Logistics Management: Smart Car - Essay Example

Introduction This case study deals with the revolutionary supply chain concept of the SMART car, which made people sit up and take notice not just because of its size and features, but because it was a trendsetter in its production plant setup and manufacturing characteristics. Originally the brainchild of Nicolas Hayek, the creator of Swatch, the Swiss watch manufacturer, and Mercedes-Benz, the idea was to produce a small car that was as ecologically sound as possible. Designed for congested city centers, it was to be compact, lightweight and propelled by a small, low-powered engine. A joint venture company was subsequently set up between the two companies, although the-then-Daimler-Benz acquired full possession in January 1999. SMART is the youngest and one of the fastest growing car makes in Europe – and much more than the manufacturer of an 8.24 feet long parking space wonder. SMART cars are not just growing in terms of inches - the sales figures are also showing fast growth: More than 700,000 vehicles have been produced to date. The SMART City Coupe formerly called the “fortwo” has become a very popular “it” vehicle in Paris, London, Barcelona, Rome and many other European cities. This car is more than just a simple means of transport; it is an expression of innovation, intelligence and high functionality. SMART vehicles are now sold in 36 countries around the world, and are available as both left- and right-hand drive models. Sales and turnover are constantly increasing. All SMART models embody the same brand values and have the same basic structure. Innovation, functionality and a sense of happiness and fun are the thematic qualities associated with it. Their marketing is aimed to appeal to people who are sporty, independent and young at heart, people who love clever solutions and are open to new ideas. The SMART brand slogan “open your mind.” is an expression of their way of life. Background Information In October 1997, the SMARTVILLE production plant, located near the small town of Hambach, France, is one of the most modern car plants in the world. It is built on former swampland. It was built with the environment in mind and has awesome features. It has no airconditioners and was built with a recovery system that also has the side benefit of eliminating the need for cooling towers. In spite of all its amazing features, the Smart car is well known for its innovative and trend setting supply chain management characteristics, which were a complete contrast to the existing processes. The movement of the materials as well as their storage are reduced as much as possible by integration. There are 2,200 people who work at the plant, only around 900 are actually employed by DaimlerChrysler; the rest work for the seven suppliers on site and are completely integrated into the manufacturing infrastructure. These seven companies are: Magna Systeme Chassis (the spaceframe) Magna Unipart (doors) Surtema Eisenmann (the paint shop) Dynamit Nobel (plastic body panels) Siemens VDO (cockpit) ThyssenKrupp Automotive (powertrain and rear axle) Cubic Europe (surface decoration) They supply their modules, which are pre-constructed in Hambach, directly to the production line. This was supported by a host of information systems that were employed to achieve the following functions. Data acquisition(sensors), transfer (networks, telecommunications), storage (data bases), processing (data mining), presentation (infographics, images), and application (control, computer-aided decision making) executed using information systems improved the efficiencies enormously. In any supply chain there are three components that are dynamic, goods, money and the other is information. The internet and other investments in information systems can make the existing processes more efficient. The Car The car was marketed based on its salient features. The car was equipped with tip touch gearbox etc. that were technologically superior to the other small cars in the same segment and looked trendy in design. Electronic Stability Program, antilock brakes, brake assist, and traction control are standard in Smarts - not bad for a $13,000 car. Ability to afford the customer a high level of choice like the colour of the body panels and seat upholstery as well as all this customization in a lead-time of a few weeks was a great selling point. Safety was another aspect that marketed the car. Initially people were sceptical about the ability of the small car to take on collisions. The touting of the Tridion frame, which proved its performance in crash tests and reassured the public about their safety, broke this down. This steel frame absorbs front-end impact - no cockpit crumble. Get hit head-on, and the car collapses behind the doors near the back wheels. In addition it has driver and passenger airbags as well as a three-point seat belt restraint system. Compactness combined lightweight slim tough frames; transparent roofs and enormous windshields give the illusion of space and staggered seats make seating for two very comfortable. High fuel efficiency and a fully recyclable body was another of its selling features. Supply The most important aspect of the Smart production system is its supply chain methodology. In short, the suppliers themselves are responsible for part of the manufacturing. The unique experimentation to maintain zero inventories by transferring the onus onto the supplier has worked extraordinarily well for these volumes. This has also taken the financial burden off the shoulders of the parent company since they are no longer required to lock in valuable money in holding inventories. From the procurement of the smallest part on the assembly to the delivery of the cars to the retailers everything is completely outsourced. Bar coding is extensively used in order to determine the movement of the material and track the inbound movement of the materials and modules. This also allows the storage of the data for future analysis and aids when newer combinations are required. The data received from the dealer at the POS are used to determine the sources from the suppliers