Supply Chain Management at Bose Corporation
Bose Corporation manufactures audio premium speakers used in automobiles, high-fidelity systems and consumer and commercial broad-casting systems. Head quartered in Framingham, Massachusetts, Bose Corporation has plants in Massachusetts and Michigan as well as in Canada, Mexico and Ireland. Bose speakers are the best sellers in Japan, the world leader in consumer electronics. Bose’s competence is in its electronic engineering skills, ‘but the company attributes much of its business success to its tightly controlled materials management and excellent Integrated supply chain management.
Bose purchases most of its electronic and other components from independent suppliers scattered around North America, the Far East and Europe. About 50 percent of its purchases are from foreign suppliers, the majority of them are from the Far East. Its purchasing organisation while decentralized has some overlap that requires coordination between sides. Bose attempts to coordinate its globally dispersed supply chain so that material holding and transportation costs are minimised. This requires component parts to arrive at Bose’s Massachusetts assembly plant just in time to enter the production process. But because Bose must remain responsive to its customers, it sometimes must respond quickly to increases in customer demand for certain speakers so as to remain competitive. Since Bose does not want to hold extensive inventories at its Massachusetts plant, this need for responsiveness requires Bose’s globally dispersed supply chain o respond rapidly to increased demand for component parts.
Bose’s materials management function is responsible for coordinating the supply chain to meet both objectives — minimising transportation and inventory holding costs and yet responding quickly to customer demands. This function achieves coordination through a sophisticated logistics operation. Most of Bose’s imports from the Far East come via ships to the West coast and then across North America to its Massachusetts plant via train. Most of the company’s export also move by ocean freight. Bose does not hesitate to use airfreight when goods are needed urgently.
Bose has a long standing relationship with W.N. Procter. a Boston based freight forwarder and customs broker. Procter handles customs clearance and shipping from suppliers to Bose. Procter provides Bose with up-to-the minute electronic data interchange (EDI) capabilities which enable Bose to track parts as they move through its global supply chain. Procter provides several other services to Bose such as selecting overseas agents who can help move goods out of the Far East.
Procter’s well-established network of overseas contacts is especially useful when shipments must be expedited through foreign customs. Procter also is electronically linked into the US customs system, which allows it to clear freight electronically as much as five days before a ship arrives at a US port or hours before an international airfreight shipment arrives – This helps to get goods to Bose’s manufacturing plant several days sooner.
Bose has developed a detailed supplier performance system that measures on-time delivery, quality performance, technical improvements and supplier suggestions. A report is generated twice a month from this system to be sent to the suppliers providing feed-back about supplier performance.
Bose has written contracts with suppliers. After six months of delivery without rejects. Bose certifies the suppliers as qualified suppliers.
Bose uses a sophisticated transportation system which is the best EDI system n the US. This j system operates close to real time and allows two-way communication between every one of the freight-handlers’ 230 terminals and Bose. Information is updated several times daily. This state-of- the art system helps Bose’s managers to proactively manage logistics time elements in pursuit of better customer service.
Perhaps one of the most unique features of Bose’s procurement and logistics system is the development of JIT II. The basic premise of JIT H is: “the person who can do the best job of ordering and managing inventory of a particular item is the supplier itself” Bose negotiated with each supplier to provide a full—time employee at the Bose plant who was responsible for ordering. shipping and receiving materials from that plant, as well as managing on-site inventories of the items. This was facilitated through an EDT connection between Bose’s plant and the supplier’s facility.
1. Briefly present the salient features of the integrated supply chain management system at Bose?
2. Discuss how the strategy development process might work at a company like Bose?
3. What should be the relationship between Bose’s supply management strategy and the development of its performance measurement system?
4. Discuss the importance of quality of purchased components to Bose?
SKF Bearing’s Best Practices
“SKF’S outbound logistics outsourcing is characterised by strong control over quality norms and delivery schedules by SKF personnel”
SKF Bearings is one of the world’s biggest ball bearing manufacturing units, and they have: a sizeable presence i India. As part of its supply chain management practice. SKF Bearings handles the training, implementation and quality control activities themselves, while outsourcing the actual
operations to logistic solution providers. Outbound warehousing and transportation practices outsourced to logistic solution providers and national transporters.
