On a typical car assembly line, components making up 90% of a car’s value are ordered from suppliers just nine hours before assembly. Britain’s car makers are capable of making a car in under a day – in theory.
So why, according to figures from automotive research group ICDP, do only 25% of customers drive away the exact car they want?
According to Chris Webster, head of integrated supply chain management at computer services consultancy Cap Gemini: `Car makers have become so damn good at solving their component supply logistics that it is limiting their ability to give the customer what they want, when they want it.’
In practice, although components only leave suppliers’ factories hours before they are needed, production schedules are set around a fortnight ahead. If a car with a particular combination of options has not been scheduled it takes at least two weeks to react.
By concentrating on stripping out stock from the `upstream’ supply chain, car makers have limited their room for manoeuvre `downstream’. Webster calls it `excess excellence’.
This example offers the process industries, which have yet to embrace just-in-time delivery, a lesson in its limitations. And there are lessons for car makers in the way the computer industry, supermarkets and high-street retailers get products to their customers.
`Consumer industries such as clothing and retail have long production lead times but very short customer lead times,’ says Webster. Their logistics systems can get stuff into shops within hours of demand. You do not get shortages in Sainsbury’s, for example. Logistics have gone so far that in some sectors manufacturers start distributing products before they get an order.
Bakeries are leading the way, he says. `They have a limited product range with limited shelf life. If the product is not on the shelf, it’s worth nothing.’
So knowing the overall likely demand in a particular area, a bakery will ship products out to that area. When orders do start to come in, the bakery can then schedule individual deliveries from their trucks via mobile phone while the trucks are on the move.
The PC industry has also improved downstream logistics. Computer makers have contracted out manufacturing and switched to modular designs so that today the assembly of a PC requires no special engineering skills.
Consequently, says Webster, basic `boxes’ can be mass customised very rapidly to meet local customer demand. And by stripping out downstream stocks of finished computers, the computer companies get a much clearer view of true demand from the various segments of their market. In the US, for example, Dell offers 24-hour delivery on the computer of your choice.
In other industries, just-in-time delivery has been slow to catch on. In the process industries, its growth has been limited by the fact that suppliers are generally in a stronger position than their counterparts in the automotive industry, according to Peter Templeton, director of marketing for Europe at Aspen Technology, a US-supply chain management systems supplier.
`In the chemical industry, suppliers are a similar size to customers and have much more negotiating power,’ Templeton says. `So there’s not been the same degree of push-back of inventory up the supply chain, as in the car industry.’
Also, the huge capital costs and complexity of plant such as refineries has limited the scope for flexible production. So the process industries have been much more supply driven rather than demand led.
But that is starting to change, says Templeton. There is now a much more aggressive focus on co-ordinating manufacturing across the supply chain to cut costs and improve response times. Many manufacturers are collaborating with suppliers to improve demand forecasting and to get the right balance of inventory along the whole supply chain.
The aim, says Templeton, is to be `capable to promise’. The idea is that when a customer rings to say `I want 50 tonnes of this, delivered next week’ the sales rep will be able to promise both the quantity and the delivery in the same phone call.
What makes this possible is the internet, says Templeton. It allows many more people to share much more detailed information more quickly. It can be used to show up stock levels throughout the supply chain, and make suppliers’ production and delivery schedules available at the click of a mouse button.
Using the internet to co-ordinate just-in-time production can prevent companies from losing sight of inventories as they get pushed back up the supply chain, says Webster at Cap Gemini. Going back to the car industry example, when committing to making a car on a certain date, the internet allows you to check not just that you have got the manufacturing capacity, but also that a supplier can deliver the particular kind of seat or CD player the customer wants.
New website programming languages allow information entered in on-screen documents to be read by computer, so the processing of on-line orders can be fully automated.
But the internet is also changing customers’ perceptions, suggests Webster. `People want what they want for as close to as little as possible, immediately.’