Smartville: An Integrated Supply Chain Case Study (3)

Why MCC Assembles the Smart Car[1: Efficiency

The centrality of MCC and the Smartville information system means the manufacturing process resembles a closed loop/MRP[2] system. The closed loop MRP system operates in a cycle and includes planning, execution, feedback, and corrective action (Shim and Siegel, 1999). Constant feedback and monitoring is an essential element, allowing any changes in demand to be known, ensuring sufficient capacity is available (Filipini et al, 1998; Capkun et al, 2009). MCC needs to retain real-time control of the internal supply chain/manufacturing process, and does so through a combination of the information system and direct involvement viz. the final assembly process.

Complications could result if MCC’s suppliers performed the final (main) assembly: competition between suppliers and MCC would incur authority and coordination ambiguities. Furthermore, supplier assembly would be costly, due to its necessitating administrative activities, an extra quality checking layer, and cross-skilling of supplier employees. Suppliers might also lack the resources needed to perform final assembly.

Current MCC lead times are short.[3] To maintain speed, MCC minimizes time spent on the final (main) assembly. Assumption of final assembly by another company would likely compromise this advantage, at least in the transitional phase. By performing final assembly itself, MCC ensures quality and correct configuration according to customer specifications.

Advantages for Reverse Logistics

Recycling strategies could have influenced MCC’s decision to perform the final assembly. A selling point of the Smart Car is its environmental friendliness – all of its components are recyclable. By performing the final assembly, MCC aligns its manufacturing procedures with sustainability principles. Reinjection of recovered and reconditioned components into the manufacturing process is both green and economically sensible, at least from MCC’s marketing perspective. (If suppliers performed final stage assembly, for revenue reasons they would likely prefer new over reconditioned components.)

Assembly as Strategic Maximization

The following are also likely viable factors behind MCC’s decision to act as the final stage assembler:     

  • Companies in a supply chain maximize value best by concentrating on their core competences (Mentzer, 2001). Crucially, assembly is likely MCC’s core competence, exploitation of which will provide efficiency and resource economies not otherwise realizable.
  • Suppliers receive payment on a per-unit basis, when their component is installed by an MCC worker on the assembly line. Each component (e.g. a door) is prepared and all its subcomponents (panels, handles, and even electrical wiring) are pre-installed by the supplier. The component is then fitted to the car body and proven good by an MCC worker, who thereupon acknowledges component worthiness and successful installation via a handheld device. MCC acts as the suppliers’ customer, strongly incentivizing attention to quality and readiness. Were MCC not situated as final assembler, such advantages could not be captured.
  • At Smartville, MCC has created a dedicated micro-cluster. Onsite supplier integration generates classical cluster advantages, such as information exchange, cross-learning opportunities, innovation fostering, technological and managerial spillover, and time and transport economies (Porter, 1998). The centrality and final-stage participation of MCC augments the manufacturing system through allowing application and exploitation of the synergies available in the cluster.

[1] Appendix A.4. provides an extensive table of the basic complementarities made possible by MCC’s performing the final-stage assembly. The table describes the advantages from both the suppliers’ and MCC’s perspectives.

[2] MRP: “material resource planning”.

[3] Customer order to product receipt: 2-3 weeks; final assembly: around four hours.