(A) Inbound transportation and warehousing: Complete vendor outsourced, i.e. transportation and warehousing managed and handled by vendors.
B) Outbound transportation: Handled predominantly by national fleet operators, with some responsibilities of contingency transportaton outsourced to organised players.
(C) Outbound warehousing: Completely outsourced to organised players with five players handling different warehouses of the company.
SKF’s outbound logistics outsourcing is characterized by strong control over quality norms and delivery schedules by SKF personnel. Outbound warehousing which is a completely outsourced activity is controlled by SKF personnel by integrating the warehouses through their in-house developed ERP software platform.
Training of logistics company personnel to load/unload goods, assemble and disassemble and for integrating scheduling and supply orders is imparted by SKF. Through this, they have managed to achieve 100 percent order cycle fulfillment, bring down damaged/ short/over delivery instances to almost 0.25 percent of total annual order and train logistic personnel to meet all in-house developed quality norms.
Even though majority of their logistics partners have IT capabilities of their own, SKF Bearings doesn’t use them as they have integrated their own IT platform to schedule orders, keep track of consignments and to manage both effective and efficient distribution. Their warehousing costs are higher than their outbound transportation costs because of the extensive warehousing practices, but they have achieved gains through the application of internal control over implementation of quality norms, strict adherence to Standard Operating Procedures (SOPs) and a robust system of IT implementation throughout their supply chain, Future Plans: Moving slowly towards Vendor Managed Inventory (VMI) for inbound sourcing and also looking at outsourcing more warehouse management responsibilities. Looking to implement more definitive 3PL solutions for outbound activities of the supply chain, but will still, keep operational control in its own hands.
1. Discuss the activities involved in the supply chain of SKF Bearings?
2. Explain how .SKF establishes strong control over its outbound logistics?
3. What is meant by vendor managed inventory (VMI)?
4. What meant by third party (3PL) logistics solutions? Explain how SKF will be able to implement the same?
Chrysler Unseats its Competition with Supplier Partnerships
When Lee lococea gave the co ahead to Chrysler’s Neon Project in I NO, he \\ as taking a big risk. Until that time; no American subcompact ear had been able to turn a profit for its manufacturer. l3ut Chrysler’s Neon ultimately reversed this trend: mainly because of the unprecedented partnerships Chrysler entered into with its suppliers in the earliest stages ot the Neon Project.
Robert Marcell. head of Chrysler’s small -car division, knew that such partnerships held the key to Chrysler’s success. In order to make a profit, Marcell had to meet stringent production schedules for which he had to bring suppliers on board early. This is crucial because outside companies would be furnishing 70 percent of the value of the car in the form of tyres seats, suspension, and other components.
In an unprecedented move, Marcell allowed engineers from key potential suppliers to dose the first Neon prototype during an October 1990 meeting. His team then issued a cost challenge. inviting suppliers to make use of sensitive Chrysler financial data and ideas in a mutual effort to Cut costs.
Companies who entered into this unique partnership found that collaborating with Chrysler was a two-way street. For exarple Johnson controls, Inc was initially to make the Neon’s seats within Chrysler’s price targets, but Chrysler was unhappy with their safety. Weight and comfort. After the supplier partnership agreement, ten Chrysler engineers moved into Johnson controls’ firm near Detroit to work with the engineers of Johnson controls. After working together for five days together the partners agreed on new weight, cost and performance standards that were so on target that they didn’t have to be changed again.
As a result of this unique partnership, Chrysler was able to accept higher component Costs from Johnson controls because of overall savings for Chrysler. At Chrysler’s request Johnson designed some rear seats with the capability of folding down to expand trunk space. But Chrysler engineers insisted that Johnson design the special seats so that they could be installed the same as other seats. This made each seat cost more, but Chrysler ultimately could save about $ one million overall in final assembly costs. Thanks to its successful partnership with Johnson controls and other major suppliers, Chrysler met its stringent cost and time deadlines for the Neon- and came out with Detroit’s first profitable subcompact car in the bargain.
