Achieving and maintaining an optimal level of supply

chain productivity is a necessity for all successful manu-

facturers -- from high-tech electronics to aerospace to
consumer goods. At the vanguard of creating a lean sup-
ply chain is the automotive industry, whose practices are
geared toward maintaining minimal inventory while
avoiding production delays. The automotive industry is a
leader in incorporating new management techniques and
technologies to enable it to reduce inventories and
streamline all facets of the supply chain management
process. However, efficiency cannot simply be equated to utilizing the most advanced software sys-
tem; the solution involves ascertaining, applying and adhering to the principles of a lean supply chain.
Lean Supply Chain Principles
Although the principles for maintaining a lean supply chain may vary somewhat depending on a
companys philosophy, a number of elements are prevalent in the automotive industry. Says Kevin
Poole, consultant at Cap Gemini Ernst and Young, says that there are six main principles that OEMs
and suppliers tend to follow. First is the concept of complexity reduction, which entails reducing auto-
mobile model options or combinations available to the consumer without reducing the end con-
sumers choices. Second is the trend to reduce the number of suppliers because more interfaces tend
to introduce complexity and goes against the lean supply chain. Third is the trend for OEMS to locate
close to suppliers assembly and manufacturing plants. Of the big three U.S. auto manufacturers, GM
has been the most aggressive in this area, says Poole.
A fourth key principle involves inventory management. Says Walter Palen, manager strategic plan-
ning at Toyota Manufacturing North America in Erlanger, Kentucky, one of the key goals is to reduce
inventory at the line side of the plant and throughout the supply chain. Poole says that a fifth princi-
ple is collaboration, which means that OEM and suppliers must cooperate in order to achieve lean sup-
ply chains. Sixth is propagation; OEMs must put forth their lean supply chain systems to the Tier 1
suppliers and they in turn must do it with their suppliers further down the chain, he says.
Management Initiatives
Toyota Motor Company continues to be one of the leaders in perpetuating the lean supply chain
philosophy. We are looking at how to take lean to the next level. says Palen. This means having a
true connection of an order to the logistics supplier. A virtual connection of part to car is ideal, but not
possible, so we try to leverage our North American parts volume in order to further decrease the sup-
ply chain inventory.
Palen says that an example involves picking up from one supplier and delivering to the cross dock,
such as delivering kits to a plant. Toyota may divide four pallets into 12 to 14 smaller orders in order to
minimize inventory at the plant, which can absorb some fluctuation in demand. This means more fre-
quent pick-ups of small lot levels done hour by hour. Our management initiatives involve increasing
delivery frequency, reducing inventory, and accommodating the five-day car (from order to delivery).
We are also being more proactive in order to absorb changes or uncertainty on a daily basis. At the
same time, we are reducing costs, which is a necessity, he says.
SPECIAL ADVERTISING SUPPLEMENT
Streamlining
t h e A u t o m o t i v e S u p p l y C h a i n
Suppliers and OEMs
in the automotive
industry are applying
new technology and
lean techniques
to streamline the
supply chain.
By Anthony Coia
Supply Chain Management Review 41
SPECIAL ADVERTISING SUPPLEMENT
James Reeve, Deloitte and Touche professor of business at the University of Tennessee says that
the automotive industrys configure-to-order (CTO) supply chains should be designed to pull from the
point of consumption. The OEMs and Tier 1s are clearly looking at CTO strategies and trying to move
away from forecasted build-to-stock strategies. The CTO strategy would require the Tier 1s to respond
to pull signals at the module level. That is, as modules are consumed by actual customer orders in
assembly, they would need to be replenished by the first tiers.
Reeve says that this only works if automobile assembly is modularized. This is why the first tiers
are moving toward supplying integrated systems, such as brake systems, or interior systems. This
simplifies the potential variation and complexity in a CTO strategy, rather than managing thousands of
smaller sub-assemblies. The planning is done at the module level. That is, the first tiers are provided
historical demand information at the module level so that they can respond quickly to pull signals gen-
erated by downstream consumption, he says.
