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Supplier Relationship Management 3.2.1. The report also compares the methods followed in Bosch to that of Toyota wherever possible.1.The aim of this presentation is to highlight the various methods and strategies incorporated in Bosch for its Supply chain Network.for national operation 3. Logistics network 2.for global operation 2. Milk Run network. Technical procurement 3. Value creation 2 . Web EDI 4.2. Strategy 2. The entire presentation has been divided into four sections: 1. International Production Network.

Innovation & Supply risk: With onset of dependency on suppliers for almost 70% of the parts. Planet and Profit. The strategy can be divided into two streams cost driven and value driven as follows: Sustainability: Due to various environmental norms and customer demands. Visibility: Communication is one of the most important factors of the SCM and to ensure better visibility. Wed EDI is being implemented. Some of the processes implemented are Milk run and IPN 3 . In order to reduce the carbon footprint in the supply-chain various projects related to packaging and logistics have started.The strategy of Bosch is driven by 3P concept and according to which it focuses on People. partnership with strategic and preferred suppliers is established and is managed through Supplier Relationship Management. which connects suppliers. The main objective of this partnership is to create value through innovation and to ensure supply. transporters and the customers systems. irrespective of the operating systems. with objective of removing waste. Optimization: Process improvement are carried out using lean manufacturing concepts. sustainability has become a major point of discussion in every new projects.

(see Takashi. transporter and the main plant. Bosch has mapped its milk run network incorporating the location and needs of the supplier and customers. 5) Milk-run transport logistics is considered as the most efficient methods to improve logistics operations. Though it is efficient and lean but at the same time its complex and requires correct planning to get most optimized options. the need to develop supplier in north region was not felt. which ensures maximum utilization of truck load capacity. p. (see Brar.This network collected the material from all the northern based supplier (mainly Delhi) and deliver at the external warehouse. Example: Bosch Jaipur Plant (VE Pump) Due to various strategic reasons the VE Pump product was shifted from the southern region (Bangalore) to North region (Jaipur) but since the life of the product was not long enough. Pareto analysis is done to identify the class of material and for “A” class material. there are various delivery conditions which are needed to be taken care of.North based. the milk-run can be divided in to various regions and under regions into various sub-regions. in case of any deviation or failure in the network the same is detected in early stage through this system and to counteract a tried and tested alternative is also defined to be used in case of failure of the network. Further to this. p. regular and just in time supply and delivery of material. Location of supplier and customer(nodes): On the basis of the location of various nodes. time. p. increased frequency and leveled flow of material. material and the type of truck to be used. This is used in the later stage of the route planning. part weight. the real-time visibility of the network becomes an important factor. Milk run network is used to achieve the lean logistics concept of Lot size reduction. high delivery frequency is considered as compared to “B” and “C” class material.This network collected material from the Jaipur based supplier and was also responsible for movement of material from external warehouse (vendor managed inventory) to internal warehouse MR2.South based. depending on theses factors of the shipment to be collected in one network. Delivery conditions: During the milk route planning. Delivery Frequency: In order to avoid the risk of inventory and space in the internal warehouse of the plant. The supplier involved in milk-run network were in EXW (Ex-Works) incoterm .Milk Run Network: In order to ensure continuous. then this condition has to be integrated in the route planning. p. the frequency of delivery is a very important parameter and is decided on the basis of the class of material. MR3. Plan for every Part: This includes the part size. Web EDI is a tool that acts as an interface and uses internet to connect supplier. Hence it was decided to use the capacity of already developed supplier base in South (mainly Bangalore). this cost is a summation of all the cost involved when a transporter moves between the node. Depending on the concentration of suppliers in a region three networks were identified: MR1.This network collected the material from all the southern based supplier (mainly Bangalore) and deliver at the external warehouse. including the route. The output of the planning is the framework of the network. 4 . 2555-2556) 2. once the route has been decided this information is used to decide the type of truck capacity to be used. for example if a material from one supplier is needed to be further processed by another supplier. 2555-2556) 3. (see Takashi. (see Takashi. the cost of operation between various nodes is calculated. In this the material from the suppliers of a particular region are collected by regional milk runs and consolidated at the common warehouse to be sent to main plant. 5. which gave a cost benefit to Bosch in the product pricing For all the other suppliers (where milk-run network was not possible due to low supplier concentration) material was delivered on FCA (free carrier) basis incoterm and the price was borne by the supplier but this also meant a higher price of product. (see Takashi. But with the implementation of milk-run. p. 2556) 4. For a vast network of nodes a common warehouse concept (groupage traffic) is used. 2555) The planning for the milk-run network involves following inputs: 1. Cost of transport between nodes: After mapping the various nodes.Jaipur based. This cost is very fluctuating and hence it is needed to be updated regularly depending on the present situation. the size of the truck is decided so that the truck can be used to its maximum capacity. packing size. which needs to be addressed by to track the material in real time and hence the concept of WEB EDI is introduced.