1. Discuss the approach of Chrysler’s operations managers in developing arid building the Neon model?
2. Discuss the relevance of this case to the study of supply chain management?
3. What benefits a manufacturing firm can achieve from its suppliers, through outsourced manufacturing?
4. Discuss the differences between outsourcing and out-partnering?
Delphi Automotive Setting New Norms
“Logistics service provider and transporter evaluation is done on the basis of requirement levels met, which is 100 percent for any component before it goes on to the line”.
Delphi Automotive India Ltd. is the Indian arm of the global giant Delphi Automotive. The major components that Delphi supplies in the country are steering columns, half shafts, AC Units, Engine Management systems, Catalytic Converters and Wiring Harnesses. The Company also takes up sourcing requirements of clients based out of India.
Suppliers are generally selected on the basis o their proximity to the company’s four manufacturing units in India, which are located in Bangalore, Karnataka (two plants), one in Noida, Uttar Pradesh and one in Gurgaon (Haryana). Delphi believes in efficient sourcing from its suppliers. Nearby suppliers are required to supply the plant everyday while far flung suppliers are required to supply 2-3 times in a week. Delphi has streamlined the inbound process by procuring high volume, low cost items from nearby suppliers and high cost, low volume items from far flung suppliers.
Delphi Automotive India has outsourced the entire inbound sourcing part of the supply chain to its suppliers, totaling about 150. They are responsible for the inbound transportation and warehousing of components before the latter reaches any of Delphi’s manufacturing plants.
For outbound trá1sportation and warehousing. the company works with a mixture of national transporters and organised logistics solution providers, Its outbound warehousing has been outsourced to a trading company with capabilities in warehouse management.
To make sure that quality norms are adhered to and supply schedules are met, logistics service 1?rovider and transporter evaluation is done on the basis of requirement levels met, which is 100 percent for any component before it goes on to the line. This is a very Important service level definition on which logistic solution providers and transporters are evaluated.
Since the stock and inventory checking aspects of the supply chain have been automated, details of stocks and status of delivery can be tracked. Web enabled
consignment tracking facilities are provided by Delphi India to its foreign customers enabling the latter to track the status and location of their’ consignments at any given point in time. Indian customers are slowly being provided with this facility. Also, Indian customers can place orders from Delphi using the company’s extranet system as and, when the requirement arises.
Future Plans: Will slowly move towards a more structured system of logistics outsourcing, which would mean that it will increasingly start looking at more 3PL outsourcing arrangements.
1. Explain the supply chain of Delphi Automotive.
2. Explain how Delphi Automotive manages its inbound sourcing.
3. Explain how Delphi Automotive manages its outbound logistics.
4 Suggest a suitable strategy for Delphi Automotive to Improve its supply chain effectives.
Karnataka Engineering Company Limited
By 1983 (the case time context), the two-wheeler market had been liberalised and companies had to deal with the new realities. Logistics was one of the business activities which got a strong look. The case of Karnataka Engineering Company Limited (KEC) provides the background for analysing a key set of logistical concerns.
Strengthening the distribution network for finished products is one of the most direct ways of improving service effectiveness and cost efficiency of a firm’s marketing related operations. The cost of selling up and operating different facilities in the distribution network have to be viewed vis-à-vis the recurring transportation and inventory costs in the distribution network and increasingly, service measures such as response time to different sets of downstream customers.
In this case, the logistics manager s faced with the issue of designing a distribution network. ‘Two-wheelers have to be distributed from a single factory to several dealers. For illustrating the nature of the decision, one state (Andhra Pradesh) is taken up for detailed analysis. Here, it is assumed that distribution will be done state-wise, because of commercial (tax) considerations.
Five hierarchical decisions have to be made in this case; deciding on the number of warehouses, the location of those warehouses, the allocation of demand points to a warehouse, the selection of a shipment size, and an order processing and routing policy for the actual distribution from warehouse to demand points. Here, shipments from depots to dealers are through trucks or LCVs. Depending on the order processing discipline that is selected, one could have the possibility of meeting the demands of two or more dealers with a single trip. This would need a routing procedure.
1. At what volumes is the opening of a warehouse in a state justified primarily on the grounds of the 4 per cent central sales tax for transactions across states?