and reduces wastage since customisation to the needs of the consumer is made. Information systems also determine lead times and delivery schedules as per the customer requirements. The factory is shaped like a plus sign. The delivery gates are aligned along all the walls, and the production is done in the middle with the suppliers directly bringing in their goods. The whole purpose of this was to permit frequent deliveries and minimise distances which in turn reduced time wastages. There are no more than 10 meters between a gate and the assembly line. Since just-in-time is so important, keeping delivery distances to the minimum is essential for the smooth flow of supplies, especially as the number of parts numbers has grown exponentially. The car is assembled and and then payment for that component from the supplier is made only after the car clears all the testing requirements. Hence the supplier is only paid for the functioning component consumed, and reduces the SMART'S inventory almost to zero. This also puts pressure on the supplier for better quality control and to avoid unnecessary movement of a defective component or module. It's a very successful philosophy that has been implemented here. Initial doubts about the success of the endeavour have now been replaced by optimism at the success of the system. Information sharing is maintained by regular meetings between the suppliers and MCC in order to discuss process startegies. These integrated suppliers have to agree to be exclusive to this plant. They are not allowed to supply to any other plant. This has worked very well for SMART since a problem means loss of business for the supplier who has a vested interest and the incentive to quickly resolve is increased. The supplier is able to visit the scene in minutes and the top management is involved directly and problems get resolved in minutes rather than days. The involvement of the supplier in the product and process development is very high. Another condition of the suppliers being awarded this model lifetime contract is that they have to comply with DaimlerChrysler's employment terms and conditions. The purpose of this was that differnces in the terms and conditions of the employment between the suppliers and Chrysler was written off. Strikes due to the employees of the supplier often brought work to a standstill due to lack of suppies at the Smart plant. By elminating such situations Smart has increased its odds of efficiency and the ovreall employee satisfaction due to less disruption in the process. The Smart also highly favoured the modular concept in the cars. This has enabled it to keep the the number of components supplied by the integrated suppliers to a low number. The whole car needs about 40-50 modules in its entriety. This modular design has allowed product variability with minimum disruption to the production process and without additional production costs. This is a clear benefit of the supply chain format of Smart in comparison to the conventional methods. Logistically, this reduces storage of huge inventories. In addition to the seven integrated suppliers, who contribute 70-80 percent of the volume to the car, there are the non-integrated suppliers who responsible for seats, wheels and windows and deliver their goods to the docking station at less than 10meteres distance to the production line. These contribute towards another 20-30 percent of the volume of the car. The remaining 10 percent is the non standard non modular parts which are stored on a on-site warehouse operated by a third party. The SMART used to be a relatively simple product with around 200 parts numbers, it is now up to 2,000. This is due to the greater range of colors, exterior panels and interiors, plus the additional equipment such as heated seats, traction control, and power steering that are now standard in SMARTS. The suppliers are given three days' warning about the sequence, but it is the signal from the paint shop that confirms it's leaving, for Siemens VDO, for example, 80 minutes to build the cockpit and Magna five hours to build and deliver the door assembly.The subsystems also work independently so that a disruption at some point does affect their functioning. The chassis is painted using a solvent-free powder coating technique--SMART was the first to use it--that, apart from its ecological soundness, produces a higher quality finish than conventional methods despite the thinner coat. Currently around 500 SMART coupes and cabriolets a day are made to order on a two-shift system. At the end of the assembly line, they undergo quality checks and are then passed before being handed to the outsourced SMARTCENTRE distribution. In effect, the plant could have ownership for only a matter of seconds, but in reality they take possession of each vehicle for 24 hours to allow a cushion should any rectification work need to be undertaken. The information systems from the dealers site, ie POS, beam the data via the satellite. This information is used to decide the production requirements and the degree of customization required. Because of its unique way of producing cars, the plant has attracted a great deal of interest from both inside DaimlerChrysler as well as from other companies. Manufacturing The manufacturing at Smart Ville starts with Magna assembling the Body in white. The body is called the Tridion and the whole process is standardised by robots. The finished body then passes for painting by the next supplier where a special powder coated methodology of painting that is environmentally friendly. Also the basic paint colour is black or silver/grey. Further colour choices as per customer demands obtained from the showrooms or smart centres through multimedia information systems are sprayed on top of this coating. This gives the customer an illusion of great choice while at the same time customising the production process. The Smart's manufacturing process is just as unique as the product itself. The partnership model practised in HamBach embodies the logical development of the conventional manufacturer/supplier relationship. Thus the carmaker bears overall responsibility and is