Smartville: An Integrated Supply Chain Case Study (6)

Could MCC Decentralize?

MCC’s supply chain is both lean and agile, but not evenly. While the module system permits customization in the dealer channel through logistical postponement (i.e. fitting of swappable parts at the Smart Centre), final assembly is performed by MCC at Smartville.

The Value of Customization

Partial customization is possible at Smart Centres, but more radical customization options (open top bodies, etc.) are available through the plant alone. Customization is a selling point, but its value is proportional to the range of customization available. A barely customizable car has low differentiability; a highly customized car has high differentiability. The two levels of customization capability allow appeal to a broad customer base.

The Price of Increasing Customization Options

The most basic penalties of increasing extra-Smartville customization options are logistical complication and increased storage costs. Smart Centres will have to be equipped to perform what will essentially be an abbreviated assembly process. Assembly-capable Smart Centres might convenience customers, but would compromise the company’s foundational postponement and centralization economies, as geographic dispersal would result in less efficient usage of people, tools, and premises. Since high volumes of parts would have to be shipped, increases in transport costs and delivery times are probable. Complete cars are modular and therefore easier to manage.

Enhancement of dealer channel assembly options might also erode supplier commitment: suppliers will have to distribute capacity in order to replace parts locally. Holding diffuse inventory and performing cross-replenishment will also escalate system complexity.

Dispersed assembly requires storage facilities (cost), personnel (cost), larger Smart Centres (cost), and lower profile sites (suburban locations instead of city centres). Difficult assembly procedures would be better performed at a single main factory, due to supplier presence and availability of skilled personnel. Also to be considered is risk of reduced quality of build if resources are inferior or infrastructure is skeletal.

Increases in logistics expense might be passed on to customers, decreasing the competitive power of the product, and/or burdening suppliers. A steep rise in the Smart Car’s transit ubiquity would jeopardize its green credentials. Related to this is the reverse supply chain, which would also suffer complication if assembly were decentralized.

In sum, the dispersal of assembly facilities undermines the integrated supplier model and threatens business viability. Suppliers will be less motivated to contribute to the Smart Car concept if economies of integration and centralized assembly cannot be realized.