MGMT 3306 - Individual Case Analysis The purpose of this assignment is to identify and apply OSCM concepts/tools to solve problems in managing operations and supply chains. Students are expected to find an interesting OSCM problem from the real business world, think about how you can apply the OSCM concepts/tools that you learn in this course to solve the problem, and write up a report based on your analysis. More specifically, each student should: Find a problem in managing operations and supply chains from the real business world (from work or from any business articles/cases) Identify specific OSCM concepts/tools that can be applied to the problem Apply an appropriate OSCM concept/tool or a set of appropriate OSCM concepts/tools to propose a solution to the problem Analyze the expected results that may be obtained when the solution is implemented. The report should be 10-15 pages in length including the cover and appendices, with 1\" margins on all sides, double-spacing, and 12 point font. The cover of the report should include title, class code and name, section number, student name, and date of completion. The report MUST follow the outline below: 1. Abstract (150 words maximum) - Summarize the entire report, including problem statement, OSCM concepts/tools that have been applied to the problem, and expected results of the proposed solution. 2. Background information - Clearly state whether the problem is from work or from business articles/cases. If it is from business articles/cases, provide its source (title, author, name of the journal, date published). - Briefly introduce the company background (e.g., name, products, business size, location, internal/external interesting facts, and etc.). 3. Problem Description - Describe the problem clearly and specifically. - You should focus on a single problem, although you can introduce several other issues for informational purposes. 1 - This section must include a problem statement starting with, e.g., \"This paper considers the problem of determining ...\BIG SUPPLY CHAIN BOTTLENECK OF THE NORTH AMERICAN AUTO INDUSTR GLOBAL EXCHANGERS TEAM CASE ANALYSIS: BIG SUPPLY CHAIN BOTTLENECK OF THE NORTH AMERICAN AUTO INDUSTRY Student Name MGMT 3306 - Term, Year Dr. Yan Qin Completion date, year 1 BIG SUPPLY CHAIN BOTTLENECK OF THE NORTH AMERICAN AUTO INDUSTR 2 1. Abstract The North American auto industry is threatened with facing huge supply chain bottlenecking in their ability to make vehicles within the next 5 years. The tools and concepts we chose that can be applied to this dilemma are the weighted-factor rating model, break-even model, and productivity measurement tool for outputs vs. inputs. The prime choice locations in relation to manufacturing plants, productivity cost offsets of labor, and the proximity of tooling locations to manufacturing locations would have a better probability of and opportunity to build relationships, trust, knowledge sharing, and better technological innovation. The fact of the matter is, manufacturers cannot produce an automobile without these toolmakers, their role is as if not, more important than many other role in the manufacturing process and it is imperative that their value be considered and included in factoring weight in their supply chain processes. 2. Background Information The decision to broadly focus on the North American auto industry as a whole instead of individual auto manufacturers is because they are all facing the same difficulties within their supply chains. With the automobile first being introduced in the late 17th century as a toy for a Chinese Emperor, it soon progressed to more functional uses for labor and soon after for the transportation of groups of people. With the influence of a $10, 000.00 award, the first carriagesized automobile suitable to substitute the use of horses and other animals in transportation was born in the United States, Dr. J.W. Carhart of Racine, Wisconsin invented it in 1871. From then on, the improvement and functionality of the automobile continually progressed with BIG SUPPLY CHAIN BOTTLENECK OF THE NORTH AMERICAN AUTO INDUSTR 3 contributions of many American pioneers such as John William Lambert of Ohio City, Ohio and Henry Nadig of Allentown, Pennsylvania, to name a few. Although the Duryea Motor Wagon Company was introduced in 1893, becoming the first American automobile manufacturing company by Charles and Frank Duryea, it was not until Ransom E. Olds came on the scene, dominating the beginning era of the automobile industry of North America in Lansing, Michigan in 1902. With his Olds Motor Vehicle Company, the high-volume gasoline-powered automobile manufacturing industry truly commenced in North America, with the Thomas B. Jeffery Company, Henry Ford Company, and Cadillac following suit. During this era, most North American automobile manufacturers were located in the state of Michigan, with the exception of Duryea Motor Wagon Company, which was located in