also the module system integrator, process manager and manufacturer. At the same time, however, each system partner also shares a considerable amount of responsibility. The advantage of this modern form of co-operation is that it motivates the partners to contribute to the success and the achievement of the corporate goals by means of their own input and ideas. The manufacturing phase of the Smart is a consolidation of the information flows from suppliers and distributors. The various information systems that are involved in the various points are Bar coding, which is a series of parallel bars with letters numbers and special characters are optically read by scanning them with a beam of light. The information in the bars is directly read by the computer and or stored for further use. Bar coding is useful in receiving inbound shipments and can be automated with a great accuracy. This can be used for accounts as well in invoicing and retailing. This is a logical extension of the companies information system and is a linkage with the EDI. Two-dimensional barcode are now gaining popularity because of the very large amount of data that can be incorporated. Point of sale data is simply gathering the barcode of the items sold or customer choices made and sending it to the supplier without going through the order placement phase. Artificial intelligence systems are used in a large number of areas like voice synthesis and recognition, robotics, etc. The potential of AI is staggering and is growing in popularity. Artificial intelligence is used in the production floor in the Smart plant by employing 130 robots that are used for manufacturing processes and aid in reducing production times by doing repetitive jobs meticulously without tiring, unlike their human counterparts. Improved database management system allows application programs to retrieve data stored in the system. This is critical because these large volumes of data help in decision making at present and analysis at a later stage. For example re-examining the downtime data will offer an insight into which modules are problem oriented and need to be revamped to ensure smooth production flow. Data capture allows such critical knowledge of the entire process, which is critical for streamlining the process and for future improvements. Companies now use a more flexible database management systems that are called the local area network or LAN. These systems offer great flexibility in sorting through the data and allow correlating the data in a number of ways. However in order to maintain data accuracy, the system integrity needs to be maintained. Any system is only as accurate as the data it has. Distribution The introduction of the Smart car was during a period of stagnation in the automotive industry. Also there was stiff competition and the industry was at a time ripe for a new entrant despite the challenges. The logistics of sales was clever and unconventional. The Smart distribution concept is based on sales towers, which were built of glass and housed the cars. The Smart Centres were located near or within the big shopping centres of this world. In smaller areas satellite centres or sub channels were used. The goal was that the customer should see the car, decide to buy it and ride away with it. Hundreds of those Smart Centres were planned. Market penetration was done with a passion to induce awakening that translates into sales. The necessary investment for each centre is envisaged with $ 2.5 - 3 million. In total $ 310 million was invested into the dealerships. In short market penetration was the key. One central marketing idea of the Smart is, to make changing panels so easy, that every customer can change the colours of his car, so to say before leaving for the evening dinner. In addition, the customer had the ongoing choice during the entire period of ownership if he wanted to redo the exterior differently. The target segment was widened to include the young, old and the young at heart and the congested traffic laden streets of Europe offered a natural marketplace for the compact fuel-efficient vehicle. All this proved that new markets could still be created within stagnating saturated markets. The logistics of distribution was made more economical by doing away with the distribution middlemen and wholesalers, which is the norm in the auto industry. Cars were directly sent to the retailers on being produced and did away with the middle tier of the dealership. This served to reduce costs and time wastages. The customers who walked into the shop are allowed the use of multimedia kits, which will allow them to engineer the car in the showroom. They have the option of being directly talked to by the dealer or they have an electronic medium where they go through a questionnaire that analyses their tastes and needs. The dealers now send this order form the point of sale directly to the MCC headquarters to place an order for the customised car. This serves to reduce ordering and delivery times. The marketing channels were novel, and were varied. Shopping centres and supermarkets and even McDonald outlets were utilised as a kiosk for customer advertising. Customizable multimedia kits, which allowed the viewer to try out various colour combinations for the car, were widely used. The Internet was widely leveraged for visibility of the product. CFAR or collaborative forecasting and replenishment are an often-adapted methodology to gain information based on real time sales data and marketing plans. These in turn are used in the production planning logistics and shipping and delivery schedules are ascertained. These data are further stored and retrieved at a later stage, sorted and the information systems are now able to provide valuable information on current trends and future needs. Future trends and improvements The entire framework of the Smart production, manufacturing and distribution strategies supported by their information systems have to be applauded for their innovative and bold initiative. It is a step in the right direction and one that the business world follows closely for valuable lessons to be learnt and feedback to be