Smartville: An Integrated Supply Chain Case Study (2)

Balancing Supply and Demand: The MCC Pull System

MCC uses a pull-based supply chain, in so far as production is driven by orders. MCC’s inventory consists of pre-assembled modules that MCCs requests from suppliers only when an order pulling a car is received. Hence, the system is based on present demand information, which allows MCC to supply from manufacturing rather than inventory whenever possible (Harrison and van Hoek, 2002).

Magnan et al (2008) state that stock should be aligned directly with demand, and production and transportation should occur only when required. However, Swaminathan et al (1998) observe that although pull systems reflect response to orders, forecasting still plays an important role in procurement of materials and planning for capacity. In MCC’s case, such forecasting is done by the integrated suppliers rather than MCC. These suppliers must hold enough inventory to maintain MCC’s JIT economies and short lead times. Thus at Smartville, JIT/pull system efficiencies are realized by MCC, but made possible by the push practices of the suppliers.

Harrison and van Hoek(2002) claim that in a pure pull system, a firm holds no inventory, operating only according to orders at hand. This becomes possible through reliable and sophisticated communication tools that enable transfer of information from customers to all members of the supply chain.

Supply and demand balancing is addressed early on in the process: order production is confined to the Smart Centre channel. The Smart Centres also act as a postponement stage, by their offering late stage customization. If units remain in modular form longer, lead times contract, as standard modules can be preassembled if necessary (harnessing the forward loading advantages of push style production). The first point of postponement is therefore the Smart Centre point-of-sale (POS), where limited inventory is held to provide swappable parts, allowing customization options from stock on hand.[1] The second point is the plant itself, where assembly is postponed to achieve labour and time economies by MCC’s performance of the final assembly as a convergent single step.[2]

Simchi-Levi et al (2003) suggest that pull strategies are attractive because they decrease process lead times, inventory at retailers and manufacturers, and variability (agility) in the system. On the other hand, Simchi-Levi et al (2003) also argue that implementing pull systems is practical only when lead times are short enough to allow the manufacturer to initiate production runs according to order information. Furthermore, achieving economies of scale through pull systems is problematic because production and transportation is geared to demand and cannot therefore be accurately planned for.

Reverse Logistics

Van Hoek (1999) proposes that the scope of actions in a supply chain must encompass the entire product lifetime rather than the initial sale alone. He argues that this concept is more than an environmental consideration: it enables efficient management of the future return flow. Supporting this notion, MCC prioritizes customer relations, enabling the company to follow up orders and engage customer loyalty.

The option of Smart Car upgrades through add-on modules allows customers to adjust the car according to their changing tastes, which extends the product life cycle and reduces waste volume (because modules, rather than the entire car, can be swapped). Components going up the MCC supply chain are dismantled and resold to the integrated supplier, who then recondition and incorporate these into their modules. Because the car’s components are fully interchangeable, replaced modules can be reinserted into the manufacturing chain.

[1] See Appendix A.1. for more details on postponement and supply and demand balancing.

[2] See sections 2 and 5 for more reasons why MCC perform this stage of the process and the importance of a centralized production facility, respectively. See also Appendix A.12. for a diagram mapping the logical flow of Smartville.