Supply Chain and Operations Management - Lamborghini - Case Study Example

Supply Chain and Operations Management 23-2 The manufacturing tycoon Ferruccio Lamborghini founded a manufacturing company that was built to compete with the world’s automotive manufacturing giants. Started in 1963 as a touring car producer, Lamborghini soon started setting benchmarks for its competitors and became widely acclaimed in its first decade; setting up the standard engine positions and aerodynamics of high performance cars followed by producing world’s fastest cars in production. An interest in sports cars, and the lack of well balanced sports cars that combined luxury, made Lamborghini’s owner to start manufacturing high performance luxury cars (Jolliffe & Willard 2004, p. 18) in contrast to his previous business of tractor production from the leftover world war II hardware (Sackey, 2008, p. 14). Currently, Lamborghini produces both engines and cars, Aventador being its latest mainstream product. Named after a well known Spanish bull, Aventador has incorporated Lamborghini’s trademark theme of power and exquisiteness inspired from bulls into the product. Priced at $376,000 and performing a 0-100 km/h acceleration in just 2.9 seconds, Aventador has gotten the interest of many sports car enthusiasts from the start of its production (Journal of Engineering, 2011). The sales of the car were high enough to make its 1000th sale within 15 months (Ral,l 2012). Like its predecessors, Aventador has continued to break the records of previous Lamborghini models and has shown the sales to be high enough to beat the model it replaced, Murciélago, within five years. Considering the challenges Lamborghini faces from its rivals, profitability from its expensive cars has to be kept in line with the performance and care has to be taken so as not to compromise the car’s high performance for the sake of higher sales. Supply chain management in this regard comes in as a top priority; keeping excess inventory, complications in production and delayed delivery are all likely to damage the reputation of the product in the delicate market where performance is scrutinized to depth. Car manufacturing and automotive industry has now taken the shape of global market and the concept of supply chains has taken a multinational approach (Rushton & Walker, 2007). With the tight production and delivery schedules of a multitude of produced units, the suppliers get under enormous pressure from the manufacturers who want to keep their products on top of the market. In order to maintain the tight schedule, component suppliers have been pushed to set up their factories with the top commercial vehicle producers by their requisition of geographically feasible regions of Asia (Rushton & Walker, 2007). Employing production systems like Kanban to fulfill customer oriented production to achieve just in time production, the commercial manufacturers have driven the market to an unlikely position for sports car manufacturers. Lamborghini’s production facility has 831 employees and is located at SantAgata Bolognese, Italy (AUDI AG, 2012). As such, the company gets to use the country’s vast automotive production set up and not be affected by the production dynamics of the domestic usage cars. Yet, the sport car production has its own competition to deal with. The tight schedule and intricate timings make the manufacturers outsource some parts of their supply chain to reduce the load while the rest are carefully managed by the company (Rushton & Walker, 2007). Lamborghini’s also uses the best possible routes to manufacturing often outsourcing some noncore aspects of production or supply chain either to reduce load or to increase efficiency (Evans, 2011). The high sales, with the first year’s production of Aventador - the first new model introduced in 10 years - all sold out, have put a high demand strain on the company (Evans, 2011). Lamborghini announced at a press event in Sant’Agata that the production of Aventador had increased its production capacity to 3.5 cars a day. The previous model, Lamborghini Murcielago’s, tub was said to be built by a supplier (Evans, 2011). The decision to bring the production of Aventador to its own production floors has allowed Lamborghini to put the new product on track to becoming the highest selling cars by the company on par with Lamborghini Gallerado (Evans, 2011; Rall, 2012). The CEO, Stephan Winkelmann, claimed that the first 12 month’s supply was sold out even before it’s price was announced (Evans, 2011). Unsupported by the aficionado circles but conspicuously lacking any chequered history, this kind of sport car enthusiasm makes Lamborghini’s products like Aventador unique and with high demand in the market. Choosing and managing suppliers and re-evaluating strategy to maintain excellent performance becomes crucial in such a scenario where brand value has an extremely high importance (Monczka, 2010) and outsourcing even a small part of supply chain