years. I would finally like to thank Mr Ing. Peter Markovič, PhD for the professional, organisational support in the course of my studies and the organisation of the unforgotten international conference, soon to be one year ago.

Bielefeld, in March, 2008 Michael Wiggen

III

  PREFACE  I

TABLE OF  CONTENTS  III

  FIGURES  VIII

  LIST OF ABBREVIATIONS  XII

1  STARTING POINT  1

1.1  Structural change and fields of action in the automotive industry  1

1.2  The industry’s structure  2

1.3  Trends in the chain of value-added of the automotive manufacturers  5

1.4  Approach and structure of this thesis  7

2  FIELD-SPECIFIC-FOUNDATIONS  11

2.1  Plastic injection moulding production  11

2.1.1  History  11

2.1.2  Production specifics  12

2.1.3  Production lot size  12

2.1.4  Layout-structure and flow of material  15

2.2  Basics and duties of automotive logistics  17

2.3  Logistics supply chain exemplifying an automotive supplier of the plastic  

injection  moulding production  18

2.3.1  Supply-Chain-Management  19

2.3.2  Information technology  21

2.3.3  Procurement logistics  23

2.3.4  Production logistics  33

2.3.5  Distribution logistics  35

3  PROBLEM DEFINITION  44

3.1  Formulation of hypotheses  47

3.2  Research questions  48

3.3  Objectives and outlook on results  49

4  SCIENTIFIC BASICS  52

4.1 Nomenclature .................................................................................................- 52 -

IV

4.1.1  Logistics  52

4.1.2  Logistical management  54

4.1.3  Logistical system  55

4.1.4  Pull-principle  56

4.1.5  Planning  57

4.1.6  Model  57

4.1.7  Process  59

4.1.8  Business process  60

4.1.9  Logistical service  60

4.2  Status of literature  62

4.3  Selected approaches of factory and business process modelling  66

4.3.1  SCOR  66

4.3.2  Process modelling with ARIS  70

4.3.3  Process chain model according to Kuhn  73

4.3.4  Summarising evaluation  74

4.4  Model-based decision-making models  74

4.4.1  Problem and method oriented models  75

4.5  Elements of a performance creation system  76

4.6  Theory of logistical efficient thinking  78

4.7  Logistical costs as a central evaluation criterion of logistics  

  performance  79

4.7.1  Types and elements of logistical costs  81

4.7.2  Assigning the cost types to the sub-processes  83

4.8  Production and cost theory  88

4.8.1  Cost minimisation approaches  90

4.8.2  Total return functions of a diminishing returns production function  92

5  REQUIREMENTS FOR MODEL DEVELOPMENT  96

5.1  Objective  96

5.2  Methodology of the research basis for problem solution  98

5.2.1  Methodical tools  101

5.3  Methodical framework for problem solving  102

5.3.1  Procedure of executing and gathering relevant data  102

5.3.2  Content requirements on the analysis  103

5.3.3  Formal requirements on the process of model development  106

6  SITUATION ANALYSIS, DEVELOPMENT OF LOGISTICAL  

PERFORMANCE ELEMENTS ....................................................................- 106 -

V

6.1  Requirements and factors on socio-technical logistical systems in the  

  automotive supplier industry  106

6.1.1  The product lifecycle effect factor  107

6.1.2  The structural organisation effect factor  109

6.1.3  Significance of logistics inside a company  111

6.1.4  The customer demand effect factor  111

6.1.5  The product effect factor  112

6.1.6  The production and production lot size factors  112

6.1.7  The layout / company size / area effect factor  113

6.2  Analysis and classification of effect relations  114

6.2.1  Effect interdependencies in the effect system  116

6.2.2  Identification of processes and structures  117

6.3  Data groups  119

6.4  Customer and supplier information  119

6.4.1  Volume data  120

6.4.2  Packaging  122

6.4.3  Packaging circulation  123

6.5  Company specific data  124

6.5.1  Movement and performance data  124

6.5.2  JIT-process  126

6.5.3  JIS-process  126

6.5.4  Manifest-process  127

6.5.5  Transport data  127

6.6  Product and production specific information  129

6.6.1  Lot size calculation  129

6.7  Areal data  131

6.7.1  General storage area calculation  131

6.7.2  JIS-processing area  131

6.7.3  Truck preparation area  134

6.8  Company size  135

6.8.1  Areal size relations: Production area vs logistical area  141

6.9  Database for the application of an external logistical service provider  142

6.10  General summary of the analysis’ results  143

7  CONCEPTION OF A HOLISTIC LOGISTICAL MODEL  144

7.1  Approach for model development and design  144

7.1.1  Design notes for model creation  144

7.2 Solution concept...........................................................................................- 145 -

VI

7.2.1  Synthesis of the logistical factors and elements in the meta-model  145

7.2.2  Anticipated cost progressions in the minimum cost model  148

7.2.3  Upgraded production lot size model as module element for cost  

  minimisation  149

7.3  Design of the holistic model  154

7.3.1  System architecture of the user system to be developed  154

7.4  Data structure  156

7.5  Constitutive modules  156

7.5.1  Knowledge data module  157

7.5.2  Module for areal dimensional company size  158

7.6  Concept module for the simulation and logistical performance evaluation  

   160

7.6.1  Concept module for logistical cost calculation in the PDP  161

7.7  Surface design and system application  162

8  APPLICATION OF THE SYSTEM SOLUTION AND EVALUATION  166

8.1  Practical case study and examples from the automotive supplier industry  

   166

8.2  Input data concept model for logistical performance evaluation  168

8.3  Results and evaluation of the concept model  169

8.4  Practical application and evaluation of the model during time elapsed  171

8.5  Determining solution effects and benefit  173

9  CONCLUSION  176

9.1  Recapitulation  176

9.2  Outlook  180

10  BIBLIOGRAPHY  181

10.1  Internet  191

11  APPENDIX  I

11.1  Categorization and analysis of different model types for logistical decission  

  finding, page 1  I

VII

11.2  Categorization and analysis of different model types for logistical decission  

  finding, page 2  II

11.3  Detailed process charts  III

11.3.1  Goods receipt  III

11.3.2  Repacking in the area of distribution  IV

11.3.3  Picking and goods issue, process map  V

11.3.4  JIT- process map  VI

11.3.5  Sequencing and assembly process map  VII

11.3.6  Manifest and shipping process  VIII

11.4  Data analysis of the ratio of inbound volume to outbound volume  IX

11.5  Data analysis example of the inventories of the production plants to create a  

  realistical warehouse reproduction for calculation purposes  X

11.6  Curve progression of the inventory development depending on the variants  

  per material and the production batch size  XI

11.7  Schematical illustration for a container loop calculation (process split of  

  formula)  XII

11.8  Movement relations and distances within and in between functional areas of  

  a production plant  XIII

11.9  Exemplary areal structures of three different production plant layouts  XIV

11.10  Scheme to enable area calculations of different warehouse types  XV

11.11  Conceptional idea to set up a manifest station  XVI

11.12  Regression analysis and hypothesis testing to clearly determine and identify  

  differences within data groups  XVII

11.13  Extract of the detailed areal illustration of the analysed production plants  

   XVIII

11.14  Data group structures  XIX

11.14.1  Data group structurs of the calculation module part 1  XIX

11.14.2  Data group structures of the calculation module part 2  XX

11.15  Simulation data to evaluate the calculation module within the product  

  development process  XXI