1-2) 5 . the minimizing the requirements of salesman also becomes an objective. Then. the formulations and solution methods for the VRP are also equally valid and true for the mTSP if a large capacity is assigned to the salesmen (or vehicles). In this case. The remaining nodes (cities) that are to be visited are intermediate nodes. the TSP is classified as symmetric travelling salesman problem (sTSP). Cost: When the number of salesmen is not fixed. let there are m salesmen located at a single depot node. multiple depots: In the single depot. is to find the best possible way of visiting all the cities and returning to the starting point that minimize the travel cost. such that each intermediate node is visited exactly once and the total cost of visiting all nodes is minimized. etc. Possible variations of the problem are as follows: Single vs. then each salesman usually has an associated fixed cost incurring whenever this salesman is used. asymmetric travelling salesman problem (aTSP). The mTSP is generally treated as a relaxed vehicle routing problems (VRP) where there is no restrictions on capacity. Broadly. The mTSP is defined as: In a given set of nodes. Given a set of locations and the cost of travel (or distance) between each possible pairs. the TSP. and multi travelling salesman problem (mTSP). Number of salesmen: The number of salesman in the problem can be fixed or a bounded variable. the mTSP consists of finding tours for all m salesmen. Timeframe: Here. Other constraints: Constraints can be on the number of nodes each salesman can visits. The cost metric can be defined in terms of distance. The application of mTSPTW can be very well seen in the aircraft scheduling problems. maximum or minimum distance a salesman travels or any other constraints. who all start and end at the depot. when there is a single salesman. some nodes need to be visited in a particular time periods that are called time windows which is an extension of the mTSP. all salesmen finish their tours at a single point while in multiple depots the salesmen can either return to their initial depot or can return to any depot keeping the initial number of salesmen at each depot remains the same after the travel. then the mTSP reduces to the TSP” (see Matai. p. Hence. and referred as multiple traveling salesman problem with specified timeframe (mTSPTW).Route Planning: “The route planning module works on the algorithm of travelling salesman problem (TSP). However. time. The sTSP is the problem of finding a minimal cost closed tour that visits each city once and the cost of travel between two nodes from both the sides are same whereas in the case of aTSP the cost of travel between some nodes be different depending on the direction.

The decision for relocation should is derived from some strategy (see the example below). Apart from the market. the more cost benefit it can be. Hence the decision was taken to relocate the manufacturing and assembly. Ashok Leyland) Further to this Bosch follows a centralized and integrated logistics model of Hub and Spoke. trends from previous experience and exchange price also play major role. The more near the plant is to the customer. the products are manufactured in matching environment. 166]. External Factors: Some factors like countries customs laws.With Globalization and onset of Liberalization across the globe the companies got a chance to use the potential of developing countries in realizing low cost production and to setup plants in close proximity to the market and suppliers. Few major reasons for selection of India over other Asian countries (low wage countries) was 1. Example: VE pump was manufactured in Feuerbach plant in Germany but due to the changes in emission norm in Europe this product was no more feasible for the European market. governmental norms. but it also had market in most of the developing countries in Asia. Major Globalization norms to attract foreign investment by Indian government (1990) 3. depending on this value a go ahead is given. The few factors which decide the selection of new site are as follows: Proximity to market and supplier: Most of the decision related to new site start from the location of market. Prime Location (in terms of proximity to major customers like Tata. Technology and Skill availability: Depending on the type and age of product. This gives an estimate for ROI. Fixed and Recurring Cost: An estimate is calculated on the amount that will be incurred for establishment (fixed cost) of plant and is subtracted from the plant running cost (recurring cost per year*product life). Level of education and hence the availability of skilled labor 2. According to this it has distributed production network with plants in various location (depending on customer location) capable of producing all the variants of a particular product but has a single lead plant which coordinates for the product over the entire globe. p. This kind of layout has a advantage during the fluctuation of demands in any region and is majorly followed by various automotive suppliers[see Abele. For products involving skilled labor and high technology. apart from this the plant more flexible to customer demands. the locations technological and skill availability is also checked. The above mentioned factors are not the reason for relocation but only support in choosing the new site. Mahindra. In order to find the appropriate location for the product all the above parameters were compared and the decision was taken to shift the product to India. the supplier location also plays a major role. In order to remain competitive and utilize these benefits automotive companies developed strategies for their establishment of their International production networks (IPN). The proximity factor mainly benefits in transportation cost and custom duties. 6 .