2. How many warehouses do you think are required for the distribution of KEC’s products in Andhra Pradesh? What could the candidate locations of the warehouses be? What would be the criteria on which to select the candidates?
3. Determine the optimal selection of warehouses and the best allocation of demand points to the selected warehouses?
4. What are the best choices for shipment (truck) size from warehouses to demand points? Given the size, what routing would you recommend for a typical dispatch run?
Approach for Analysis
The problem here is a relatively complex one, in theory, because of the number of different but interrelated decisions that have to he made. Two options are suggested to approach this problem. One is to decompose the decision areas (typically in the order of the hierarchy described above) and calculate only the aggregate contributions from other decisions. For example, a shipment size can be assumed while deciding the number and location of warehouses (and that would determine the relevant costs), and this can be repeated for each significant option.
Another approach is to explicitly and simultaneously consider two or more interrelated decisions. This is a very common practice in, for example, location allocation models. This makes decision-making more accurate. But this is not always possible.
A combination of these two approaches may be helpful here. A reasonable set of scenarios for shipment size for making the upper-level decisions, a combined model for location and allocation, and again an aggregate consideration for deciding the number of warehouses (based on the fixed costs vis-à-vis the maximum savings in transportation) can be prepared. The routing decision can be separately made after the allocation decisions are made, for each shipment size possibility. For the location-allocation decision, even the number of warehouses to be opened can be left open, and a model developed based on Mixed Integer Linear Programming. The model size should be kept small enough that a simple solution should be obtained by running the model on a PC. Extensions of such models in m1aitleve1 distribution, where explicit consideration of warehouse location costs and transport link fixed costs have been combined with allocation decisions, have been among the most successful applications of models to practical decision-making. Karnataka Engineering Company Limited (KEC)*
Karnataka Engineering Company Limited, Raichur, entered the two-wheeler industry in 1981 with the production of mopeds. In 1983, they set up a scooter production line in Raichur. The two-wheeler scene in India was very much a seller’s market in the early years, with waiting times of several months for potential customers.
In 1987, there was a slump in the Two-wheeler market which affected all manufacturers badly. The market became extremely competitive. This forced KEC to look for ways to tackle the increased competitiveness. It was felt by the Staff Vice-President (Corporate Planning) that the physical distribution function was a source of competitive advantage which, if properly handled, could yield substantial dividends that would be visible in the immediate future.
KEC had set up a team to aggressively lead their marketing efforts in the slumping markets, called ‘Go For It’. At a meeting of ‘Go For It’, the Staff VP (Corp. Planning) put forth his ideas for rationalising the management of the physical distribution function, which was accepted by everyone, including the Managing Director. Prior to this meeting, he had circulated a letter to all concerned (Exhibit
1). The organisation structure of KEC is given in Exhibit 2. Value added by KEC based on 1986-1987 financial data is given in Exhibit 3
From Raichur, the two-wheelers are transported by specially adapted trucks, which can carry either 80 mopeds or 50 scooters or a combination of both. This phase of the distribution, called primary transportation, is organised at Raichur itself by the central marketing office.
KEC has 19 branches spread all over India. Exhibit 4 gives a list of the branches (along with the states/Uts) and their rnonh1y offtakés with sales value. Every branch is manned by a branch manager, who is the 501C KE.C employee there. He wage labour for the loading and unloading operations. The econda1y tansport arrangements transport from the branch to the dealers arc made by KEC Marketing offices located in most states. A list of the marketing offices is given in Exhibit 5.
The consultant, based on discussions with the Staff VP arid Chief Operating Officer, arrived at a framework for analysis, quite similar to the one outlined in Exhibit 1.
Branch Operating Costs and Locations
The operating expenses of a branch were estimated to be Rs 17,000 per month. The break-up is given in Exhibit 6. However, the actual average expenses were closer to Rs 21,000 per month. The inventory cost for each branch has been determined by examining the average branch inventory as given in Exhibit 7. It should be kept in mind that the period January-July 1988, on which the data is based, represents a slump in the market resulting in higher than normal inventories.