11.16  Initial supply chain configuration to evaluate the model  XXII

11.17  Graphical cost progression of the actual model configuration  XXIII

VIII

  FIGURES  

  Figure 1 1: Location development of the German OEM and its suppliers  

  Figure 1 2: Structure of supply relationships in the automotive industry  

  Figure 1 3: Schematic network of production in the automotive industry  

  Figure 1 4: Development of the proportion of revenues  

  Figure 1 5: Forecasting development of the number of suppliers and  

  manufacturers  

  Figure 1 6: Modular structure of this thesis  

  Figure 2 1: Procedural methods of production  

  Figure 2 2: General, non cyclic manufacturing structures  

  Figure 2 3: Production stages of the companies to be analysed  

  Figure 2 4: Layout of an injection moulding company  

  Figure 2 5: Manufacturing stages of traditional injection moulding  

  production  

  Figure 2 6: Logistics supply chain of a plastic injection moulding production  

  Figure 2 7: Standard information and communication illustration  

  Figure 2 8: Tasks and modules of procurement logistics  

  Figure 2 9: Cost structure VW group  

  Figure 2 10: Procurement cooperation in different industries  

  Figure 2 11: Effects and relevance of procurement strategies for suppliers  

  Figure 2 12: Lead time segments  

  Figure 2 13: Supply concepts  

  Figure 2 14: Production-controlling concept  

Figure 2-15: Varieties growth, Audi A6 .................................................................- 41 -

IX

  Figure 2 16: Lifecycle development  

  Figure 4 1: The work system according to REFA  

  Figure 4 2: SCOR-model  

  Figure 4 3: ARIS-House-of-Business-Engineering  

  Figure 4 4: Construction of a main process “material procurement from  

  subprocesses of different cost centres  

  Figure 4 5: Combination of production factors in the logistics system  

  Figure 4 6: Dimensions of logistical performance  

  Figure 4 7: Cost isoquants  

  Figure 4 8: Minimal costs with alternative process straight lines  

  Figure 4 9: Minimal cost combination  

  Figure 4 10: Production surface  

  Figure 4 11: Relations between the yield curves  

  Figure 4 12: Relations between cost curves  

  Figure 5 1: Methodical model for problem solving  

  Figure 5 2: „MIFA“ material-information-flow-analysis  

  Figure 5 3: Principles in the logistics chain  

  Figure 6 1: Classical lifecycle of a product  

  Figure 6 2: Logistical interfaces of individual business areas  

  Figure 6 3: Logistical effect relations in a company  

  Figure 6 4: Effect categories and possible development in the case of  

  alteration  

  Figure 6 5: Exemplary supply chains of a “JIS-supply concept  

Figure 6-6: Customer and supplier information .................................................- 120 -

X

  Figure 6 7: Packaging related data  

  Figure 6 8: Complementary packaging means  

  Figure 6 9: Inhouse movements relations  

  Figure 6 10: Inhouse- activity- and performance types  

  Figure 6 11: Means of transports  

  Figure 6 12: Inhouse warehouse information  

  Figure 6 13: Layout sequencing zone  

  Figure 6 14: Curve progression floor space required per variety  

  Figure 6 15: Other in-house information  

  Figure 6 16: Curve progression sales vs area  

  Figure 6 17: Curve progression logistical costs vs area  

  Figure 6 18: Curve progression net result vs area  

  Figure 6 19: Curve progressions sales, logistical costs, yield vs area  

  Figure 6 20: Diagram-proportion logistical areas vs production areas  

  Figure 6 21: Parameter of external warehouses und logistics service provider-  

  Figure 7 1: Scheme meta-model  

  Figure 7 2: Cost progression based on the meta-model  

  Figure 7 3: Specifications and effect factors of cost optimum production lot  

  sizes  

  Figure 7 4: Architecture of the user system  

  Figure 7 5: Algorithm for determination of company areal size ranges  

  Figure 7 6: User interface of the simulation module  

  Figure 7 7: User interface of the module for determining the input  

Figure 7-8: Result illustration of an individually configured supply chain ......- 166 -

XI

  Figure 8 1: Practically relevant input data  168

  Figure 8 2: Result illustration of the model  170

  Figure 8 3: Effects of the input amount when applied on identical supply  

  chain designs  171

  Figure 8 4: Logistical cost effects by conceptual changes in the project  

  progression  173

Figure 8-5: Progress of knowledge compared to the state of research ..............- 175 -

LIST OF ABBREVIATIONS

ANSI American National Standards Institute AFO Working sequence APO Advanced Planner and Optimiser AREE Automotive Region Eastern Europe BER Block Exemption Regulation bn billion CAD Computer Added Design cf. confer CIM Computer Integrated Design CLM Council of Logistics Management DC DaimlerChrysler DP data processing DTS driverless transport system ed. editor EDI Electronic Data Interchange EDIFACT Electronic-Data-Interchange for Administration, Commerce and Transport EDP electronic data processing e.g. example given EOP end of production EPEI every part every interval ER entity relationship et al. et alii (latin), “and others” etc. et cetera (latin), “and so on” FEZP Car delivery scheduling f., ff. and following GM General Motors incl. including IT Information Technology JIS Just-In-Sequence

JIT Just-In-Time l.c. location cited LEAS Logistics Excellence Approach System LSC logistics supply centre LSP logistics service provider LU loading unit max. maximum min. minimum MIT Massachusetts Institute for Technology MPS Mercedes Production System MRP Material Resource Planning ODETTE Organisation for Data Exchange by Tele Transmission in Europe OEE Overall Equipment Efficiency OEM Original Equipment Manufacturer OICA Organisation Internationale des Constructeurs d’Automobiles PDP product development process PPC production planning and control REFA Reichsausschuss für Arbeitszeitermittlung SCM Supply-Chain Management SCMo Supply-Chain Monitoring SMB small and medium-sized businesses SOLE Society of Logistics Engineers SOP start of production SUV Sport Utility Vehicle TPS Toyota Production System TPP Travelling Salesman Problem TQM Total Quality Management VDA Verband der Automobilindustrie viz. videlicet (latin), “this means”, “that is”

Starting point - 1 -

1 STARTINGPOINT

1.1 Structural change and fields of action in the automotive industry

Worldwide production of automobiles (including vans, lorries and buses) has grown by five percent in 2006 compared to the previous year, reaching about 70 million vehicles and total sales of approximately 2.000 bn USD, according to the association of the world’s automotive industry OICA (Organisation Internationale des Constructeurs d’Automobiles). ¹ The industry’s investments in science and development total at about 85 billion USD. Statistically, the automotive industry is the sixth largest economic sec-tor worldwide, employing nine million people directly. The European Union, having a global market share of 34%, is the largest producer of vehicles worldwide. ² However, pushed by continuing effects of globalization, the automotive industry is currently undergoing an extensive structural change. Radical changes result from increasing requirements posed on the companies as well as the necessity of opening new markets, securing market shares and increasing continuously decreasing profitability. The influence of globalization on the industry is exemplified particularly in the strongly increased number of production plants, as shown in figure 1-1. Figure 1-1: Location development of the German OEM and its suppliers

Source: VDA

¹ Organisation Internationale des Constructeurs d’Automobiles, http://www.oica.net/, queried on

Dec. 12th, 2006.