obtained. But complacency is the bane of the business world and Smart needs to be continually aware of future developments, growing trends and competitions to keep abreast in the industry and continue to reap the benefits of logistic management. Logistic management of the future is a critical business function that targets ultimate customer satisfaction at the lowest possible cost to the company in a highly competitive scenario in the midst of the information explosion and intelligent support systems. The emphasis is on customer service This has now become the norm and companies need to stick to requisite delivery dates, have shorter lead times and continually manage inventory in case of choices and repairs. Smart has achieved most of this by their modular approach and just-in-time methodologies but needs to be continually innovative to keep the customer’s satisfaction and interest in it products alive and sustained. Sustaining its advertising campaign utilising varied media and unconventional channels, adding newer interesting features to the car, can help achieve this as well as counteract competitors if they come up with a similar product. For example, the car may employ the sense of smell to keep the driver awake as a safety feature. It has been scientifically proven that a citrus smell causes more awareness and a lavender essence calms people. Deploying a scent pressing a button in the car could help calm drivers with road rage or awaken sleepy drivers. A seat that starts to vibrates when lanes are not kept by using an intelligent sensor is another feature that may add value to the existing car as a” Safe Vehicle” without too much additional cost to the manufacturer. In addition to this keeping a customer happy and gauging their future needs will help them plan ahead for the future. Information systems that track market data and trends and analyse them will be a vital contributor for future product planning, and this will generally point the path the company has to take to increase its revenues. Information sharing in the integrated chains The Smart case study shows that modular production can be successfully achieved in a supply chain setting. The suppliers are integrated forwards into the chain to a large extent and the distributors are integrated backward and this takes a lot of the responsibility off the shoulders of the manufacturer. It also allows MCC to have control over the information systems of not only its suppliers and their inventories but also about the sales data and data preferences from its distributors. But it also raises questions about the role of the manufacturer in the product and how much of value addition it can accomplish when involved less in the actual process. Also in the future, this over reliance on the suppliers may cause more intelligent suppliers who may consolidate their services and become a competitor instead. MCC needs to put performance measures in place so that the quality is not compromised. Also it needs to insulate itself against price hikes due to improvements that may be needed in the production of the Smart after the contract is signed it order to maintain its cost efficiency. Involving the suppliers in the product changes may help them understand requirements better and aid in renegotiation of prices. The final assembly time of a Smart is less than 5 hours, which is a great industrial standard. But the order delivery time for a customer is still a lead-time of 2 to 3 weeks. Smart needs to strive to even lower the delivery time to the customer since all the information systems that feed customer needs form POS to the factory are all in place and even customised modular designs take only a few hours to make. Also as product variations are growing, Smart will be challenged more to keep lead times low while at the same time increasing complexities in the production line increase. Although the suppliers have played a big part in the Smart success story, the sales of the Smart are growing and this brings in a different kind of problem. The general manager of Smart Ville, Schnepper is of the opinion that should demand for the SMART increase so that they had to produce 300,000 units a year, that it would be very difficult to change to the conventional way of producing cars. This is because the dependency on the one supplier will become very large and failure on his part to handle large volumes will affect the bottom lines of Smart. Another area of concern is the information sharing between the companies in the supply chain. Logistics function on the basis of the information obtained. To manage the flow of goods and services all information pertaining strategic planning, process investments, market intelligence, future products and promotional campaigns all need to be discussed. This puts the company at risk in case of any leakage since it may cause it to lose its edge of the new marketing strategy to its competitors. Smart being dependent on its supply chain members needs to find innovative methods in order to insulate itself against this risk due to sensitive and proprietary information sharing. This risk increases when the information is based on R&D data and is about a new product and becomes more complex when a number of supply chain members are involved in the new product innovation. Contracts signed underlying expectations and ownership in clear-cut terms can help mitigate these risks. Mass customization In an era where customer is king, mass customization of products will occur due to customer demand. The product variety and options will continue to increase putting a lot of burden on the supply chain catering to it. The product mix required at different geographical locations will vary due to the differences in the demographics and different volumes will be required at different locations depending on the economical well being of the consumers that affects their purchasing power. Companies have the unenviable need to organize themselves for customization in mass markets without adding production costs. Power plays With mergers and acquisitions taking place across the globe very frequently, power bases continue to shift up and down