Supplier segmentation) Relationship analysis: Further to supplier segmentation. the various KPI’s decided are checked and evaluated periodically. it which a supplier is segmented depending on its performance and its importance to the company into segments. The data mainly contains the spend. in this Pareto analysis is done to identify the suppliers on which 70% of the spend is concentrated. The Process of Establishment of SRM is divided in to 5 steps: Supplier Identification: This stage involves the collection of supplier related data from all the sources. material supplied. The parts with high supply risk and high purchase value are considered as strategic and hence partnership is established with such suppliers. SRM is focused on joint growth and value creation with a limited number of key suppliers based on trust. This evaluation may again cause the entire cycle to again start and identify new suppliers. empathy and a win-win orientation. The data collected is used to segment the supplier and to identify the focus suppliers. open communication. if results are met. The cost benefit is shared with the suppliers Evaluation: In order to analyze the progress. This relationship is based on two factors Purchase value and supply risk. would keep suppliers with high spends in the strategic category. (see Procurement. The partnership is established with strategic suppliers and hence a segmentation is necessary to differentiate between suppliers and this is carried out with supplier yearly supplier evaluation. (see Procurement. Supplier identification) Supplier Segmentation: After the data collection the supplier are segmented on the basis of the strategy of the company. That is. the relationship is analyzed on the basis of the component and on the perspective of the supplier towards the customer. For example company focused on cost.In order to remain competitive in market. % of volume. then partnership is established instead of contracts and common KPI’s are identified and focus is kept on mutual development and value creation. Bosch has realized the importance of collaboration and integration with suppliers and so it uses the tool supplier relationship management. And on the basis of the results further actions or future projects may be decided. Relationship analysis) Relationship management: After analyzing and identifying the relationship. the delivery frequency.[video] 7 . (see Procurement.

2. There are various challenges which are being faced by Bosch unlike Toyota. already developed suppliers are chosen and it is made sure that any supplier should not spend more than 60 % of its capacity on Bosch. 8 . 3. but it is continuously improving and is tracked throughout its all the plants over the globe through internal audits. 4. Toyota’s product have a large life cycle whereas at Bosch. 1. Though the maturity level of the Bosch is less. Toyota develops its supplier from the scratch and most of the SME suppliers at Toyota have only Toyota as the sole customer. that is it must also have other customers also. it has a vast variety of products line up and hence a large no of suppliers as compared to Toyota.Though SRM sounds a very feasible solution for integrating suppliers along the development process but the current maturity level at Bosch as compared to Toyota is not good. the life cycle of product is dependent on the type of product itself. Toyota’s supplier hub is in the vicinity of the main plant whereas Bosch has a distributed supplier base. Whereas at Bosch. Being an automotive supplier.

it cannot be expected from all the suppliers to have an Electronic Data Interchange (EDI) system and at the same time it is very difficult to have common EDI system at all the suppliers end. fax or E-mail are cancelled. the high costs of a conventional EDI solution. Apart from the tracking it also eases various other operations like electronic invoicing and stock notification to the supplier for vendor managed inventory. Media breaks by the use of post. delivery and transport data. Web EDI makes the transmission of data and via internet. Hence. (see SupplyOn. Data Interchange Process: “The SupplyOn server processes the EDI data skillful by Bosch as web forms and provides them the appropriate suppliers together with message forms for the data acquisition. stock movements and self billing invoices notes can be illustrated. All commercial incidents like delivery forecast. At the same time SupplyOn also is able to integrate data from all over the supply chain on a single centralized platform thereby also reducing data redundancy. Quality) Toyota on the other hand also uses a similar solution for its functions. however. there are lot of problems when it comes to exchanging data between suppliers and the transporter. Web EDI does not aim at removing the previous ERP or the EDI system it just acts as an interface to connect and access data from the supplier end.” (See Robert. The general electronic communication is made possible by SupplyOn Web EDI between Bosch and small and middle supplier. Strategic) Operational procurement: This tool also keeps the track of material dispatches from the supplier end and connects the flow of information between the supplier. (see SupplyOn. In order to counter such problems Bosch uses an internet based solution from “SupplyOn” to exchange data among suppliers and transporter. (see SupplyOn. transporter and the Bosch plant. The goal is to anticipate the possible deficiencies at an early stage and correct along with the concerned responsible parties For example it calculates the delivery performance of the supplier.Web EDI: Because of the variety of suppliers from small to large enterprises. operational) Supplier Risk and Performance Management: This platform also helps in keeping a track of the performance of the various suppliers and notifies the supplier and gives warning in case of incidents. Smaller enterprises are connected directly with Bosch and can use many advantages of the classic EDI without having to carry. Supplier) Quality improvement It optimally integrates the suppliers in Bosch’s own value added chain and automates the communication processes for all aspects of your supplier quality management system. 9 . For example: A central data pool for supplier information is maintained online which can be directly changed by the supplier and is available for all the other Bosch plants also. Hence. 11) The basic function Apart from exchanging data it also helps in a lot other logistics functions as follows: Strategic procurement: As a web based platform. p. This added value helps in gaining a close collaboration in the supply chain by promoting transparency in the network. This also helps in early detection of any deviation and avoiding bottlenecks by taking proactive action. The supplier needs to the operation only a PC as well as an Internet access and – browser. (see SupplyOn.