² Portal of the European Union, http://europe.eu.int/comn/enterprise/automotive/pagers-

background/sectoralanalysis/index.htm, queried on Dec. 21st, 2006, Automotive Industry: Sec-

torial Analysis, 2004.

Starting point - 2 -

Incontext of those mentioned necessities, foreign locations were quintupled in Central Eastern Europe and China. The chart in figure 1-1 demonstrates the impressive expansion of German automotive manufacturers, subsequently referred to as OEM (Original-Equipment-Manufacturer), and its suppliers during recent years. In a KPMG poll of 2005, interviewees ³ assume persistent globalization, meaning significant movement of automotive production from North America and Western Europe to Asia as well as, in a small scale, Eastern Europe over the next five years. ⁴ The automotive industry has anticipated the EU’s eastern enlargement for ten years already and has built plants in Central and Eastern Europe systematically. While the first phase until the year 2000 was dominated by the opening of factories in Poland, Hungary, the Czech Republic and Slovakia, a second phase puts countries like Romania, the Ukraine and Russia into the focus of attention. ⁵ Eastern Europe gains increasing significance for the automotive industry, resulting in Eastern Europe being named „Detroit of the East“. Compared to the US automotive stronghold Detroit, the Automotive-Region-Eastern-Europe (AREE), consisting of nine EU member states and Romania, is capable of further expanding its status. Altogether, approximately over three million vehicles (compared to 1.9m in 2005) will leave Eastern European assembly lines. In two years time, about five percent of the worldwide automotive manufacturing will take place in Eastern Europe. 6

1.2 The industry’s structure

Traditionally, the automotive industry is characterised by a very large proportion of value creation for suppliers as well as a pyramid of direct and indirect supply relationships. Value creation describes the quantification of the own contribution to the value performance. Relative value creation depends on the effort put into manufacturing, refining, marketing and customer care of a product and is calculated based on full costs. If all costs connected to a product are summed up, they become one hundred percent. By quantification of the contribution of all involved, relative value creation can be deter- ³ KPMGis among the leading German accounting and consulting firms. The 2006 poll, con-

ducted in 2005, was the fifth KPMG annual poll about the opinion of automobile industry man-

agers in a row. It is based on 140 quantitative interviews with executive managers, 50 in North

America and 90 in Europe in Asia. 105 of the interviewed work for suppliers, 35 for automotive

manufacturers.

⁴ KPMG, Impulse in der Automobilindustrie, Managerumfrage 2005/2006 im Auftrag von Applied

Research & Consulting LLC, cf. pp. 1ff..

⁵ Dudenhöfer, F., Mittel und Osteuropa Perspektiven, Jahrbuch 2005/2006, cf. p. 336.

Starting point - 3 -

mined.If other companies supply preliminary products, their selling prices are to be taken account of as costs for the own value creation. If distributors market the product, distribution allowance to those partners has to be considered for determining total expenditure as well. The ratio of the own value creation to those overall costs is called relative value creation. ⁷ The following figure 1-2 illustrates the structure of supply relationships between OEM and suppliers.

Figure 1-2: Structure of supply relationships in the automotive industry

The automotive manufacturer tops the pyramid of the industry. Below are the so-called “first-tier-suppliers”. Those large, internationally acting suppliers are mostly module suppliers or system integrators. A module supplier primarily provides assembling services with merging components of different suppliers into one ready-to-install module. A system integrator does not only take over assembling, but also vital parts of the development of pre-finished modules. Besides miscellaneous manufacturing technologies, system integrators need to cope with global supply-chain-management as well as complexity management. Complexity is a term originated in modern systems theory that can

⁶ Sihn, W., Palm, D., Matyas, K., Kuhlang, P., Chancen und Potentiale des „Detroit des Ostens“

für Automobilzulieferer, Automotive Region Eastern Europe, adapted from a notice of Nov. 13th,

2006.

⁷ Kaack, J., http://www.mittelstandswiki.de, queried on Sept. 14th, 2006.

⁸ NEXOLAB GmbH, LOGISTIK HEUTE, 2005, Agieren in Netzwerken, Lieferantenstruktur, vgl.

Seite 12.

Starting point - 4 -

onlybe described rudimentarily in the context of this study. Bliss ⁹ describes complexity as opacity of a system, a system observer or intermediary, which results from the sum of the parts and relations, combinatorial and dynamic variety as well as the logical depth. Complexity management maps increasing complexity based on market requirements and complexity of individual actions to meet those requirements, including all departments of a company. Offering alternatives of a primary product correlates with an increased complexity of the product. This complexity leads to a constant effort of synchronisation and coordination in all departments. In short, complexity management means the use of complexity in a sense of control in the context of this contribution. Supply-chain-management is a philosophy of organisation and management that aims at cross-company coordination and synchronisation of the flow of information and material in order to optimise costs, time and quality by integrating the activities of the companies that are part of the value creation system (e.g. tier-two, tier-three suppliers). ¹⁰ Second- and third-tier suppliers are suppliers of parts (or components, respectively) as well as systems for first-tier-suppliers, to some extend even the manufacturers directly. 11

Example for a network of vehicle production

The automotive industry has always been characterised by a large degree of division of labour as well as networking. Typical structures of production and logistics are shown schematically in figure 1-3. 12

Figure 1-3: Schematic network of production in the automotive industry

Source: Fraunhofer Institut Materialfluss und Logistik Dortmund.

⁹ Bliss, J., 2002, cf. p. 128.

¹⁰ Wildemann, H., Aufsatz Supply-Chain Management; http://www.tcw.de, queried on Sept. 9th,

2006.

¹¹ Junior Beratung Bayreuth, 2003, Marktstudie über die oberfränkische Automobilzuliefererin-

dustrie, cf. p. 27.

¹² Kuhn, A., Ergebnisse und Umsetzungserfolge der Logistik-Netzwerkforschung, Fraunhofer

Institut Materialfluss und Logistik Dortmund.

Starting point - 5 -

Theshare of in-house production of the OEM has declined to about twenty to thirty percent in the production of certain vehicle types. Such a low individual proportion of value creation, compared to prime costs, is scarcely received in any other industry. Vertical collaborations, e.g. including a supplier into the process of development, have been established for years.

1.3 Trends in the chain of value-added of the automotive manufacturers

Fundamental changes to the market environment by increasing equipment diversity and decreasing lifespan of individual vehicle types make consistent realisation of holistic strategies of logistics imperative in order to effectively secure quick scheduled delivery. “It is the customer who determines what a business is”, Peter Drucker said in an often cited statement. ¹³ Customers today are able to demand changes until shortly before assembling of a vehicle begins. Demonstrably, customers accept this service. Studies at BMW-AG have shown that currently about 140.000 individual requests for change are received every month. Mathematically, each ordered vehicle has to be changed 1,5 times until delivery. ¹⁴ After introducing mass production during the 1920’s and “lean production” in the 1980’s, automotive manufacturing is in the process of another upheaval. As shown in figure 1-4, suppliers will have taken over large parts of development and production from the automotive manufacturers by the year 2015, enabling them to grow by seventy percent overall. Figure 1-4: Development of the proportion of revenues

Manufacturers lose ten percent of today’s value creation during the same period of time but increase output by thirty-five percent. Design and production-capacities of the

¹³ Drucker, 1954, The Practice of Management.