Information Technology Trends
Poole says that there are four categories of tools that automotive suppliers and OEMs can use to cre-
ate a lean supply chain. First are the planning and optimization tools, which are designed to allow better
forecasting and management of inventory. This category includes products from companies such as
SAP, i2, and Manugistics as the primary packaging. In this category, there has been a slowdown in the
last 18 months, since we are seeing more of a hard-nosed business attitude, Poole says.
The second category is execution tools from companies such Manhattan Associates, which include
WMS and TMS applications. Third are collaboration-related tools that enable two players to communi-
cate effectively. Examples are Vitria, which is an integration application tool, as well as Web Methods.
Fourth are visibility-related tools, which sit on top of the execution tools. These include supply chain
event management (SCEM) tools such as Yantra and Viewlocity. Poole says that collaboration and visibil-
ity tools have experienced their greatest growth in the last 24 to 36 months.
Although there has been significant growth in the use of Extensible Markup Language (XML) as a
means of creating connections among suppliers and OEMs, Poole says that there is less of a push to
throw out EDI due to constrained spending. Adds Reeve, it will be a while before the old EDI technology
is replaced, because it does the job.
Thomas Goldsby, assistant professor of marketing and logistics at Ohio State University, says that
companies should consider where technology accomplishes the current or desired processes. Says
Goldsby, for example, Toyota relies on visual controls in place of using TMS or WMS for decision support.
It uses a Kanban card, which is a visual cue for the need to replenish small lot sizes. Says Palen, we
are developing in-house systems that support enhancing Kanban to Web-based E-Kanban. Toyota has
looked beyond EDI system, but has not found the perfect fit with other types of information technology.
Poole says that a number of lessons learned by the automotive industry in areas such as inventory
reduction, colocation, reducing the number of suppliers, and propagation can be applied to other indus-
tries. Executives within the automotive industry are interested in hearing about successes in other
industries, which was not always the case, says Poole. He says that although the automotive industry is
not as advanced in the area of lean supply chains, the high-tech electronics industry can also learn from
it because more and more electronic components are involved in automobile production.
The automotive industry continues to be at the forefront in the area of lean supply chains by practic-
ing the key principles that include inventory management, collaboration, propagation, and others.
Information technology plays an important role in successful supply chain management when it is imple-
mented with an underlying strategy to reduce costs and improve service
How One Supplier Went Lean
Aisin USA has developed a lean supply chain by
building flexibility into the system.
By Anthony Coia
Tier 1 suppliers are closely following the
leads of their OEM customers in locating
their facilities in and coordinating areas
such as supply chain replenishment. Aisin
Manufacturing USA, Inc., based in Chicago,
manufactures components such as door-
frames, molding, locks and hinges. Tony
Gabbard, assistant manager of operations
management consulting at Aisin in
Seymour, Indiana says that the companys
strategy of lean supply chain management
involves coordination with local suppliers
through mixed loading of components with
high frequency of pick-up and delivery. For
example, lets say that there are five parts
to be delivered. Instead of loading only one
part on a truck, we would load it with 20%
of all five parts. Also, the increased localiza-
tion of components will allow for higher fre-
quency of deliveries, and thus lower inven-
tory, he says.
Gabbard says that a key to achieving a
lean supply chain is the ability to react
quickly to changing situations. Flexibility
must be built into the system. We practice
leveling in order to reduce the fluctuation of
orders. For example, if we need to order
2,000 components over a one month peri-
od, we order one hundred per day or fifty
per truck twice per day instead of ordering
it in larger volumes, he says. That enables
Aisin to reduce inventory respond more
quickly to changes in order demands.
Gabbard says that Aisin is also trying to
establish a North American logistics unit to
process all of its components through a dis-
tribution center. Currently we are search-
ing for the best location within Indiana and
Illinois, and are considering inventory tax as
a factor in choosing a location. Basically we
are trying to emulate what Toyota does with
its crossdocks (which support all of Toyotas
plants) in order to increase delivery frequen-
cy and reduce inventory, he says.
Supply Chain Management Review 43
Streamlining
t h e A u t o m o t i v e S u p p l y C h a i n