Springfield, Massachusetts. North America was fifteen years behind the curve in automobile creation, which actually began in Europe with the first modern automobile being created in 1886 by German inventor Carl Benz. Ford introduced and contributed to the creation and production of more efficient production methods in an effort to make the automobile more affordable for the middle-class, by introducing the first moving assembly line in 1913. While the need for motorized wagons diminished as automobiles became the preferred method of transportation and Oldsmobile (Olds Motor Vehicle Company) went defunct in the spring of 2004, Ford Motor Company has continued manufacturing automobiles for the last 110 years. Along with General Motors and other major North American automobile manufacturers, they experienced one of the largest financial crises in American history with the recession. Since then, efforts to rebound and restructure continue. With the huge financial impact that crippled the auto industry during the recession, many supply chain issues were overlooked, such as the tooling companies that are a large impact on the manufacturing of automobiles in North BIG SUPPLY CHAIN BOTTLENECK OF THE NORTH AMERICAN AUTO INDUSTR 4 America, because the primary focus was to avoid shutting down and continue the manufacturing of North American automobiles. The history of the North American automobile industry and their manufacturing difficulties dates back to the beginning of their infrastructure, to include reliability, practicality, lack of road system, road reliability, assembly speed and time, the implementation of safety regulation, competition with imports, technological restraints or lack thereof, financial recessions, and diminishing sales. Although the automobile industry deemed to be a necessity for the progression of America and its economic growth potential, the North American auto industry has struggled to maintain their demand with so many other concerns that influence their vitality in the American economy. 3. Problem Description The North American auto industry is threatened with facing huge supply chain bottlenecking in their ability to make vehicles within the next 5 years. The root cause of the problem is seemingly the inability or lack of being proactive. The manufacturing process has been interrupted and is suffering because of unforeseen delays such as explosions of tooling factories, force majeure, shortage of skilled labor, and various design and consumer need changes. The focus of this paper within the realms of the supply chain in the North American auto industry is the problems arising due to recent recessions, tooling companies are now a third of what they once were in Canada and the United States. The North American auto industry is now facing 40percent bottlenecking issues due to the lack of tooling companies to support the auto industry, the industry now faces a major shortage. BIG SUPPLY CHAIN BOTTLENECK OF THE NORTH AMERICAN AUTO INDUSTR 5 According to an article provided by Plastic News, the tool and die industry supporting the auto industry is made up of about 750 shops, mostly in the United States and Canada. These tooling companies produced a combined worth of $9.25 billion worth of tools last year. Now that the demand of the auto industry has changed with demands and additional options offered to customers, the increase of production forecasts nearly doubling, and European and Asian production in North America also sourcing the bulk of their tools from the North American supply base, a bottlenecking affect has begun to take place within their supply chains. This has created a recipe for capacity shortages for tooling manufacturers in North America, forcing the increase in purchasing tools from low-cost countries. It is imperative that the tooling manufacturers and the North American automobile industry focus their efforts in creating a plan to support the estimated $15.2 billion worth of tooling demands of the very near future, which is far from their current ability of only supplying approximately $8 billion worth of tooling at their current 80 percent capacity. They will need to nearly double their tooling production to reach the demands of the North American auto industry alone. The concerns of tooling capacity within the automotive industry in America has prompted automakers and suppliers to take a closer look at the industry and its real requirements to continue the success and avoid the bottlenecking trend that is forecast for the industry in the next few years. With that said, it is necessary to find methods that are both beneficial and conducive to all sides and those affected of the supply chain. The tooling umbrella is made up of dies, molds, steel, stamping, molding, electronics, to name a few. A typical car uses up to 3,000 tools for production, which can require single tools to cost anywhere from $5,000 to more than $1 million depending upon the complexity of the part. These