Starting point - 6 -

manufacturerswill be concentrated on brand defining modules and components. Triggers of this development are new technologies, increasing vehicle-complexity and a vast variety of vehicle types on the one hand, which raise costs for design and production, as well as constantly increasing quantities on the other hand and customer services as a more profitable investment alternative for automotive manufacturers, compared to production. For the supply industry (including service providers), massive growth is imminent. Suppliers are going to experience considerably increased value creation in the fields of electric installations, electronics, body structures and drive train, while chassis and interior design sectors will grow relatively slow. Increase of value creation utterly varies depending on module or place in the value chain. Accordingly, it is possible to identify future potentials for suppliers and service providers by analysing fields of growth for the OEM. Module manufacturing and assembling by suppliers will have grown by about 250bn Euros in 2015. Alongside, the proportion of design value creation for suppliers is to be expanded. Proportion of design value creation represents pro-portionate design costs of suppliers in the fields of equipment, engine, chassis and body structures. For example, suppliers might conduct complete design of interiors or entertainment systems. Additional demands of product and service range, resources and competences lead to a further consolidation of the supply industry besides strong growth. The following chart in figure 1-5 allows forecasting a bisection of currently about 5.600 suppliers to approximately 2.800 in 2015. ¹⁵ This performance and flexibility driven market environment, originated in changing customer demands, which shows in increasing individualisation of vehicles and niche concepts as well as an altered competitive pressure by overcapacities and a realigned Block Exemption Regulation (BER) force the OEM to reassess their own effectiveness and efficiency. The new BER deregulates trading of spare parts for vehicles and increases transparency for consumers. The right of the suppliers to brand their products with their own logo and to deliver directly to authorised workshops and independents is strengthened. This means increased choice for consumers and more price competition for the automotive manufacturer.

¹⁴ Bischoff, J., Junghanns, T., Lässig, H., Ausgabe I/2004, Supply-Chain Management, cf. p. 7.

¹⁵ Fraunhofer-Institute IML in Dortmund and IPA in Stuttgart as well as Mercer Management

Consulting, data and facts refer to a teamed survey, 2005 „Future Automotive Industry Structure

(FAST) 2015“.

Starting point - 7 -

Figure1-5: Forecasting development of the number of suppliers and manufacturers

In consequence, the BER reduces the traditionally close links between authorised workshops and automotive manufacturers. The changed definition of the term “original spare part” as a product of the supplier, no longer the vehicle’s manufacturer, allows even authorised dealers to order spare parts directly from suppliers. So far, original spare parts had to be obtained via the particular manufacturer or importer. The reassessment of the OEM’s efficiency often results in a redefinition of the individual core competences and internal labour, traditional roles and task sharing between OEM and suppliers change. No response to these changes might lead to losing access to customers and therefore sales. Customers indirectly push almost all suppliers to move at least parts of their production to low wages countries by the means of forced prices that can only be achieved by lowering costs of production. To stay in business, suppliers need to follow the OEM and build regional or local networks of logistics. Many suppliers therefore are in a dilemma between the necessity to follow their customers and the aligned investment risk.

1.4 Approach and structure of this thesis

This thesis chosen modular structure is based on the scientific process developed by Ulrich who favours practical relevance of scientific studies in order to secure efficient application in relevant conditions. He follows the approach of a symbiosis of practice

Starting point - 8 -

andscience, which is basis and orientation of the modus operandi of this study and shown in detail in figure 1-6.

Figure 1-6: Modular structure of this thesis

Source: Own illustration, structure adapted from the scientific process developed by Ulrich.

Starting point - 9 -

Theintroductory part of this thesis is about describing the automotive industry, concentrating on its vitality and mutability as well as typical features and trends of the sector. Initial point is the increasing globalization and accompanying cost pressure. In chapter 2, theoretical foundation and background to this study is supplied, starting with an overview of the historical development of plastics as well as specific properties and aims of plastic injection moulding in a supplier’s company. Additionally, the classical layout of manufacturing, individual production stages, structures of producing and flow of material inside and beyond operational plastic injection moulding are going to be pointed out in order to discuss perspectives and problems. Furthermore, fields of logistics will be described holistically, covering approaches and foundations of procurement to distribution, based on changing market conditions. Those fields of logistics are shown in critical coherence to the aims, philosophies, concepts and spheres of activity of the automotive industry. Following this, the general consequences and demands of logistics at suppliers are dealt with initially, while chapters 5 and 6 will show a more detailed and specified insight. Besides, distinct dependencies and areas of conflict between suppliers and manufacturers are pointed out next to the often-cited approach of asymmetric suppliercustomer-relations in favour of the latter. In chapter 3, the findings drawn from the first two chapters are going to be summarized shortly and descriptively compressed into a problem definition. Based on this problem, hypothesises, research issues as well as primary and secondary objectives of this study are derived consecutively. Chapters 1 through 3 illustrate the foundations and framework this study is based on. They are supposed to procure the essential background, which has influenced and supported the development of this study significantly. Chapter 4 informs about the scientific literature’s profile, structure and boundaries in regard to logistical content. Included, the approaches of integral logistics management and heuristics as possibilities of planning, optimising and application as well as selected approaches of factory and business process modelling as a possible foundation to deduce design approaches of automotive logistics will be analysed. Additionally, the structure of logistical incentive systems and their elements are described as well as correlations between production and cost theory. Besides defining the scientific framework and the modus operandi, a field of terms is introduced that is relevant to the wide range of application of the problem to be analysed. Chapter 5 argues the development of the basic position and methods, which are the foundation

Starting point - 10 -

  of the model-based design methodology For problem-solving and further proceedings,  

  a comprehensive problem-solving model is created that is partially connected to the  

  methodology of the models used in theory and in practice Therefore, content-addressed  

  as well as formal requirements on the method are elicited Chapter 6 is devoted to the  

  analysis of requirements and factors of logistical systems as well as studying of the ef-  

  fect interdependencies in an active system In order to increase findings and to affirm  

  the consistence to theoretical foundations, basic and analysed data about development  

  and to evaluate effect interdependencies in different domestic and international automo-  

  tive supplier companies for interior plastic components is collected (or analysed, respec-  

  tively) from databases Furthermore, the chapter supplies the basic data necessary to  

  determine and differentiate equations for logistical efficiency rating as well as data,  

  processes, information and requirements of specific companies and individual custom-  

  ers in order to regulate material flow Relevant data is transferred into a designated data  

  and process model scientific literature parallelly provides theoretic reference This sys-  

  tematic process as modus operandi to identify concrete details allows a systematic col-  

  lection of applicatory relevant data with consistent theoretical reference by combining  

  scientific foundations and analysing different problem areas at suppliers As matching  

  of the preceding considerations and findings, chapter 7 forms another focus of this  

  study by defining the design First, gained insights are decomposed and circumscribed  

in  order to infer similarities as well as structural or functional matches Emphasis of this  

chapter will  be the smart integration and arrangement of the results to a determined  

  mathematically-logically linked model structure The realisation of this model structure,  

  respectively the implementation of the contents of the functional concept components,  

  shall be achieved by the means of an automated solution As complement to the design,  

  the developed model will be applied and evaluated in a case study in the further course  

  of this chapter Finally, the essential findings of this study will be recapitulated and  

  judged in regard of applicability and use in comparison to the set objectives in chapter  