or production means risk to the brand value; suppliers are thoroughly checked and very high quality standards are set. To keep up with the high competition and quality, Lamborghini outsources its production parts to the high end and top quality manufacturers and suppliers. Lamborghini’s aluminium and carbon based wheels are known to be manufactured by Campagnolo, an Italian bicycle component and wheel manufacturing company (Sturmey & Staner, 1986) and in Aventador’s case, to be manufactured by Pirelli (Hall, 2011) - the world’s fifth largest tyre manufacturer. Lamborghini Aventador’s chosen suppliers also include the Continental Engineering Services unit of Continental AG that will provide ultracapacitors for achieving high efficiency in battery performance to be able to use a compact lightweight battery in the car further increasing its performance (Travel & Leisure Close-Up, 2012). The company’s choice of suppliers is not just limited to top quality producers but also targets the leading manufacturers either based on production schedule or on innovation - Lamborghini’s edge on the market. This supplier too, like the rest happens to be one of the world’s leading in their field of automotive mechatronics (Travel & Leisure Close-Up, 2012). This shows the extent to which the company’s choice of suppliers is dependent upon extreme quality and innovation to meet the expectations its brands require. Lamborghini Aventador’s production has been sophisticated from it’s conceptualization. After intensive research work collaboration with Boeing and the University of Washington, the carbon fibre chassis gives increased rigidity to the car at an affordable cost (Hall 2011). On the contrary, carbon fibre - unlike metals - has to be carefully examined in case of an impact (Hall, 2011). This not only makes the expensive car delicate to impacts but also puts the production at a higher level of sophistication to ensure the safety of the assembled parts as well as to put in sufficient electronic mechanisms to avoid impacts. Aventador has been built to specs with the most minute details in consideration to both impress the driver and to perform at its best; ranging from the aggressively increased engine power over its predecessor to a jet fighter style ‘flip-flop trigger guard’ to avoid unintentional ignition (Hall, 2011). Lamborghini uses the production line’s sequential process to produce the cars to their high quality requirements in time (Grühsem & Vann 2006). At the design level, Lamborghini achieves the expected brand value by especially taking into account the need for employees to have direct discussions about design and modelling at specially designed facilities to get the optimized outcome (Grühsem & Vann, 2006). The high quality standards such as dust free production floors for spray painting the body or computer aided three dimensional modeling to make the production moulds make it easy for the company to boast their production standards along with the release of their future car concepts creating a demand among the enthusiast circles even before the actual production (Grühsem & Vann 2006; Evans, 2011). This enables them to employee just in time production strategies like Kanban to produce the maximum number of units, knowing that all their units will be sold out quickly. The contracts will high end producers optimize Lamborghini’s strategic production networks. Mainly being in the same country (Italy), Lamborghini’s suppliers like Campagnolo and Pirelli can provide supplies on a tight schedule with lesser transportation time. On the operational level, the production line based on daily production (Evans, 2011) makes full use of economies of scale. This use of core competences of the top rated companies for parts of Aventador has enabled Lamborghini to produce and assemble the best quality products in the market, making the finalized product a state of the art luxury sports car. The production being product oriented eliminates the need to place orders against the requirements and provides a better opportunity to integrate business processes as many of the Lamborghini cars are pre ordered. With the increase in advanced booking enough to keep the production floor busy for the next 18 months, improvement in production from 3.5 cars per day (Evans 2011) to 4.5 cars per day has further been increased by 50 % (Rall 2012). This means Lamborghini has successfully been employing demand pull strategies for supply chain and production management to account for the high demand. As a part of their production processes and strategies, Lamborghini uses continuous process improvement to improve the engineering capabilities of the company (Travel & Leisure Close-Up, 2012). Lamborghini has elegant distribution processes with a dealer locator database on their website to facilitate the product distribution for Aventador and other products. In United States alone, Lamborghini is known to have at least 27 dealers (Scanlan 1996). Lamborghini is also