Smartville: An Integrated Supply Chain Case Study (5)

Concerning Lead Times

The observation that a Smart Car roles off the assembly line on average every 96 seconds elicits an important question: If lead times average between two and three weeks, is the discrepancy between a possible lead time of minutes and an actual lead time of weeks due to intended postponement or undesired logistical causes? 

Lead Times: Possible versus Practical

If lead time is due to undesired logistical causes, we can assume that lags are likely explicable by supplier-stage delays. The MCC business model relies heavily on supplier timeliness. For this reason, the MCC process cannot be considered an authentic closed-loop MRP system. It is not “blind”, since coordination and monitoring of suppliers will be resource intensive. Causes of supplier-related lag will include:

• Tier 2 suppliers and other upstream partners operating according to their own objectives and at frequencies not fully concordant with those of MCC.
• Complexity differentials: modules will not be of uniform complexity and therefore have unique lead times.

One penalty of lean production is that upstream delays (Tier 2-3 suppliers) have a knock-on effect across the whole system. Similarly, Smartville’s lean principles (small lot sizes and high velocity) oblige suppliers, not MCC, to hold stock. According to supply chain theory, pressuring suppliers this way is advantageous (Slack et al, 2006), but the practice might impact negatively on MCC’s green and communitarian image.[1]

Furthermore, because the whole supply chain is only as strong as the weakest partner, all stakeholders are heavily interdependent. At the outset, contractual binding and initial investments rooted the suppliers into both the supply chain and the fate of MCC. The suppliers are therefore effectively “locked in”. Any major problems suffered by one supplier will be felt by all, and perhaps amplified by transmission. Such lock-in may be the system’s core weakness, as a failing supplier cannot be easily swapped out. In the event of crisis, more likely than supplier failure – which would have profoundly negative effects on production – would be degraded practice across the manufacturing process (Mather, 1988).

The automated and integrated nature of Smartville’s line suggests a model of efficiency; but, like any plant, Smartville will be susceptible to delays related to velocity of material flow and bottlenecking (Harrison and von Hoek, 2002; Grant et al, 2006). Other orthodox complexities such as seasonality, commodity price fluctuations, and demand spikes (waiting lists) could also expand lead time (Taylor, 2001).[2]

Also to be considered are “customised” cars that are returned following customer refusal. MCC have solutions for this occurrence: Smart Centre towers hold 27 cars that are classed as “inventory-ready” or “drive-away”. If swappable components are the source of the customer’s dissatisfaction, the car can be reconfigured at the dealership.[3]

Minor delays could also result from cross-border bureaucracy, vehicle registration procedures, and MCC’s own loading policy – dispatch occurs only when 12 cars or more are loaded on the car carrier (van Hoek, 1999). This makes the operation leaner in cost terms, but in times of low demand, such aggregation will be a cause of lag.

Variety (agility) entails compromise.[4] Although the Smart Car’s customization options limit true variability, major configuration adjustments will still influence velocity.[5] Lead times might expand during production runs of right hand-drive models. Suppliers’ machines will require adjustments (set-up delays) and special components will have to be made in batches (relative “strangers” instead of Euro-standard “runners”) – switches that could lead to low stock levels.[6]

The complaint featured in the case study (regarding mix up of car colours) infers data or computer/network error. However, if either of these were the authentic cause, similar problems would be network-wide and voluminous. Since no evidence supports this, it is more probable that the fault is aberrant rather than systemic. 

Intentional Delay?

Related to the issue of lead time is a further question: Should MCC focus on reducing the customer lead time to less than two weeks? The answer will be dependent upon whether or not MCC wishes to force a waiting period on the customer, perhaps for reasons of brand prestige. A moderate lag may be positive, in that time suggests attention to quality; whereas next-day delivery might be perceptible as haste or indicative of excessive supply/low demand (Mather, 1988; Hill and O’Sullivan, 2003). Reasonable delay also permits meantime interaction with customers, which will benefit MCC’s strategic planning and allow adjustment to orders, reducing waste due to returns. Delay might also be related to Smart Centres’ sales volumes and lead times might therefore differ by region, as appears to be the case in the UK.[7]

Interpreting the MCC Supply Chain

The MCC system appears akin to a pull system, in that orders determine planning. Order-pull systems cannot however provide the volume and scale efficiencies of push systems. Superficially, the Smartville system is MTO/ATO biased, but shares features of batch planning methods, i.e. it combines forward and backward loading and push-pull techniques (JIT).[8]

Car parts manufacturing is typically batch planning in nature, but car assembly proceeds according to continuous planning methods, forward scheduling, and automated process controlling, which are all necessary for economic optimization. Nevertheless, MTO/ATO demands minimization of transport costs and distances, and consideration of the practical implications of dispersed assembly.

Lead time is related to how long queuing can be tolerated, and is contingent upon the nature of material follow (Boyd, 2004). Orthodox methods of lead time reduction are limitation of individual elements (reflected in MCC’s module concept), processes combining (suppliers provide completely prepared modules), batch overlapping (JIT), elimination of queues (JIT), and minimization of work in queues.The first half of the supply chain suggests agility, while the second half is better defined as lean. The system emulates design-for-demand principles, but does so by offering limited choices, thereby capitalizing upon finite variety (the illusion is however of broad variety). The manufacturing phase is lean by virtue of its narrow scope (single model, partially automated production line) and dedicated on-site vendors providing repeat items.

[1] See Appendix A.7. for details on leanness, stock, and supplier strain.

[2] See Appendix A.9. for general causes of lead time extension.

[3] Additional notes on the relationship between lead times and customization are provided in Appendix A.6.

^[4] See Appendix A.10. for details on the interrelatedness of variety and lead time.

^[5] Directly reflecting principles illustrated by Marshall’s Mushroom (Slack et al, 2006) (see Appendix A.10.), MCC appears to offer its customers a high number of customization options whilst maintaining short lead delivery times. At every Smart Centre, customers can select the exact specification of their vehicle via a computer-based configuration tool that forwards orders directly to Smartville by satellite link. Design options include trims, engine options, and body colour. However, as the matrix in Appendix A.11. shows, the level of customization is miniscule when compared to the staggering 6 billion configurations theoretically possible with a Mini.

^[6] Additional notes on set-up times and stock levels are provided in Appendix A.8.

[7] Enquiries made by the authors of this report reveal inconsistencies between UK Smart Centres – see Appendix A.13.

[8] MCC’s is more of a backward- than a forward-loading system, but the opposite is likely the case for MCC’s suppliers.