8.  The results of the evaluation might allow mapping out areas for further research The  

  development of the exemplary solution is very specifically applied to small and me-  

  dium-sized automotive plastics suppliers for plastic interior components, the algorithm  

is  universally applicable  

Field-Specific-Foundations - 11 -

2 FIELD-SPECIFIC-FOUNDATIONS

2.1 Plastic injection moulding production

2.1.1 History

Humans have used high molecular, organic raw material since earliest times in the form of textiles made of natural fibre, wood and leather. Concrete conversion of natural materials into what is known as plastic polymer materials began in the first half of the 19 ^th century with cellulose. But it took until the 1930s that plastics became economically relevant, after Herbert Staudinger, a German Nobel laureate, had offered scientists, primarily of the industrial nations of that time, inducement and key to new synthesises by creating a model of the structure of plastics of molecular chains. Industrial manufacturing of polymer materials began amidst the 19 ^th century with the manufacturing of latex, a natural rubber made from rubber plants. First and most important area of application for polymer materials was the electrical industry with its need for lagging. During the first decades of the 20 ^th century, the rapidly increasing automotive industry drove the growth of the rubber industry. ¹⁶ Introducing synthetics into vehicle construction allowed designers for the first time to design three-dimensional shapes and to choose colour and surface design independently from natural specifications. Stylists embraced this possibility entirely and synthetic material almost became a style icon in design. Vehicle inte-riors of the 1950s and 1960s show a colourful picture of this creative era. During the 1970s and 1980s, synthetics lost credibility and acceptance and got the negative connotation of plastics as a result of the attempt to recreate natural materials artificially. ¹⁷ Meanwhile, plastics technology allows to produce geometrically challenging moulded parts with accurate surface design of textures and gloss levels by the means of innovative injection moulding, material and tool technologies (lamination, in-mould-decoration, back-foaming etc.), in a way that impression and feel are almost indistinguishable from natural materials. Besides design, moulding, lightweight construction and multifunctional requirements on the plastic item, demands of active and passive safety are important today (e.g. carpeting parts for force absorption or airbag covers). 18

¹⁶ Menges, G., 2002, Werkstoffe Kunststoffe, cf. pp. 1-3.

¹⁷ Plath, T., Fleischer, D., Woite, B., 2000, Kunststoffe im Automobilbau, cf. pp. 41-45.

¹⁸ Stauber, R., 2000, Kunststoffe im Automobilbau, cf. pp. 1 and 235.

Field-Specific-Foundations - 12 -

2.1.2Production specifics

The organisation of automotive plastic injection moulding is characterised by a coexistence of several different procedural methods as shown in figure 2-1. Figure 2-1: Procedural methods of production

Source: Adapted from Günther and Tempelmeier, 1995, Prozesstypen der Produktion, cf. p. 57.

For example, while the preliminary product stages are often characterised by serial production, final assembly of modules and systems is usually done by continuous production. The transition between the different procedural methods is usually smooth. The profile of an existing or to be developed production system is described by the respective characteristics of its procedural methods. It is aimed for adding further procedural steps directly “online” to injection moulding (or extraction, respectively) in plastic injection moulding production to avoid buffer storage or storing of unfinished parts. Another aim is to reach low processing time and a small stock on hand in order to have positive economies of scales (e.g. decreasing marginal costs, depending on the applied production factor). Production of spare parts is characteristic for the method of single production. Single production allows producing individual products in low quantities, following specific customer demands. Single production shows, besides irregular flow of materials, locally concentrated similar equipment, meaning production design follows the principle of classical workshop production. Concluded from the described procedural focus, three basic procedural methods can be described as borderline cases of the multitude of mixed cases found in industrial practice, as it was shown in figure 2-1.

2.1.3 Production lot size

A lot size (also lot) is understood as the amount of goods supplied together or manufactured without idle times or refitting on one or more machines. In the automotive plastic injection moulding industry, production lots are usually manufactured in defined, so

Field-Specific-Foundations - 13 -

called“batches”. Emphasis in the course of planning lot sizes is minimising total costs for the company and maximising production value. Besides raw material and equipment, the manufacturer primarily incurs expenses of logistics, production and tool setup costs. Logistical expenses

Logistical expenses contain costs for administration and disposition, transfer to and removal from stock, generally storing and capital commitment. In chapter 4.5, types and constituents of logistical elements as well as their sub-processes are explained in more detail. Production expenses

Production expenses are costs, which occur in the course of producing goods and services (e.g. administrative expenses, production expenses per unit). These expenses are quantity-dependent. Tool setup expenses

In the beginning of the handling of a lot or while lots are changed (e.g. setting up or adjustment of machines), tool setup expenses occur. Setup is the preparation of a workflow system in order to perform a certain task. Evaluation of the input of production factors and their costs allows calculating tool setup expenses that depend on the lot size per unit. These factors, which are essential for operational planning, are called action parameters. Typical action parameters of operations are, for example, retail prices, production output, factor input, stock and operational capacities. ¹⁹ Action parameters relevant to determining lot sizes will be described below. Because manufacturing a product usually needs several working operations, considering the manufacturing structure is always imperative. It is distinguished between:

• Linear manufacturing structure,

• converging manufacturing structure,

• diverging manufacturing structure

and the general manufacturing structure. Multistage manufacturing structures cause interdependencies that need to be considered when storage cost increases are weighed up against setup cost savings. Early production and storing of unfinished goods is necessary to manufacture and store finished goods in a multistage production process.

¹⁹ Kilger, W., 1973, Optimale Produktions- und Absatzplanung, cf. p. 16.

Field-Specific-Foundations - 14 -

Thesecircumstances must affect a net requirements calculation. In the production plants of the Moeller Group that will be analysed, mostly converging or linear manufacturing structures can be found. The following figure 2-2 shows selected products and related machines by the means of a gozintograph; numbers represent products, letters represent machines.

Figure 2-2: General, non cyclic manufacturing structures

Source: Own illustration, loosely adapted from Günther and Tempelmeier, cf. pp. 176ff.

Because the planning of lot sizes is always done for a specified, finite period of planning, which is divided into a specific number of periods, it is reasonable to define the length of a period as the time necessary to produce one single unit. All relevant action parameters (e.g. tool setup expense ratios, storage expense ratios, primary quantity required, capacities and machines) are assumed to be deterministic. As shown by figure 2-3 below, the situation may occur that a machine is used for a product or working operations that are assigned to different low-level codes (cross-level competition of resources). ²⁰ Besides limited machine capacities, no deficiency is allowed to occur when lot sizes are calculated for a possibly unplanned increase of expenses (e.g. purchasing instead of producing, employees doing overtime). The companies to be analysed regard a segment of production, which works according to the flow principle, as a singlestaged production system that is embedded into a multistage production context. The actual injection moulding process forms the main production segment in the production system. Ninety-five percent of all products to be produced in the plants are determined as first production stage by the injection moulding process. The segment highlighted and represented by “production stage n” in figure 2-3 is not including pre-produced

²⁰ Tempelmeier, H., 2005, Bestandsmanagement in Supply-Chains, cf. p. 122.

Field-Specific-Foundations - 15 -

componentsinto the injection moulding process but passes its first production stage components to following production stages.

Figure 2-3: Production stages of the companies to be analysed

Source: Own illustration.

