have forced a reassessment of established sales networks. The hard facts:

  • The cost of selling a car accounts for up to 30 percent of the total cost of the car.
  • Dealers are independent. Car makers have much less control over them than over component suppliers or their own production lines.
  • Consumers' behavior is changing - more people own cars and travel further to shop.
  • Saturated ownership in mature markets results in little or no growth in new car sales, leading to lower profits for dealers.

The problems in reducing the supply chain inventory of finished vehicles are little different from those of reducing inventory in a component supplier's factory. Manufacturers must eliminate storage locations, increase delivery frequency with smaller batches/lots, and hold inventory as far down the chain as possible. These improvements can yield efficiency gains in the vehicle distribution chain.

Carmakers now want car dealers to have larger sales 'territories'. What relevance does this have to a component manufacturer? The process to reduce the 'order to delivery' lead time of a vehicle finds its way down the supply chain to the supplier. This is in the form of an instruction to deliver a particular item for a particular Vehicle Identification Number (VIN). An integrated information system linking the manufacturer's sales and marketing, logistics and production functions with all dealers and Third Party logistics suppliers is a prerequisite for lean distribution.

The initiatives that compress lead time come in the form of data messages that convert inventory previously held as finished vehicles into 'virtual' inventory. There is a synergy between lean distribution and lean manufacturing. Manufacturers realize that implementing lean manufacturing requires the support of lean distribution.

The ability to deliver-to-order a vehicle is the same concept as Just In Time (JIT) component delivery. For example, improvements in ordering processes result in an order flow that is a better representation of true market demand, and hence gives better data for forecasting. However, forecasting from data that represents what has been sold does not necessarily represent what the customer really wants. Manufacturers typically push excess product into markets and expect it to be sold. Therefore, the inventory held is not truly representative of customer demand - as Figure 1 illustrates.


Fig.1 Pull controlled vehicle distribution

Getting the right stock in the right place at the right time reduces the chance of losing the sale to the competition. Without this approach, extra costs are also incurred in time, damage, transportation and administration. The trade-off is between inventory and capacity as Figure 2 illustrates. By restricting the capacity to build a car with bottleneck efficiencies and line stoppages, inventory of finished vehicles is held and that buffers the sales network. Overcoming the capacity restrictions and flow problems allows the inventory to be reduced.

Analysis of dealer stock objectives is around 60 days for most markets. Owing to the lead time in obtaining vehicles from Japan and Asia, 120 days is common for most dealers. This is after limiting the range of cars and choice to give customers a better chance of obtaining the car of their choice. The prize is high, and 60 days of cars in world terms runs into millions of vehicles. More enlightened thinking among dealers and OEMs can eliminate the stock carrying costs and maintenance, and discounts can be given on slow moving or wrong specification cars. Space is reduced and the benefits of lean techniques are obtained.


Fig.2 Manufacturing capacity versus distribution stocks

What are the Lean IT options being used?
Physical changes to where the vehicle stocks are held pull the inventory closer to the OEM. Central vehicle compounds hold stock upstream of the consumption point from which the dealer pulls to sell. IT systems facilitate this by allowing access to view unallocated stock. The stock consolidation gives a higher probability of the dealer being able to supply the demand. This activity in itself requires some organizational soul searching as OEMs would need to run down or buy-back dealer stocks. This would have a negative effect on the return on investment reported by the OEM.

Having taken ownership of vehicle stocks in the distribution pipeline, Lean IT can help with reallocation to different customers. The new order pipeline (see Figure 3) requires a Lean IT solution that links the OEM, component supplier and dealer. It must allow customers to pick specifications and delivery time, which is, in turn, directly linked to the OEM's factory. By using such a solution, the vehicle's progress can be monitored by the dealer.


Fig.3 Vehicle pipeline

Dealers could use this pipeline system to reallocate vehicles and make specification changes as long as these changes were within a prescribed time frame and the OEM has enough response time. Peugeot describes vehicles that are not allocated to a specific customer requirement as 'fixed menu' rather than 'a la carte', (a specification that is chosen by a customer). Prioritizing 'a la carte' orders over 'fixed menu' orders will reorder the pipeline for earlier customer delivery. Lean IT creates 'virtual inventory' - vehicles that only exist as information.