known to have been holding a back inventory in the supply chain line for Lamborghini Diablo (Scanlan, 1996) but Aventador has been much popular and is not something left to be standing in a showroom. Lamborghini has authorized dealers and country heads for its sales in different countries and a fixed number of exports is often allocated to each country based on the demand ratio (Scanlan, 1996). Unlike the previous sales of Lamborghini Diablo to investors (The Florida Times Union, 1998), Lamborghini Aventador’s sales have been directly in the company’s own control - through authorized dealers or by company staff - to manage the supply of the car that just punched the clock; the thousandth unit was reported to be delivered by the CEO of the company to its new owner on July 19, 2012 (Holmes, 2012). This kind of distribution management either through dealers or through company’s own employees reassure the customer of product’s quality and have an upbeat effect on the sports car enthusiasts. Possibly the reason why Lamborghini’s distribution, in general and especially that of Aventador’s, is facilitated by a years’ long waiting list is that its founder’s chosen designers were, engineers in their early 20s, not limited by standardization and the confines of experience and education which became the precedent for the company’s future designers. The company’s founder, Ferruccio Lamborghini hired the country’s best young design engineers and gave them unlimited funds for designing a sports car that resulted in the production of Lamborghini Miura (Jedlicka 2008). This kind of unrestricted innovation is also seen in the newly produced Lamborghini Aventador that has been swiped off the market before full release (Hall 2011). The importance of end customer has been the company’s top priority in all of its products. Even though being product oriented, the Aventador has been designed to meet customers’ requirements as well as to give them more than that (Hall 2011). The marketing point of view of Lamborghini’s products in relation to the end customer is shown by the way the company directly markets its products at motor shows or by publicity stunts. The company’s founder is known to have parked the Lamborghini Miura’s in front of a casino to get the visiting millionaires to settle for the much expensive car for its elegance (Jedlicka 2008). Where reduction cost is imperative to most supply chains, Lamborghini’s concepts focus more on innovation and quality giving cost the second priority. By identifying the difference between critical costs and secondary costs in the production of Aventador in line with the continuous improvement of the production process, Lamborghini has a bright chance of producing higher than its current rate of 4.5 units a day and make the best of its long, ever increasing waiting list of enthusiasts ordering for their copy of the sports car 18 months before it comes in its turn on the production floor (Anklesaria, 2008). References Jolliffe, David; Willard, Tony (19 September 2004). Lamborghini: Forty Years (Hardcover ed.). St. Paul, Minnesota: Motorbooks International. doi:10.1007/b62130. ISBN 978-0-7603-1945-1. Sackey, Joe (15 November 2008). The Lamborghini Miura Bible (Hardcover ed.). Dorchester, England: Veloce Publishing. ISBN 978-1-84584-196-6. Editorial (April 6, 2011). Interest in Aventador LP 700-4 Continues Following VIP Previews, Geneva Motor Show Debut and Microsite Launch. Journal of Engineering. Rall, Patrick (August 19, 2012). Lamborghini builds the 1000th Aventador in just 15 months. Torquenews. Rushton, Alan; Walker, Steve (2007). International Logistics And Supply Chain Outsourcing: From Local to Global. Kogan Page Limited. (February 17, 2012). Audi 2011 Annual Financial Report. AUDI AG. Evans, Scott (March 1, 2011). 2011 Geneva: Lamborghini Aventador is a Supercar Smash, First Year’s Supply Sold-Out. MotorTrend Magazine. Sturmey, Henry; Staner, H. Walter (1986). The Autocar: A Journal Published in the Interests of the Mechanically Propelled Road Carriage, Volume 170. Iliffe, sons & Sturmey Limited. Hall, Nick (May 18, 2011). Cocktail of control, power and noise. The Irish Times. Grühsem, Stephan; Vann, Peter (November 15, 2006). Lamborghini Today: A Tempo Furioso. MotorBooks International. Scanlan, Dan (January 23, 1996). Lamborghini Gets Clothing Line in Gear. The Florida Times Union. (January 29, 1998). Lamborghini Plans Sale to Investors. The Florida Times Union. Holmes, Jake (July 19, 2012). Lamborghini Builds 1000 Aventador LP700-4 Supercars in 15 Months. MotorTrend Magazine. Jedlicka, Dan (January 28, 2008). Lamborghinis revenge. Chicago Sun-Times. (October 5, 2012). Lamborghini to Leverage Maxwell Technologies Ultracapacitors. Travel & Leisure Close-Up. Anklesaria, Jimmy (2008). Supply Chain Cost Management: The Aim & Drive Process for Achieving Extraordinary Results. AMACOM. Monczka, Robert M. b et. al (March 22, 2010). Purchasing and Supply Chain Management. Cengage Learning EMEA. Read More