Value addition: the process is designed in such a way that the entire cost of establishment is less than the previous operations and thereby considering the profitability. Hence the process development of packaging involves the above three objectives and apart from this follows the extended version 3R’s waste hierarchy as shown below in order of decreasing preference. Self sustainable: The process designed is in such a way that it does not generate any waste in the form of material. The packaging material should be reusable and recyclable.With increase in governmental regulations and customer demand for green supply-chain. consisting of People. 1) Reduction of packaging material 2) Re-use of packaging material 3) Re-cycling of packaging material 4) Energy recovery from refuse 5) Disposal in form of land fills (See United. With this the objectives of packaging are as follows: Efficient and optimized: The packaging process are designed in such a way that it eliminates waste and makes the process more optimized considering the human and material movement at the minima. packaging has become one of the important pivot point for consideration. p. Planet and Profit as the centre of all strategies related to packaging. considering the environment. In order to fulfill the customer demand and follow the regulations Bosch follows 3P approach. 18) 10 .

11 . So with the introduction of returnable packaging. Apart from its re-usability. the lot size for VE Pumps was 10 per box. which meant now Bosch was able to supply in term of 2 pumps. The unpacking of the material is not needed any more before it is used in assembly and can be directly loaded into milk-run. the difference between the process flow in the case of normal packaging and that of returnable packaging. there are also few challenges: 1) Quality: Since the products are directly being shifted to the production line. that reduces its inbound logistics operation. which was managed by Bosch. there by increasing the flexibility at both the customer and in the plant. 2) Maintenance and investment: though there is a reduction in logistics operations but there is an increase in the maintenance operations. 3) Reduction in waste: With the introduction of returnable packaging the waste generation is also minimized. clearly showcases that there is reduction in process step and logistics operations inn the case of returnable packaging but apart from the reduction in operations there are also other benefits in returnable packaging: 1) Reduction in lot size: Previously with the use of corrugated boxes. 2) Reduction in logistics process: Unlike previously the material can directly be shifted to the production line without the need of unpacking in the internal warehouse. the supplier needs to produce high quality products with no defects. But along with the benefits.The above example which explains. this lot size of pump was reduced from 10 to 2. There is no need of corrugated boxes and also the special bins for the production. The packaging are designed in a way to act as bins for the production. it can also be recycled once its life is over. which was decided in order to realize the cost benefit in case of packaging. because if a defect is detected in the assembly then it further leads to various repair costs. But due to such a big lot size there was also an increase in inventory at the customers warehouse. 3) Reduced lot size: In order to realize the benefits of reduced lot size the assembly line should also be equipped for quick change overs. with initial calculation it was found that with outsourcing of these operations the ROI is 1 year and the life of the product is 2 years.

For example Toyota eliminates double marginalization by directly acquiring raw material from the raw material suppliers for itself and also for its suppliers whereas Bosch does not consider such option as this increases the capital investment in the raw material and blocks the money. Most of the strategies related to Supply chain are dependent on their Production systems. shows that they both have a different range and level of product and both have their own tailor made systems. And I believe it is a long way to go for Bosch to achieve the same maturity level as Toyota and the key to this is by involving the associates in the improvement activities. The level of maturity is way higher for Toyota as compared to Bosch but. without investing in the suppliers raw material. The same vision also applies to Supply chain and logistics network. Comparing Bosch with Toyota. these wide variety of products has caused Bosch to have different supply chain strategies for different product. The variety of strategy mainly lies between either being agile or lean.As per strategy and vision of the company. 12 . whereas for products which have a short life cycle and continuously are getting updated due to customer demands has a comparatively agile supply chain which flexible enough to meet the changes and fluctuations of the market. though Bosch Production system (BPS) is derived from Toyota Production System (TPS) but it has it own customization in it. Further to this Bosch is an automotive supplier and has its business spread in all possible direction related to an automobile from diesel systems to electronic systems. since the BPS is still very young as compare to TPS and is continuously improving by incorporating CIP. instead it negotiates and fixes a low price through bulking the order for itself and also its supplier. Bosch realizes the importance of sustainability and it tries and inculcate this value in every process and every decision it takes. For standard and high life products it tries and eliminate waste and establishes a le lean supply chain.

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