Leaner Is Better

Study shows benefits of automating replenishment in lean manufacturing environment

Detroit, MI  August 28, 2002  Automotive suppliers that can access real-time demand data and dynamically source products from within their supplier network are able to reduce their lead times and cash-to-cash cycles, prompting more on-time deliveries and increased customer satisfaction, according to a new study out this week.

The study, conducted by the University of Michigan Business School in collaboration with solution provider QAD, reported that car manufacturers automating the replenishment process within their supply chains can reduce inventory up to 60 percent in-house and up to 30 percent throughout the supply chain. The automakers also can cut their transaction costs by up to 88 percent and lead times by up to 75 percent.

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 synchronizing not only manufacturing, but also 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 of Duke University's Fuqua School of Business. "By streamlining and automating the procurement process and implementing a lean manufacturing model, automotive manufacturers gain significant efficiencies, and can now manufacture vehicles as they are ordered by end-consumers, which means they can also be more responsive and are able to customize."

For the study, the researchers used pertinent metrics and data from independent research and academic papers to gauge the validity of findings from other methodologies, and then they analyzed companies that have implemented lean processes to quantify the impact of lean operations, lean supply chain and batch sizing.

The researchers created a simulation of a vertical automotive supply chain to demonstrate the potential impact of automating replenishment, and then quantified the costs and benefits associated with four key factors, with and without a lean supply chain process, to measure the potential dollar savings to be realized by implementing automated replenishment.

According to the study, by implementing Internet-based collaboration in the supply chain companies potentially can reduce inventory by up to 60 percent in-house and up to 30 percent throughout the supply chain. By facilitating a perfect pull model, inventory levels can be minimized for all trading partners in the supply chain. 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.

Companies also can reduce lead times up to 75 percent. 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 customization.

Finally, the study found that companies can reduce transaction costs up to 88 percent compared to electronic data interchange (EDI) and phone/fax methods. Pre-programmed instructions and parameters allow all replenishment correspondences between trading partners to be systematic and accurate. This simplifies the myriad of details between vendors, parts, time lags, price points and so on.

"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 synchronizing the entire supply chain and manufacturing process require efficient logistics, increased flexibility and reduced variability."