Lean organisations lead in automotive manufacturing

Editorial contacts

QAD
Kathy Mumford
(011) 461 6900

12 Nov 2004 

 

Many automotive suppliers are re-examining their manufacturing philosophies, in response to uncertainties in customer demand, more complex variations in product mix, the high cost associated with carrying inventory and growing variability in customer order patterns.
For automotive suppliers, the economy is tight, globalisation and consolidation are rapidly reshaping the automotive industry as a whole, and the OEMs are continuously pressing for more services at less cost. The suppliers who survive and succeed will be those who pay close attention to four fundamentals: flexibility, cash management, inventory management and communication.
To stay the course in the face of rapid change and shifting customer demands, organisational flexibility is essential. And to withstand the pressures of a tight economy and shrinking margins, maintaining and improving cash flow is a pressing need. Automotive suppliers have a significant amount of capital tied up in direct material inventory. Increasing supply chain efficiency by reducing inventory levels is an essential first step in eliminating waste and improving cash flow.
Said Bryan Nelson, managing director of QAD South Africa: "When flexibility and speed are requisites for success, it's the lean organisations that lead the race. World-class automotive manufacturing organisations know the value of staying trim and focusing on the lean fundamentals. By pursuing lean strategies, namely optimising inventory and streamlining manufacturing processes, they are able to reduce inefficiencies and costs in the production processes and improve customer responsiveness."
The concept of lean operations and just-in-time (JIT) production was introduced to the automotive industry through the Toyota Production System. These interconnected concepts describe a process in which waste is eliminated by reducing inventory holding costs and continuously improving to maintain production quality. Integrating and synchronising the entire supply chain and manufacturing process are a key goal of lean manufacturing. This requires a more efficient use of logistics, increased flexibility and reduced variability.
"The automotive industry as a whole is progressing toward an even more efficient model by striving to manufacture vehicles only when ordered by end consumers," said Nelson. "The motivation behind this effort is to increase customer satisfaction and make strides toward a 'leaner' business model over time. This goal is most effectively achieved if, using kanban systems to align inventory with demand for pull-based replenishment, customer demand is the signal that pulls product through the supply chain." "At QAD, 'lean' is essential to our vision for the manufacturing sector, and the latest enhancements to QAD's core product, MFG/PRO, underscore our commitment to trimming the time it typically takes for a manufacturer to receive, process and respond to demand," said Nelson. "Through a powerful set of lean manufacturing tools that work well in the automotive manufacturing environment, we've seen the advantages lean manufacturing offers individual companies and are passionate about its potential impact on the supply chain."
"Companies that have deployed lean manufacturing have been able to produce to demand and more accurately calculate required inventory, reducing costs associated with carrying inventory at the proper location and levels, as well as costs resulting from rushing - or halting - production to keep pace with demand and overcome bottlenecks and delays," continued Nelson.
The impact of export growth in the automotive industry has positioned SA as a global industry player. SA's automotive industry is booming and industry growth has been announced by many of the big players. Not only will the car manufacturers benefit - the spin-off is an increased demand on suppliers of parts to these car manufacturers to intensify their output.
"The increased growth within the industry will put pressure on car manufacturers to produce to a specific timeline and minimise their costs by maintaining inventory levels as low as possible," said Bryan Nelson, managing director of QAD South Africa, supplier of ERP solutions for manufacturers. "A major opportunity lies in shortening the response time, throughout the supply chain, to customer changes in demand. Enhanced electronic communication and a more responsive, integrated supply chain are essential to the supplier in providing improved visibility and reaction time to events occurring at the car manufacturer."
Electronic communication now makes near real-time connectivity possible at every level of the supply chain as fast, effective communication within the organisation and with trading partners is a required complement to an efficient inventory replenishment system. An Automotive Industry Action Group (AIAG) study determined it takes demand information approximately one week to travel from each tier to the next in the supply chain. So a six-tier supply chain would require roughly six weeks for information to flow from the first tier to the last.
The convergence of lean initiatives and interoperability efforts will massively reduce the time it takes to communicate information to trading partners. In just a few years, interoperability and the latest lean supply chain solutions will cut the time it takes for information to flow through the supply chain from six weeks to six hours. This will enable build-to-order and JIT manufacturing, while changes in customer demand will be quickly communicated through the supply chain.