Given the costs, it can be determined that at 4 per cent central sales tax, the minimum throughput that would justify the setting up of a branch in a state would be Rs 4.25 lakh per month. This translates into 78 mopeds (at Rs 5,500 per moped) or 33 scooters (at Rs 13,000 per scooter) per month or any combination thereof. From Exhibit 4 it can be seen that it would be advantageous to locate branch warehouses in 18 states/UTs. New branches need to be set up in Goa, Orissa and Pondicherry.
The branch in Jammu and Kashmir can be discontinued. The north-eastern part of the country should be examined in greater detail with a state with break up For the states where a branch location is deemed Essential the next task was to determine how many branches should be opened iii each state arid where exactly they should be located.
The principal factor to examine when considering whether more than one branch is justified would be to see if the savings in total transportation costs (primary and secondary transportation costs) would be more than the additional cost of a new branch.
Distribution in Andhra Pradesh
The logistics expert decided to examine the case of AP in detail for an interim presentation to KEC. The existing position was that KEC had two branch warehouses at Adoni and Mahbubnagar,f serving roughly the northern and southern halves of AP. Exhibit 8 shows the locations of the dealer points on a map. Exhibit 9 gives the actual average monthly offtake to the dealer points in Al’ based on January-July 1988 data.
The marketing office at Hyderabad would collate the orders and issue instructions by telephone to the branch manager at Adoni and Mahbubnagar regarding secondary despatches. Actual routing decisions were the responsibility of the branch manager. Both the branch managers found it difficult to get through to dealers by telephone. Further, the Mehboobnagar branch manager frequently complained about difficulties in arranging secondary transport. It must be mentioned here that the principle that motivated KEC to select Adoni and Mahbubnagar as branch locations is that they are the first major towns in AP after crossing the border.
Transportation and Routing
To get a good handle on the nature of transportation cogs, the consultant defined a unit called the moped unit km. where one moped unit km is performed by transporting one moped unit for a distance of one kilometre. One scooter was taken as equivalent to 1.6 moped units as a full truckload carries 1.6 times more mopeds than scooters. He further set out to determine an average1 figure of the transport cost per moped unit km, both for primary and secondary transportation.
The truck rates for various truck sizes are given in Exhibit 10. An important decision here is the optimal size of shipment (which size truck to use). Exhibit 11 gives the distance math between the dealer points and potential branch locations. The potential locations were selected based on offtake levels, demand spread, quality of life, etc.
For primary transportation, it was found that the trucks were generally run at full capacity The 80 moped units capacity truck was normally used. To determine primary transport cost, the distance figures from Raichur to the potential branch locations are given as Adoni (70 km) Cuddappah (270 km), Hyderabad (190 km), Kurnool (100 km—not a good road, 170 km—by good road), Mehboobnagar (100 km) and Vijayawada (480 km via Hyderabad). For secondary transportation. six sample routings as given in Exhibit 12 were chosen to determine the transport cost per moped unit km.
The average pipeline inventory was also a cost consideration. At the national level, average pipeline inventory for primary transportation can be calculated given the average lead for mopeds as 700 km and for scooters as 900 km. A truck does average of 350 km per day. Secondary transport pipeline inventory was negligible, accept in large states.
The consultant now felt that he was ready to analyse the alternatives for branch location shipment size, etc.
From Staff VP (Corporate Planning)
To COO (Chief Operating Officer)
All members of Go For It
The recent slump in the market for two-wheelers is hitting not only our bottomline but also the morale of the staff. We have been caught almost unaware by this and our sales forecasts look ridiculous. We are faced with the all too visible problem of a build-up in finished goods inventory at Raichur and the branches on account of lower offtake. The problem is so severe that sometimes trucks have had to wait for more than a week to unload at branch points.
An important, but unfortunately neglected area to which we must pay attention is our logistics function. If the right decisions are taken here, the potential to save money and provide an optimum level of service to the consumer exists. Studying our logistics requirements should lead to savings in transportation costs and inventory costs. The other benefit would be that our response time to orders would be acceptable to the customer without imposing unjustifiable additional costs. As a first step, it would be useful for us to recognise the significance of logistics costsas a proportion of value added to products. As I see it, the first-level decision should be to make up our minds as to which states we should have branches in. The financial advantage of having a branch warehouse in a state is that we then don’t have to pay the 4 per cent central sales tax which is based on interstate sales.