tools are used to alter components of the automobile that effect things such as trim level, BIG SUPPLY CHAIN BOTTLENECK OF THE NORTH AMERICAN AUTO INDUSTR 6 fuel efficiency, added benefits, and many other complexities introduced based on the needs and desires of the customer, thus resulting in multiple trim levels for one automobile to fit these needs. With the lack of sufficient resources to sustain the North American auto industry lightvehicle sales growth, it is difficult to develop back-up sources for emergencies to create a more proactive atmosphere to avoid other disasters and situations that would have direct negative effect on the industry. Tooling alone has proved to be and entirely different problem for the North American auto industry in itself, and with the recession, it has caused an even larger problem as they have been pushed even further down the food chain of the automobile industry in its entirety. The focus now needs to be on how to improve the circumstances surrounding the entire supply chain, primarily the resource of tools to accommodate North American and foreign industries that work locally and rely on the accessibility of the tools available to them in North America. 4. SCM Concepts/Tools that can be applied There are many different types of SCM concepts and tools to apply to our problem of where to place new facilities for tooling manufacturers. Some of these include the weightedfactor rating model, the break-even model and the productivity measurement tool for outputs vs. inputs. Each model encompasses several factors that would be pertinent to selecting ideal locations to open tooling facilities. If utilized correctly, they would be an invaluable resource for efficiently preparing business models for new facilities. BIG SUPPLY CHAIN BOTTLENECK OF THE NORTH AMERICAN AUTO INDUSTR 7 The weighted-factor rating model, which would compare the attractiveness of several locations along a number of quantitative and qualitative dimensions, would be a great tool to begin our analysis with. We would first begin by identifying several key potential location points. We would then identify the factors to evaluate the locations against. These could include proximity to rail cars or trucking lines, facility costs, labor cost and proximity to the market. Next, we would need to associate a weight for each factor and determine a score for each factor. For instance, we could assign a weight of .20 for proximity to trucking lines, a .15 weight for facility costs, a weight of .20 for labor cost, a weight of .25 for proximity to the market, and a .10 weight for quality of life. Once this is compiled and computed, we would then sum all of the scores by location. The location with the score closest to 1 would be the most obvious and beneficial choice. This particular rating model would work especially well for us because the solution to our problem would be to open more tooling manufacturing locations to help alleviate the supply chain pressures on the North American auto industry. Another tool that we could use to determine if a location would be beneficial for automakers and tooling companies would be the break-even model. This is a useful technique when fixed and variable costs incurred at each location can be determined. This model begins by identifying locations to be considered. We would then determine the fixed cost for each facility. Fixed costs would include costs of land, property taxes, insurance, and equipment and building maintenance. Next, we would determine the unit variable cost for each facility. Variable costs would include the costs of labor, materials, utilities and transportation. We would then have to construct the total cost lines for each location on a graph. The graph would then show us the break-even points. We could then use this information to identify the range over which each location has the lower cost, simply by looking at the graph that we have just constructed. BIG SUPPLY CHAIN BOTTLENECK OF THE NORTH AMERICAN AUTO INDUSTR 8 Lastly, we could look at analyzing productivity. Productivity could be used to measure how well a country, industry or business unit is using its resources. Productivity looks at the relationship between outputs and inputs. Outputs can be anything from customers served, the number of services performed or purely sales dollars. Inputs include labor costs, material costs, energy costs and capital costs. Productivity can be measured in either single-factor or multifactor. Single factor involves a time analysis. For instance, a single factor productivity analysis would look at how long it took to complete a service. A multi-factor productivity analysis would measure the time it takes to complete a service and include other factors like the labor and product costs involved. 