due to these. This sets up an imbalance in the supply chains as well and often there are undercurrents of a power struggle between the supply chain members due to these synergies. Too much control with a member in the supply chain often causes tensions within the entity. The greening of the supply chain Smart has to be commended in this area since it has already created an environment friendly car that is totally recyclable. With the world awake to the safe guarding of the environment for the future, companies now have the added responsibility of avoiding toxic wastes and concentrating on recycling. Smart has adhered itself to this admirable trend and on its part has put inplace measures in the factory with buildings that do not contain formaldehyde or CFCs. In keeping with the environmental theme advocated by the Smart car, it does not house air conditioners, and heat recovery systems are used throughout the factory. The heat generated by air leaving the paint department and by the injection molding section is taken through a rotating heat. Rainwater that runs from the roofs of the buildings is collected and retained in reservoirs for use in tempering steel; all the other waste water that drains off the roads and car parks is led into the oil separation plants and treated and reused. All the wastewater from the plant's sanitary installations and processes is purified in a centrally located biological purification plant using biomembranes that clean waste through a filtration system to strict European drinking water standards. After purification, the water is used in the gardens and as a coolant during the production process. In tune with the future where more amd more products will need to be environmentally friendly and all supply chain decisions will need to be made within that context. It should also be understood that “going green” will mean the total revenues will include revenues available due to recycling as well as revenue loss in disposing non recyclable scrap or hazrdous e-waste. Intelligent Information systems In this exploding age of information and globalization, the importance of intelligent information systems cannot be emphasized enough. Information is necessary every step of the way. Without it decisions cannot be made and accomplished. An integrated system of communication is one that spans multiple processes and functions as a single point of information. SSAP, BAN and Oracle have all offered such systems without which decision-making is hampered severely. Because of the volume of information and transactions occurring within a single supply chain often there is an information overload and sometimes this deters people from really getting to the vital data. To counter this new “Decision support systems” are now being offered. These help make decisions on a three-tiered level: Better planning and decision making Network systems with intelligent communications support Enterprise systems that offer intelligent operations reponse. Unlike the conventional systems that did not collaborate between supply chain partners and were dependent on static forecasts, the new systems are more dynamic and will offer a better forecasting accuracy based “on what might be” rather than “what was”. This translates into better understanding of the needs, trends, product mix, volume etc, at a critical level, which allows more control to the manufacture over its future strategies. Globalisation Globalisation has arrived and has in turn expanded horizons and broadened the playing field. In these conditions keeping track of supplies and deployment of the deliverables is an enormous task with a number of redundancies due to current methodologies. The RFID is the newest method of tracking which is gaining ground. The appeal is that RFID systems, especially when combined with far-reaching wireless communications, can provide real-time information on supply-chain inventory so businesses are able to plan accordingly and, in emergencies, react quickly, says AMR Research analyst Michael Bittner. "Only when we marry mobile asset-tracking technology with supply-chain and logistics event-management tools do we really begin to talk supply-chain visibility," Bittner says. The RFID tag stores information on the current condition of the car-whether accessories still need to be installed or whether it needs to be washed and waxed before shipping-and that information is relayed in real time to the inventory-management system. AMR's Bittner says global supply-chain tracking is close to reality as RFID and related technologies become cheaper and easier to deploy. "Pretty soon," he says, "this kind of technology is what everyone will mean when they say supply-chain visibility." Markets are more and more difficult to predict due to the globalisation and customer needs are getting more complex. The tasks have become more complex and the groups larger and more diverse. Supply chains have become more knowledge-intensive and are expected to have greater flexibility, speed and dynamism. The globalization has put in greater distances between buyers and sellers but information flows need to be maintained, still be dynamic and manageable without information overload. Information and telecommunications technology play an important role in bridging gaps and keeping the information flowing. As logistics management moves from a realm of concept to reality, new ways of doing business will continue to evolve. As these changes occur organizations will have to respond while maintaining a long-term focus on the integrated supply chain. There are no clear formulas for achieving this but being ready to reinvent themselves and move with the changing world will go a long way in staying a leader in the industry. Sources Bowersox, Donald J. and Closs, David J. Logistical Management: The Integrated Supply Chain Process, McGraw-Hill Ryerson Limited Bowersox, Donald J, Closs, David J. and Helferich, Omar K. Logistical management: a systems integration of physical distribution management, material management and logistical coordination, McMillan Publishing Co. Cappacino, William.C. 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