The second-level decision should be to determine where in a state the branch should he located and whether more than one branch would be justified. Related decisions would be the size of shipment, frequency of shipment. inventory positioning at branches and routing of primary and secondary transport.
As we do not have any suitable person in KEC who is qualified to examine the issues involved, I have identified an external management logistics expert to conduct the study.
Value Added Statement for 1986-87
|Raw Material and Component Cost (67% for mopeds) (69% for Scooters)||42.34||28.36||70.70|
State/UT-wise Monthly Average Sales (January-July 1988)
|S.No||State/UT||Branch Location||Mopels||Scooters||Sales Value (Rs 000)|
|1||Andhra Pradesh||Adoni/M nagar||465/1460||78/210||3571.5/10760|
|9||Jammu & Kashmir||Ja||5||25||352.5|
|17||Punjab & Chandigarh||Chandigarh||300||180||3990|
Tamil Nadu Chennai
Andhra Pradesh Hyderabad
West Bengal Calcutta
J & K Srinagar
Punjab & Haryana Chandigarh
Branch Opening Cost
Utility ect 2000
Average Inventory Position at Branches (January-July 1988)
1 Adoni 63 24
2 M’nagar 58 30
3 Ranchi 30 14
4 Daman 39 91
5 Delhi 20 32
6 Vadodara 96 112
7 Faridabad 0 0
8 Jammu 29 25
9 Cochin 0 0
10 Bhopal 143 132
11 Raipur 55 59
12 Mumbai 63 109
13 Chandigarh 75 119
14 Jaipur 115 53
15 Vellore 53 32
16 Lucknow 165 146
17 Varanasi 86 146
18 Medinipur 50 32
Average Inventory at Branches 63.33 64.22
19 Raichur (including finished goods inv.)1122 768
Andhra Pradesh-KEC Branches
Average Monthly Offtake in Andhra Pradesh (January –July 1988)
Mopeds Scooters moped-units
1 Adoni 25 10 41
2 Chittoor 90 10 106
3 Nellore 20 15 44
4 Ongole 20 0 20
5 Chirala 50 3 54.8
6 Cuddappah 55 4 61.4
7 Hindupur 60 7 71.2
8 Anantapur 60 10 76
9 Kurnool 20 3 24.8
10 Tirupati 65 16 90.6
11 Guntur 95 15 119
12 V’Wada 205 30 253
13 Khammam 80 15 104
14 Warangal 65 15 89
15 R’Mundry 80 0 80
16 Kakinada 70 4 76.4
17 Vizag 115 6 124.6
18 V’nagram 30 5 38
19 M’nagar 20 10 36
20 Hyderabad 600 80 728
21 Nizamabad 45 15 69
22 K’nagar 55 15 79
Total 1925 288 2385.8
Truck Rates (Rs per km)
|Transporter||80 Mopeds or 50 Scooters(large truck)||56 Mopeds or 35 Scooters(medium truck)||20 Mopeds or 12 Scooters (LCV)|
|PC Rao Brother||6.00||4.80||–|
|Mehboobnagar Trucking Society||6.90||5.50||4.60|
AP Distance Matrix
Sample Routings for Dealer Point Delivery (Based on Invoice Statements)
From 1 To 2
|Offtake at 2
|Offtake at 2||Sector Distance|
|1||Adoni Anantpur||12 __||12||110|
|Anantapur Hindupur||8 __||8||120|
|2||Adoni Trupati||10 25||50||330|
|Triupati Nellore||__ 15||24||120|
|3||Adoni Cuddappah||40 __||40||200|
|Cuddappah Nellore||40 __||40||130|
|4||M’ Nagar Hyderabad||__ 30||48||90|
|Hyderabad Warangal||__ 20||32||120|
|5||M’nagar Hyderabad||24 20||56||90|
|6||M’nagar Vijayawada||30 __||30||380|
|Vijayawada R’mundry||30 __||30||150|
|R’mundry Kakinada||20 __||20||60|
Analyze in minute details this Case with reference to the Principles of Logistics and supply chain Management