Thus, possible following production stages to manufacture finished parts are merely finishing and completion stages. In further context, concentration of lot size planning therefore lies on any “Product k” in this production stage.

2.1.4 Layout-structure and flow of material

Injection moulding machines have been improved to be fully automated manufacturing machines in preceding years. The machines are often linked and affixed directly to other production units (e.g. feeding portal to extract parts, grabber, cutter or laser). These linked systems are almost never flexible and thus vulnerable to disturbances. Inflexibility of production in the plastic injection moulding industry is also supported by a specific production lot size of a product (batch) needing to be produced in order to achieve cost-effective manufacturing of the parts per production unit. The layout structure of an injection moulding company has changed marginally during recent decades. Compared to the past (or former trends, respectively), imperative in-house tool shops have been substituted successively by plain maintenance for tool manufacturing that is very customised and therefore cost- and employee-intensive. Today, production-necessary tools are no longer manufactured by the injection moulding companies themselves but commissioned in low-wage countries (Portugal, China etc.) and imported. Where two manu- facturing processes could be found in the past (injection moulding and tool shops), usu-

Field-Specific-Foundations - 16 -

allyjust injection moulding remains, accompanied by a maintenance department for machines and tools. ²¹ Injection moulding is characterised by the material flow of plastics and components, which originates with raw material storage (central material supply), continuing with the actual manufacturing process and quality inspection, ending with reworking (or assembling to finished parts storage, respectively) and shipping. The described material flow is illustrated in figure 2-4. Figure 2-4: Layout of an injection moulding company

Source: Adapted from Feldhaus, Ullmann, 1993, Layout eines Spritzgießbetriebes.

Injection moulding and the aligned manufacturing process are characterised by mediumsized or larger orders. In the analysed manufacturers, an average batch production tool (tonnage being between 500 to 800 tons) operates for about five to ten hours until tool change is imminent, this time being defined by cycle time and production lot sizes. The time for a tool change highly depends on the size of a tool, the tool change’s automation level (e.g. automated tool changers), the qualification and teamwork of the tool setters as well as the number of “setters”. Tool change can therefore vary between five minutes and three hours. Manufacturing process for plastic injection moulding parts is per-formed in four stages, essentially. The raw material (granulate) is fed to the dryer in the first stage, in order to remove absorbed moisture from the granulate before further processing. Pre-drying depends on the material and is not always imperative. The second stage sees the manufacturing tool installed to the injection-moulding machine. Before the machine is started, program data (product-specific process parameters) are fed to the machine’s controller in stage three. In stage four, the machine’s production begins. De-

²¹ Feldhaus, A., 1993, Instandhaltung von Spritzgießwerkzeugen, cf. p. 35.

Field-Specific-Foundations - 17 -

tailedprocess stages are shown schematically in figure 2-5, minding their precise sequence.

Figure 2-5: Manufacturing stages of traditional injection moulding production

Source: Own illustration.

This production stage forms the actual manufacturing process that is composed of heating, injecting and cooling. After opening the tool, the units are extracted manually, or with the help of an extraction robot, from the tool and inspected for shape and dimension accuracy. By adjusting the machine’s process parameters, shape and dimension tolerances can be balanced. The injection-moulding tool is of high significance in the entire injection moulding process. The tool is decisive for the required moulding quality, undisturbed production, short cycles, long operating life and thus for cost-effective production. 22

2.2 Basics and duties of automotive logistics

Automotive logistics have experienced a large change of meaning in recent years, comparable to the progress in some fields of technology, not least because of an increasingly fierce cutthroat competition, which is expressed by a faster international equalisation of product and process quality. Added are shortened innovation cycles, higher market transparency and increasing individualisation of customer demands. Individualisation of customer demands of the OEM not only influences sourcing and distribution concepts

²² EMS-Grivory, http://www.emsgrivory.com/, queried on Jan. 1st, 2007.

Field-Specific-Foundations - 18 -

directly,but also logistical design of the entire logistical system in a company. Characteristics of automotive logistics, compared to traditional companies of the raw material, machine or tool manufacturing industries as well as New Economy companies, are, besides individual customer demands, specified ways of supply and standardised information concepts in order to achieve short delivery periods, high delivery quality and delivery on schedule. Specific ways of delivery of the automotive industry will be explained in detail in chapter 2.3.5 below.

2.3 Logistics supply chain exemplifying an automotive supplier of the plastic injection moulding production

In order to illustrate the characteristics of automotive logistics as well as to work out logistical fields and principal approaches to the development of a comprehensive and broad efficiency rating for logistics, the different stages of a plastic injection moulding production’s logistical supply chain are visualised in figure 2-6 by the means of process flow diagram.

Figure 2-6: Logistics supply chain of a plastic injection moulding production

Source: Own Illustration, logistical chain plastic injection moulding production in the suppliers industries.

Field-Specific-Foundations - 19 -

Itis noticeable that the modules of the supply chain allow the supplier different grades of freedom to design process and material flow. This means that the supplier is relatively “free” in designing his supply chains in the fields of procurement and production logistics, while supply and delivery strategies in the field of distributive logistics are generally determined “fix” by the OEM. The logistical chain for product manufacturing generally begins with demand-driven procurement of pre-products necessary for finished products. Disposition of the necessary materials is assigned in context of MRPoperations (Material-Resource-Planning), based on dispatched requisitions of customers and the product manufacturing structures based on production systems. Between procurement and distribution logistics, production logistics is placed. Its task is the type and amount appropriate, locally and temporally matching of the production processes supply with the necessary commodities. Generally, those commodities are raw materials (granulate), parts (clips, switches, rails etc.) but also half parts to complete module components as well as empties for the finished products. Production logistics controls all operational middle production inventories and movements. Interfaces to procurement and distribution are goods in warehouses as well as half and finished parts storage. The task of distribution logistics is to supply manufactured products type and amount appropriate, locally and temporally customised in order to stay in schedule.

2.3.1 Supply-Chain-Management

The design and organisation of the supply chain network gains dominant competitive relevance in context of internationalisation and extreme dynamics with the distribution of new products and services via different channels in heterogeneous markets. By opening markets and, correlating, increased outsourcing and relocation activities of core competences inside the supply chain, networks of ever increasing complexity emerged in the automotive industry. The mass production system introduced by Henry Ford in the last century can no longer comply with market and customer demands. The foundations (or efficiency and success, respectively) of the mass production system have been and are depending on stabile, long-term predictable market environments that allow a production of large amounts of homogeneous goods. The most important reason for the tayloristic principles being less efficiency increasing, often rather the contrary, is the increasing heterogeneity of demands. Additionally, the classical principles of scientific operation reach their limits for most markets have changed from being sellers’ markets