Production flexibility
The flexible and responsive supply of components and assemblies that produces a vehicle from the order pipeline uses an invisible factory of networked computing that instructs every step in the production process. What color, type of trim, air conditioning and many more features leads to every vehicle being different from the preceding one on the assembly line. This network is operational 24 hours a day, pulsing information throughout a supply chain that has no geographical borders and ensuring each vehicle is produced exactly to choice.

The OEM's factory broadcasts to its suppliers a pulse of data for every vehicle it is building. From this data, the supplier can then pick the appropriate specification of parts. These are then sent in to the OEM's factory, in time to be fitted to the vehicle as it progresses along the assembly line.

Suppliers providing components such as door panels may employ over 500 people working 24 hours a day to keep the OEM supplied. Computing plays a vital role in this relationship. It is used for controlling the sequence of build and the actions of production robots, while Enterprise Resource Planning (ERP) software is used for financial and business administration.

At a factory close to the OEM's plant, the component supplier receives an electronic data broadcast from the OEM factory that produces a label by the operators workstation. From this, the operator can pick the appropriate color door panel and assemble it with speakers and other fixings. The message broadcast takes place 90 minutes prior to the vehicle passing the fit point for door panels, giving the supplier time to deliver the panels into the factory. Meanwhile, a copy of the same broadcast message is transferred to the supplier's main factory.

The factory now knows what type of panels have been fitted and can calculate what future door panel requirements need to be manufactured. Door panels are made from cloth and plastic in a molding machine. After being removed from the mold, computing again plays a role as the excess material on the door panel is removed using high-pressure water jets on the end of a robotic arm. The water jet cuts away excess around the panel and cuts the holes for handles, perfectly finishing the part for forwarding to the sequencing facility near the OEM. Having made the new panel, the ERP system takes account of the material and parts used during the manufacturing process. By knowing what has been made and what stock is on hand, the ERP system can calculate the future material and parts needed to support the OEM's build program. Some of the material needed requires up to three months notice for the supplier to obtain the color of trim desired.

The many types of material and specifications can only be controlled using a computer system as advanced as an ERP system. This system is an invisible factory in the fullest sense. Every item bought by the supplier is received into the 'virtual ERP system factory', enabling payments to be made and bank accounts to be reconciled, even down to the last paperclip. This computer system mirrors the reality of the factory processes providing the feedback essential for employees to maintain control of the costs and timeliness of the business operations.

There are internationally prescribed standards that enable vehicle manufacturers and their suppliers to communicate using computers. This process is described by the term Electronic Data Interchange (EDI). By using such techniques, paperless transactions are made possible. EDI is an aid in improving the efficiency of the OEM and its suppliers. An example is the OEM using computer data in place of paperwork with its suppliers.

During the day, the OEM accumulates the details of what door panels they have received from the supplier. Overnight they transmit an EDI message to the supplier detailing these receipts. Using the ERP system, this EDI message is automatically used to produce invisible paperwork and update the appropriate stock files. Many hundreds of lines of information for the supplier need to be processed daily. This saves considerable manual rekeying of data from one computer system to another.

The relationship between the OEM, the supplier and the ERP system is focused on eliminating costly manual transactions by making use of computing software. All of these can benefit by ensuring the cost of vehicles made are competitive with mutual long-term gain. This cooperation can be seen in the way an OEM can automatically pay its suppliers. The OEM records each time they receive a door panel and the price they have agreed on with the supplier. From these two pieces of information, the OEM can generate an invoice. Like a credit card in reverse, each month the OEM can total up what they have spent with the supplier, make out a check and transfer the funds into the supplier's bank account automatically. By using ERP software, this process can be controlled automatically to the satisfaction of all concerned.

The invisible factory continues to improve its efficiency. Reducing stock levels will save space and costly special transport containers. ERP software can be used in conjunction with lasers and robots to check that the door panel has been assembled correctly. Bar-coded tags on door panels that record exactly when and who produced the part along with salient production data such as mold pressures and temperatures, can all be integrated with the ERP software. This provides the feedback for the central nervous system that an ERP system can provide.