5. Application of SCM Concepts/Tools Looking at the three major North American automobile manufacturers, GM, Ford and Chrysler, one starts to see that their manufacturing plants are located all over the United States. However, there is more of a concentration in the Midwest, such as in Kansas, Ohio, and Michigan. That being noted, tooling manufactures would be wise to expand in these business clusters so that they have easy access to their customers. The proximity of close operations would help build coordination and trust for future business ventures. For the purpose of this report, we are going to utilize the Weighted-Factor model and look at potential productivity levels in our hypothesis. All values will be fictionalized for the purpose of this report. The three locations that we will be scouting for a future tooling facility will be Kansas City, KS, Cleveland, OH, and Detroit, MI. The chart is as follows: BIG SUPPLY CHAIN BOTTLENECK OF THE NORTH AMERICAN AUTO INDUSTR Important Location Factors Factor Weight Sums (Sums to 1) Kansas City, KS (1 - 100) Cleveland, OH (1 - 100) Detroit, MI Proximity to trucking lines 0.20 80 90 90 Facility Costs 0.15 85 90 95 Labor Costs 0.20 80 90 90 Proximity to the market 0.25 85 95 95 Quality of life 0.10 95 90 70 (1 - 100) The results are as follows: Kansas City, KS Cleveland, OH Detroit, MI 16 18 18 Facility Costs 12.75 13.5 14.25 Labor Costs 16 18 18 21.25 23.75 23.75 Quality of life 9.5 9 7 Total 75.5 82.25 81 Proximity to trucking lines Proximity to the market 9 BIG SUPPLY CHAIN BOTTLENECK OF THE NORTH AMERICAN AUTO INDUSTR The breakdowns of the calculations are as follows: Kansas City, KS = .20 (80) + .15 (85) + .20 (80) + .25 (85) + .10 (95) = 75.5 Cleveland, OH = .20 (90) + .15 (90) + .20 (90) + .25 (95) + .10 (90) = 82.25 Detroit, MI = .20 (90) + .15 (95) + .20 (90) + .25 (95) + .10 (70) = 81 The next calculations we will look at is going to be the Service Productivity factor as a way to gauge the investments that would have to be made to begin tooling manufacturer's expansions. For this example we will be utilizing the multiple-factor productivity measuring formula. Suppose investors want to break down how each location would fare in their service productivity. These values for these calculations have been price adjusted by city. We will break down each location as follows: Time Customers Labor Cost Parts Productivity (In hours) per hour (per hour) Costs Service 1 2 $16 $52 0.029 1 2 $14 $50 0.031 1 2 $13 $48 0.033 Location Kansas City, KS Cleveland, OH Detroit, MI 10 BIG SUPPLY CHAIN BOTTLENECK OF THE NORTH AMERICAN AUTO INDUSTR 11 The calculations for this break down are shown below: Kansas City, KS = 2/($16+52) = .029 Cleveland, OH = 2/($14+50) = .031 Detroit, MI = 2/($13+48) = .033 6. Analysis of Expected Results The analysis of the weighted-factor model clearly shows a location preference for Cleveland, OH, with a total score of 82.25. Taking into consideration all of comparative weights, Cleveland seems like the ideal location for a future tooling manufacturing plant. Cleveland, OH, where the average median household income is $27,470, seems to be the most ideally located. The city is within 200 miles of major manufacturing plants for Ford, GM and Chrysler. Detroit, MI, coming in 2nd place with a weight average of 81, would also not have been a prime choice location for a tooling facility. Detroit, with a medium household income of $27,862, would seem like the ideal location because of its low labor cost, abundance of facilities and location. However, the quality of life would not have been that great, especially with the local economy currently in ruins. Lastly, Kanas City, KS, came in with a weight average of 75.5, primarily because of its location and labor costs. Kansas City, with a median household income of $51,587, though an ideal location for a quality of life, would have had higher labor costs. Additionally, it is not a prime location for major automotive manufacturers. Although GM is located nearby, the other two major automotive firms are not. BIG SUPPLY CHAIN BOTTLENECK OF THE NORTH AMERICAN AUTO INDUSTR 12 The productivity service has a better rating in Cleveland, where the score was .031 parts per dollar. This is directly tied to the offset of labor costs vs. parts costs. The situation was slightly better in Detroit, which scored .033 parts per dollar. This score is also directly tied to the cheaper labor and materials costs available in Detroit. Kansas City, however, scored the lowest, with a score of .029 parts per dollar. This is again directly tied to labor and parts costs, which would theoretically be more expensive in that area. Having tooling facilities in the Cleveland, OH area would have a great improvement of supply chain performance for the North American automotive industry. Tooling facilities would be strategically located to offer the best resource for automotive parts and design. Being so close to major automotive manufactures would also give the tooling companies better access to their customers and allow them to build better relationships because of the close proximity. With better collaborative