Verifying the business value of implementing a lean supply chain

Results released from a study conducted by QAD with the University of Michigan Business School Multidisciplinary Action Project (MAP) verify and demonstrate the business value automotive manufacturers can expect to achieve by automating the replenishment process as part of a lean manufacturing initiative.

The study concludes that when automotive suppliers can access real-time demand data and dynamically source products from within their supplier network, they can reduce lead times and the cash-to-cash cycle, prompting more on-time deliveries and increased customer satisfaction.

According to the University of Michigan Business School/QAD study, automotive manufacturers automating the replenishment process within their supply chains can reduce inventory up to 60% in-house and up to 30% throughout the supply chain, reduce transaction costs by up to 88% and cut lead times by up to 75%.

In a lean environment, customer demand is the signal that pulls product throughout the supply chain. Automating replenishment is a way to facilitate the lean process by integrating and synchronising not only manufacturing, but the entire supply chain.

"Increased competitive pressures in the automotive industry are driving manufacturers to streamline operations and reduce costs, while also requiring them to improve customer satisfaction and loyalty," said Dhananjay Nanda, The Fuqua School of Business, Duke University. "By streamlining and automating the procurement process and implementing a lean manufacturing model, automotive manufacturers gain significant efficiencies, and can now manufacturer vehicles as they are ordered by end-consumers - which means they can be more responsive and are able to customise."

"The supply chain of the future is a forum for continuous, real-time interaction between companies, suppliers and customers," said Gary Flum, general manager of automotive at QAD. "Online collaboration throughout the supply chain can facilitate the necessary information sharing, but integrating and synchronising the entire supply chain and manufacturing process require efficient logistics, increased flexibility and reduced variability. As a trusted provider in the automotive industry, QAD can deliver solutions that enable manufacturers to realise the benefits of a lean model."

The study methodology was five-pronged, and consisted of benchmarking, case studies, simulation, financial analysis and general research. According to the study, by implementing Internet-based collaboration in the supply chain companies can reduce inventory by up to 60% in-house and up to 30% throughout the supply chain. By facilitating a perfect pull model, inventory levels can be minimised for all trading partners in the supply chain while by automating the replenishment process and facilitating real-time information flow, automotive manufacturers can eliminate the bullwhip effect and reduce the need to carry safety stock to meet demand fluctuations and unexpected events.

Lead times can be reduced by up to 75% by eliminating the lag in order and information flow in the supply chain and automating the replenishment process. All trading partners in a supply chain can gain increased efficiencies in production and transportation and can offer greater product customisation.

Finally, transaction costs will be reduced by up to 88% compared to EDI and phone/fax methods. Pre-programmed instructions and parameters allow all replenishment correspondences between trading partners to be systematic and accurate, which simplifies the myriad of details between vendors, parts, time lags, price points etc.