Field-Specific-Foundations - 20 -

tobuyers’ markets. In their teamed study “Einführung in die allgemeine Betriebswirtschaftslehre, 2005” Wöhe und Döring describe sellers’ and buyers’ markets as follows: The sellers’ market is characterised by the economic development stage of scarcity economy (unsaturated markets). Demand is larger than supply. Bottleneck of the operation is either procurement or production. In this case, companies try to expand procurement or production capacities rationally. In contrary to the sellers’ market, the foundation of a buyers’ market is the affluent society (supply > demand). In saturated markets, companies have to deal with distribution difficulties. Primary efforts of the companies are to animate demand and preferences for the own catalogue in order to overcome the distribution trough. Buyers’ markets are characteristic for industrial societies. ²³ Customers are not willing to accept problems caused by organisation, such as not entirely fitting products, long delivery periods or interface problems in processes. The new consumers’ behaviour is a relevant factor of influence to the development of goods and services of all kinds. In buyers’ markets, microeconomic aims of “quality”, “time” (needed for development and delivery) or “flexibility” are treated as equally important next to the classical aims of “productivity” and “cost-effectiveness”. ²⁴ Supply-chainmanagement (SCM, German: “Management der Lieferkette”) is the process motivated design and the operation of all activities, from procurement of raw materials and semifinished products, via customer sales to disposal. This perception is the integrative philosophy “to manage the total flow of distribution channels from the supplier to the ultimate user”. ²⁵ In the scientific literature, no general concept about the understanding of SCM exists. Reason for this is especially that the development of SCM began in practise ²⁶ and was later used reactively by scientific research in the 1990s (cf. Cooper, M., C., 1997, p. 12). After early discussions about the significance and consequences of the approach of SCM, most authors meanwhile agreed that SCM described a new quality of

²³ Wöhe, G. and Döring, U., 2005, Einführung in die allgemeine Betriebswirtschaftslehre, cf. p.

447.

²⁴ Reichwald, R. and Piller, F., May 2006, Interaktive Wertschöpfung, Open Innovation, Indivi-

dualisierung und neue Formen der Arbeitsteilung, cf. p. 28.

²⁵ Cooper, M., C. and Ellram, L., M., vol. 4, 1993, no. 2, Characteristics of SCM and the Implica-

tions for Purchasing and Logistics Strategy, cf. pp. 13ff.

²⁶ SCM: The term „supply-chain-management“ was created by consultants of Booz Allen Hamil-

ton. Some of the first scientists analysing the term were Stevens, G.C. 1989 (cf. Stevens, G.C.

1989) and Towill, D.R. et al. 1992 (cf. Towill, D.R., 1992).

Field-Specific-Foundations - 21 -

companyand network leadership and was not only a temporary fashion. ²⁷ This SCM philosophy is based on a holistic approach. The idea of SCM is to plan and control a logistical network in its entirety. ²⁸ The primary aim is to optimise costs and performance variables in all elements of SCM. Therefore it is important to integrate all suppliers, manufacturers and distributors as co-operation partners into a commonly beneficial “win-win-relationship” in order to improve and stabilise the competitive position and to reach a global optimum, especially regarding costs, batches, delivery times and stock in all companies. The limits of law and techno-economics are to be considered when integrating a supplier into a “supply-network”. Especially transport and storage in a company improve vitally when switching to modern SCM. While logistics have regarded product flow widely independent from institutional problems, supply chain management explicitly integrates structuring and coordination of autonomously acting operational units in a value creation system into the analysis. SCM therefore emphasises, in contrast to logistics, the inter-organisational aspect of a logistical management task. Supply chain management can be regarded as a new approach of business administration, which extends over the boundaries of a single company. It does not only cover logistics, but all other fields of business administration (e.g. marketing, IT, production, administration, accounting and controlling).

2.3.2 Information technology

Support of modern information technologies is essential to realise information exchange between participating companies in a “supply network”. Here, information technology works as the “enabler” that makes new methods and business models possible in the first place. Classical ERP-systems (enterprise resource planning), which are used in most companies, are not replaced by SCM-applications but supplemented. Specific investing in interfaces results from the necessity of a homogeneous IT environment in supply chains, indispensably because of standardisation deficits in “collaboration workflows” and IT-systems. These would be devaluated into sunk costs if a partner was substituted from a specific supply chain. ²⁹ Complex supply chains require efficient information and communication management alongside all chain links. The automotive in-

²⁷ Göpfert,2002, Einführung, Abgrenzung und Weiterentwicklung des Supply-Chain Manage-

ments, cf. p. 27.

²⁸ Bretzke, W., R., Barkawi & Partner, 2006, Sieben Thesen über die zukünftige Entwicklung of

logistic networks, Supply-Chain-Management 11/2006, cf. p. 7.

²⁹ Cf. Bretzke, Barkawi & Partner, 11/2006, l.c., p. 7.

Field-Specific-Foundations - 22 -

dustryhas used standardised electronic data interchange (EDI) for communication and information exchange of, e.g., order, delivery and billing data for several years. Figure 2-7 below visualises a standard communication concept between suppliers, manufacturers and a logistical service provider (LSP) based on the EDI-VDA standard to handle single-stage stock keeping close to an automotive manufacturer. Figure 2-7: Standard information and communication illustration

Source: Own illustration, standard flow of information concept in the automotive industry.

The illustration shows that the supplier receives demand forecasts (via VDA 4905) from the customer to process them in the ERP-system and, according to the own demand basis, releases the supplies to the LSP via own production. The same system of sending demand information is not only used on the supplier’s distributive side, but also on the procurement side in order to control the own suppliers by sending demand information via VDA 4905. The demand is fulfilled subsequently by the advised transport (via VDA 4913) and delivery. In contrast to supplying the customer directly, the supplier delivers using an interconnected stock, which is administrated by the LSP. This means, the entire stock data and detailed delivery call off (via VDA 4913 as well as VDA 4916) is controlled by the LSP and not the supplier. The advantage of this constellation is the chance for the supplier to concentrate on its core business. In the case described, the supplying company only has to ensure refilling of the stock at the LSP. The specific

Field-Specific-Foundations - 23 -

waysof delivery, like JIT and JIS, by sequencing or consignment sale to the customer, are incumbent on the responsibility of the LSP. Invoicing, or the so-called credit memo procedure, occurs directly between supplier and customer via message types VDA 4906 or VDA 4908. In European delivery networks, standards like VDA, ODETTE or EDI-FACT, in Northern America ANSI X.12, EDIFACT and in South America primarily EDIFACT are used for data exchange. With the market-conditionally growing pressure of costs and time on the one hand, and increasing complexity on the other, managing the information flow of the entire supply chain becomes more and more important for companies. Utilisation of all unused potentials in cross-companies’ communication is corresponding. This applies even more as the optimisation of mere physical processes, like storage or transport, reach their limits. Practice indicates future deficits of hitherto communication in complex networks. The involved partners have access to different planning and controlling information. The term used for that is “bullwhip-effect”, meaning oscillating order sizes and stock will increase infinitely if each partner decides based only on the information of the next one. In cases of participants working based on the same information, these are only passed on sequentially, viz. “step by step”, like a domino chain. In both cases, supply chain members have different levels of information at some point, resulting in decisions being delayed or made based on incomplete information. Logical result are inefficiencies in form of delays and increased costs for safety stock and reserve capacities. Estimated, the “bullwhip-effect” leads to a reduction of profitability by ten to thirty percent and the domino effect results in cycle times increased by twenty to forty percent. These problems can only be solved by a fundamental change in the communication logic of supply chains to a shared information principle. ³⁰ Further advantages and disadvantages of these principles have been discussed extensively in scientific literature, thus will not be part of this study.

2.3.3 Procurement logistics

A completely different aspect of the supply chain is the field of procurement, for coordination of suppliers worldwide is included. The task of procurement logistics is to costefficiently supply companies with external raw, auxiliary and operative materials, trade goods and non self-manufactured as well as purchased parts according to require-

³⁰ Krumer,S., Kurt Salmon Associates GmbH, Shared-Information-Paradigmenwechsel in der

Supply-Chain Kommunikation, Supply-Chain Management III/2006, cf. pp. 25ff.

