Paper Bench Marking in Automotive Industry Distribution Process
Paper Bench Marking in Automotive Industry Distribution Process
Paper Bench Marking in Automotive Industry Distribution Process
Synopsis
The industry of industry as Peter Drucker referred to the automotive industry has
been frequent subject of studies.
Distribution plays a key role in taking product to the customer and dealer, even
though the distribution system in Automotive Industry has been less researched.
Average new stock level in US has been over 60 days and $66.7 billion of capital tied
up at any point of time.
This paper analyses the different distribution model implemented by Auto major.
US Auto Major implemented Load Driven Cross Docking
1) Revamping the Logistics Strategy in 2001
2) Reduction in finished vehicle inventory of over $1 Billion
German Car Maker saved $20 Million in 1996-97 by changing distribution strategy
from Push to Pull.
A case Study presented in the paper details the distribution strategy for 3 key markets
in Asia-Africa region for Germany Luxury Car Maker. Distributors in three countries
are analyzed: South Africa, Japan & Australia. This paper also analyses the
parameter for distribution strategy specific to Auto industry as a part of case study.
Key words: Automotive Industry, Distribution Chain, Push vs. Pull, Cross docking.
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Despite the efficiency gains at the the supply chain, although the role of
manufacturing level however, overall and reasons for excess inventory has
vehicle supply systems shows poor conceptually been well described
performance in responding to within the wider field of supply chain
customer needs, and increasingly rely dynamics (Forrester, 1958; Sterman,
on incentives and rebates to sell their 1989; Lee and Billington, 1992). Of
vehicles (Ramcharran, 2001; Holweg particular interest to the underlying
and Pil, 2004). A key reason for this study is the paper by Blumenfeld et
dichotomy has to be seen in the fact al. (1999), which shows that,
that – while manufacturing practices analytically, the inventory level at the
were reengineered – distribution retailer is driven by the stock
systems largely remained unchanged. replenishment lead time, and how
The large majority of shorter order lead times could reduce
cars is still produced to forecast, and the finished goods inventory.
sold from dealer inventory. In a
capital-intensive industry such as Inventory in Auto Retail Chain is a
automotive, this approach renders the function of some parameters which
manufacturer less vulnerable to are unique to Automotive industry.
swings in demand in the marketplace. These are dealt in some depth is
paper New Vehicle Supply Systems
While inventory levels inside the in the USA and Europe: A
manufacturing operation have been Comparative Analysis by Sander de
reduced, the average new vehicle Leeuw, Matthias Holweg, and Geoff
stock level in the US has consistently Williams
been above 60 days for the period of
1996-2004. On average, 3,332,950 Above analysis does prove the fact
units were held at any point over this that retail distribution inventory
time frame in the US market, which forms one of the base criteria for
(assuming an average sales price of efficiency of the Distribution Chain.
$20,000) equates to $66.7 billion of
capital tied up at any point in time. Academia has given few basic
strategy of distribution system to
The total distribution system achieve optimum inventory level.
accounts for about c.30% of the Cross Docking
recommended retail price this seems Schedule
surprising, in particular given that Driven
manufacturing only accounts for Load Driven
c.12% (Holweg and Pil, 2004). Push – Pull System
Few academic studies, such as (Kiff, Theses strategies have been used in
1997; Blumenfeld et al., 1999; various different industries and
Karabakal et al., 2000), directly scenario. Each industry has unique
analyze the drivers behind inventory parameters which controls inventory
in the retail and distribution end of in supply chain.
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the pull-based stages as the push-pull days of sales) carried by the dealer
boundary. operator creates an incentive
(financing cost avoidance) to
Characteristics increase the rate of sales. Thus the
the Push part is applied to the distribution system operated as a
portion of the supply chain where "push" system. It had all the dis-
long- term forecasts have small advantages as described previously.
uncertainty and variability. On the
other hand, the Pull part is applied to New principles the following
the portion where uncertainty and performance criteria were established
variability are high. that the reengineered process would
designed on the premise that have to meet;
inventory is essential
Push-pull boundary needs to 1. Maximize the percentage of
be defined as per industry customers who received their first
requirement choice of vehicles.
2. If a customer's first choice was not
Push-Pull Boundary in a dealer's inventory, a first choice
vehicle would be delivered to the
dealer from manufacturer inventory
within 48 hours.
3. Significantly reduce the total
system (dealers and Car Maker) costs
associated with transportation,
financing and storage. Primarily
through inventory reduction.
Case Study 1:
new system would be designed to
A US Car maker, a wholly owned support a "pull" type of distribution
subsidiary of German Car strategy.
Manufacturer, imports, markets and
distributes vehicles in the United Problem Description
States. The vehicles are assembled in
Mexico or Germany and distributed Vehicles for sale in the U.S. are first
to a network of approximately 750 shipped to one of the five U.S. ports
dealer sites across the United States that act like distribution
centers. These five ports have also
The existing system had been facilities, called processing centers.
developed around two implicit They are then shipped to the dealers
assumptions. The first is that the at major market areas by a
dealer (retail operator) is the combination of rail and truck
"customer" of the Car Maker transportation.
distribution process, not the end user.
The second assumption was that,
significant vehicle inventory (60-90
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Laurel
Omaha
Kansas City
Louisville
Benicia
Norfolk
Alliance
Oklahoma City
Reisor
Atlanta
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KPI Usage:
Analysis: To enforce strict returns
The figure will show the Push Pull policy for dealers or have a
boundary which Distributor follow. restriction on the number of
MPC South Africa and MPC vehicles returned in a given
Australia will allocate the vehicles time frame
during Production. Reuse of dealer management
MPC Japan allocates significant processes of MPCs which
number after vehicle is arrived in have low returns to other
stock. This shows why the MPC MPCs.
inventory is higher.
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