relationships, arise trust, knowledge sharing, and better technological innovation. Additionally, the supply chain would improve simply by adding additional tooling facilities to alleviate the current shortages the industry is experiencing. Having added resources relatively close to the manufacturer would not only alleviate the bottlenecking that the industry is currently experiencing, it would improve the price points by alleviating the demand. Cleveland, however, is not without its disadvantages as well. Because of its economy, its real estate and facility costs will be slightly higher than that of Detroit. In addition, competition between other tooling manufactures that are also in the area would be very competitive. This could potentially cause issues with quality as competing manufactures could potentially sacrifice their product quality in order to supply products at a faster rate. BIG SUPPLY CHAIN BOTTLENECK OF THE NORTH AMERICAN AUTO INDUSTR 13 7. Conclusion In conclusion, the plight of the North American auto industry is once again at another great risk of not being able to provide the quality, level of service, and need of its consumers because of the inefficiencies of its third tier suppliers, the tooling manufacturers. If this situation is not handled properly, we risk the loss of the remaining loyalties of our current consumer base. The North American auto industry has managed to continue its more than 100 year history, with all of its follies and setbacks it has experienced over the long history. Many supply chain tools and innovations can be used to improve this once overlooked important situation. Tools that can help improve the process and avoid bottlenecking include: measuring potential productivity levels, gauging the investments that would have to be made to begin the expansion of tooling manufacturer's across the U.S. to accommodate new manufacturing locations that are planned to be constructed, the possibility of increasing complex tool manufacturing from low-cost regions, and the collaboration of efforts between the sales force, auto manufacturers, and tool manufacturers. The gap between tools produced and the actual need of automakers is currently very large, if not improvements are made, we can expect to see the problem shift from financial to production timeliness and the ability to meet the consumers need, thus possibly imposing a unexpected inflation in automobile prices. This would further discourage American consumers from purchasing American made automobiles and we could then inevitably lose the North American auto industry and the 100-year plus history will end up in vain. Maybe that was a bit dramatic; however, this example of the domino effect is not too far-fetched, considering what the industry has already endured. Then when the competition aspect is added into the equation and BIG SUPPLY CHAIN BOTTLENECK OF THE NORTH AMERICAN AUTO INDUSTR 14 the foreign import of automobiles is able to meet the needs of the American consumer surpassing their needs, what other ways would we have to truly compete in such a competitive market? More efficient supply chain plans are necessary to improve the situation of tool availability and access, capacity levels need to increase by more than 50 percent, training of new young talent, and the construction of new tool manufacturing plants outside of the Midwest need to take place in order to tackle the foreseen problems of the automobile tooling manufacturing conditions. The auto industry in North America as a whole is on a rapid growth curve after the recession and bankruptcy. Production that once dipped way below the typical production level, has now revived itself and is expected to nearly double this year, and increase an additional 60 plus percent. Even at 100 percent capacity, the current number of toolmakers could not reach the modest goals of $15.2 billion rapidly approaching, the structure/foodchain of the suppliers and their worth would have to drastically change to meet the needs of the automakers and consumer demand. The bottom line, you cannot produce an automobile without these toolmakers, their role is as, if not, more important than many other role in the manufacturing process. BIG SUPPLY CHAIN BOTTLENECK OF THE NORTH AMERICAN AUTO INDUSTR 15 References http://www.autonews.com/article/20131112/OEM10/131119983/n.a.-auto-industry-to-see-big-supplychain-bottleneck-within-5-years# http://en.wikipedia.org/wiki/List_of_automobile_manufacturers_of_the_United_States http://en.wikipedia.org/wiki/History_of_the_automobile http://www.plasticsnews.com/article/20131105/NEWS/131109970/tooling-study-capacity-wontsupport-projected-auto-launch-demand http://gmauthority.com/blog/gm/gm-manufacturing/ http://corporate.ford.com/our-company/operations-worldwide/global-operations-list http://media.chrysler.com/newsrelease.do;jsessionid=12323D703B7A2D096B726772A58EF495?&id=91 17&mid=18 http://quickfacts.census.gov/qfd/states/39/3916000.html