Field-Specific-Foundations - 24 -

ments. ³¹ Logisticalorientation of the supply chain design from supplier to production (linking supply capacities with production capacities) at the industrial enterprise or to the point of sale is characteristic for procurement logistics. Summing up, procurement logistics is responsible for the physical availability of goods. Purchasing, as a part of procurement management, rather includes strategic problems of a company. Besides creating market transparency, development of new sources, optimising and defining supplier portfolio, negotiation of basic conditions as well as securing legal availability of goods, setup and extension of existing supplier relations up to value creation partnerships and performance evaluation of suppliers are included. ³² Tasks and modules of procurement logistics, as shown in figure 2-8, can be summarised by the term “procurement management”. The design parameters of procurement logistics basically consist of procurement strategy, procurement structure and supply as well as delivery concepts.

Figure 2-8: Tasks and modules of procurement logistics

Source: Adapted from Fricke 1983, p.45, Schulte 1999, p.215.

³¹ Becker, J., Rosemann, M., July 1983, Informationswirtschaftliche Integrationsschwerpunkte

innerhalb der logistischen Subsysteme, cf. p. 56.

³² Uhlig, T., Busak + Shamban Europe, Globales Supply-Chain-Management, Supply-Chain

Management I/2004, cf. p. 30.

Field-Specific-Foundations - 25 -

Manycompanies have realised that with increasing global competition and decreasing margins, capabilities for success are not only found in sales and marketing, but that especially in procurement many possibilities have not been utilised yet. Procurement strategies

Volume and remit of procurement have grown intensely. This is caused by terms such as “outsourcing”, “make-or-buy” and decreasing in-house production depth of companies (increasing order sizes of bought-in parts in the face of parts production of goods that can be manufactured comparatively cheaper). Due to in-house production depth tending to be too low, the portion of externally produced parts inside the entire component spectrum grows. ³³ The remit of procurement is subject to intense change; away from a mere operative, conducting factor to a strategic, constitutive factor. In modern procurement, a multitude of complex problems needs to be regarded. Therefore, a procurement function gets more and more important for manufacturers. This results in material usage taking the largest share in expenditures of many industrial undertakings. The following analysis of the cost structure of an automotive manufacturer documents the situation, taking the Volkswagen group as an example. The analytic figure 2-9 displays a share of direct, variable material usage (production material) of 65% in total expenses.

Figure 2-9: Cost structure VW group

Source: Adapted from Geschäftsbericht (annual report) 2005, p. 70, VW group.

This clarifies the significant cost lever of the procurement function. Furthermore, the significance of this adjustment lever is emphasised by a rule of thumb quoted by Prof.

³³ Bedacht, F., 1995, Global Sourcing, cf. p. 1 and cf. Gruschwitz: Global Sourcing 1993, cf. pp.

57ff.

Field-Specific-Foundations - 26 -

Dr.Horst Wildemann: “Auf der Basis eines angenommenen Materialkostenanteils von 60% vom Umsatz entspräche bei einem Unternehmen mit einer Umsatzrendite von drei Prozent die Renditewirkung einer Materialkostensenkung um drei Prozent einer Umsatzsteigerung von 60%.” ³⁴ Accordingly, rationalisation possibilities in this field have extensive impact on the success situation of a company, even with relatively small success percentage-wise. In the context of announced programmes for consolidation of the automotive manufacturers, year after year procurement costs are revaluated. VW plans to save one billion Euros just on its suppliers in the course of cost reduction until 2008. ³⁵ In times characterised by economisation and price war, the right choice of purchasing and procurement strategies becomes more and more important for manufacturers. Production processes are improved constantly, therefore the entire procurement process permanently faces new challenges. “Sourcing” of companies of the automotive industry is a very complex process including many fields from procurement via quality assurance to logistics. Especially just-in-sequence delivery of parts is problematic due to “multiple sourcing”, characterised by assigning specific modules to different suppliers. Logistics are challenged particularly, considering small room for supply at assembly lines as well as increasing model range of the manufacturer with additional vehiclederivates in existing manufacturing plants. Procurement strategies applied in the industry today are primarily depending on the procurement market (or the product specific technical properties, respectively) as well as the strategic positioning of the company itself. In order to develop a full procurement strategy, it is necessary to analyse the procurement market besides products for procurement; it is also imperative to conduct strategic positioning. ³⁶ The mostly applied procurement structures and strategies in the automotive industry will be described below. Global sourcing

Procurement, known today as “sourcing”, has got an entirely new meaning with the opening of new markets by automotive manufacturers. Supportive result towards “global sourcing” is the development of new factories and manufacturing plants abroad.

³⁴ Logistik-Heute, Der Einkauf als Werttreiber, 1-2/2004, cf. p. 34. Translation: „Based on an

assumed share of material costs of 60% in turnovers, a company with three percent revenues

would increase revenues by 60% with decreasing material costs by three percent.”

³⁵ VOLKSWAGEN AG, Geschäftbericht 2005, cf. p. 70.

³⁶ Schulte, C., 1995, Logistik - Wege zur Optimierung des Material- und Informationsflusses, cf.

pp. 213-254.

Field-Specific-Foundations - 27 -

Thosesimultaneously imply adjustment of procurement channels by implementing or developing new local or regional suppliers (supply network) for cost-effective procurement of goods. Especially for medium-sized companies, it is a sensible solution to develop purchasing advantages in “low-cost-countries” by the means of cross-plant synergies of the company as well as lot and procurement bundling in order to possibly open new production locations. Characteristic for international procurement is that points of supply and receiving are situated in different countries. Intentional expansion to a crossfunction strategic orientation of procurement activities is often called “global sourcing”. The difference to national procurement is the consideration of the specifics of international transactions. International procurement has always been necessary to ensure supply of the industry in order to balance a shortage of raw materials in the own country. In recent years, companies are forced to explore new procurement markets and to use thence offered technical and price possibilities as a result of increasing worldwide competition, increasing technical demands of the products as well as increasing cost pressure, but also in order to ensure own competitiveness in the long run. Efficiency of foreign companies, which, in many cases, has improved besides costs remaining relatively low, facilitates the decision for an import; additionally, economic communities in Europe, Asia and America as well as developments in Eastern Europe have made expansion of procurement markets easier. An essential argument for international procurement is usually the reduction of purchasing costs. Price differences can usually be ascribed to lower wage levels, social cost differences and tax advantages abroad, amongst others. When comparing prices, storage costs as well as market studies, business handling, test processes etc. have to be minded. ³⁷ It should be mentioned that “global sourcing”, besides opportunities to reduce costs, bears certain risks, such as cultural or geographical distances, climatic characteristics, exchange rate risks, political unrest or juristic difficulties. For “global sourcing” being a strategic decision, expectations for short-term cost reductions should not be too high. That prices abroad should be at least twenty percent lower than those of suppliers in the country of origin is considered a rule of thumb in the medium-term. It is to be considered that, according to the “total cost of ownership approach”, the costs for travel, freight, customs, increased stock

³⁷ Kuhn, A., WS 1999/2000, Script Logistik II, cf. pp. 19-22.