You are on page 1of 16


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

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

Milk Run Network:

In order to ensure continuous, regular and just in time supply and delivery of material, Bosch has mapped its milk run network incorporating the location
and needs of the supplier and customers. (see Brar, p. 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. (see Takashi, p. 2555)
The planning for the milk-run network involves following inputs:
Location of supplier and customer(nodes): On the basis of the location of various nodes, the milk-run can be divided in to various regions and under
regions into various sub-regions. For a vast network of nodes a common warehouse concept (groupage traffic) is used. 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, which
ensures maximum utilization of truck load capacity. (see Takashi, p. 2555-2556)
Cost of transport between nodes: After mapping the various nodes, the cost of operation between various nodes is calculated, this cost is a
summation of all the cost involved when a transporter moves between the node. This cost is very fluctuating and hence it is needed to be updated
regularly depending on the present situation. (see Takashi, p. 2555-2556)
Delivery conditions: During the milk route planning, there are various delivery conditions which are needed to be taken care of, for example if a
material from one supplier is needed to be further processed by another supplier, then this condition has to be integrated in the route planning. (see
Takashi, p. 2556)
Plan for every Part: This includes the part size, part weight, packing size, depending on theses factors of the shipment to be collected in one network,
the size of the truck is decided so that the truck can be used to its maximum capacity. This is used in the later stage of the route planning, once the
route has been decided this information is used to decide the type of truck capacity to be used.
Delivery Frequency: In order to avoid the risk of inventory and space in the internal warehouse of the plant, the frequency of delivery is a very
important parameter and is decided on the basis of the class of material. Pareto analysis is done to identify the class of material and for A class
material, high delivery frequency is considered as compared to B and C class material.
The output of the planning is the framework of the network, including the route, time, material and the type of truck to be used.
Milk run network is used to achieve the lean logistics concept of Lot size reduction, increased frequency and leveled flow of material. But with the
implementation of milk-run, the real-time visibility of the network becomes an important factor, which needs to be addressed by to track the material in
real time and hence the concept of WEB EDI is introduced. Web EDI is a tool that acts as an interface and uses internet to connect supplier, transporter and
the main plant. Further to this, 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.
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, the need to develop supplier in north region was not felt. Hence it was decided to use the capacity of already developed
supplier base in South (mainly Bangalore). Depending on the concentration of suppliers in a region three networks were identified:
MR1- Jaipur based- 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- North based- This network collected the material from all the northern based supplier (mainly Delhi) and deliver at the external warehouse.
MR3- South based- This network collected the material from all the southern based supplier (mainly Bangalore) and deliver at the external warehouse.
The supplier involved in milk-run network were in EXW (Ex-Works) incoterm , 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.

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

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.
In order to remain competitive and utilize these benefits automotive companies developed strategies for
their establishment of their International production networks (IPN). The decision for relocation should is
derived from some strategy (see the example below). 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.
The more near the plant is to the customer, the more cost benefit it can be. Apart from the market, the
supplier location also plays a major role. The proximity factor mainly benefits in transportation cost and
custom duties, apart from this the plant more flexible to customer demands.
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). This
gives an estimate for ROI, depending on this value a go ahead is given.
Technology and Skill availability: Depending on the type and age of product, the locations technological and
skill availability is also checked. For products involving skilled labor and high technology, the products are
manufactured in matching environment.
External Factors: Some factors like countries customs laws, governmental norms, trends from previous
experience and exchange price also play major role.
The above mentioned factors are not the reason for relocation but only support in choosing the new site.
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, but it also had market in most of
the developing countries in Asia. Hence the decision was taken to relocate the manufacturing and assembly.
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. Few major reasons for selection of India over other Asian
countries (low wage countries) was 1. Level of education and hence the availability of skilled labor
2. Major Globalization norms to attract foreign investment by Indian government (1990)
3. Prime Location (in terms of proximity to major customers like Tata, Mahindra, Ashok Leyland)
Further to this Bosch follows a centralized and integrated logistics model of Hub and Spoke. 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. 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, p. 166].

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

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

Web EDI: Because of the variety of suppliers from small to large enterprises, 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.
Hence, there are lot of problems when it comes to exchanging data between suppliers and the transporter. In order to counter such
problems Bosch uses an internet based solution from SupplyOn to exchange data among suppliers and transporter. Hence, Web EDI
makes the transmission of data and via internet.
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. The supplier needs to the operation only a PC as well as an Internet access and browser. The
general electronic communication is made possible by SupplyOn Web EDI between Bosch and small and middle supplier. All commercial
incidents like delivery forecast, delivery and transport data, stock movements and self billing invoices notes can be illustrated. Media
breaks by the use of post, fax or E-mail are cancelled. Smaller enterprises are connected directly with Bosch and can use many
advantages of the classic EDI without having to carry, however, the high costs of a conventional EDI solution. (See Robert, p. 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, 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. 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.
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. (see SupplyOn, 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,
transporter and the Bosch plant. 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. Apart from the
tracking it also eases various other operations like electronic invoicing and stock notification to the supplier for vendor managed
inventory. (see SupplyOn, 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. 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. (see SupplyOn, Supplier)
Quality improvement
It optimally integrates the suppliers in Boschs own value added chain and automates the communication processes for all aspects of
your supplier quality management system. (see SupplyOn, Quality)
Toyota on the other hand also uses a similar solution for its functions.

With increase in governmental regulations and customer demand for green supply-chain,
packaging has become one of the important pivot point for consideration.
In order to fulfill the customer demand and follow the regulations Bosch follows 3P
approach, consisting of People, Planet and Profit as the centre of all strategies related to
packaging. 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.
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,
considering the environment.
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 3Rs waste hierarchy as shown below in order of
decreasing preference.
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, p. 18)


The above example which explains, the difference between the process flow in the case of normal packaging
and that of returnable packaging, 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:

Reduction in lot size: Previously with the use of corrugated boxes, the lot size for VE Pumps was 10 per
box, which was decided in order to realize the cost benefit in case of packaging. But due to such a big lot
size there was also an increase in inventory at the customers warehouse, which was managed by Bosch.
So with the introduction of returnable packaging, this lot size of pump was reduced from 10 to 2, which
meant now Bosch was able to supply in term of 2 pumps, there by increasing the flexibility at both the
customer and in the plant.


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 packaging are designed in a way to act
as bins for the production. The unpacking of the material is not needed any more before it is used in
assembly and can be directly loaded into milk-run, that reduces its inbound logistics operation.


Reduction in waste: With the introduction of returnable packaging the waste generation is also
minimized. There is no need of corrugated boxes and also the special bins for the production. Apart from
its re-usability, it can also be recycled once its life is over.

But along with the benefits, there are also few challenges:

Quality: Since the products are directly being shifted to the production line, the supplier needs to
produce high quality products with no defects, because if a defect is detected in the assembly then it
further leads to various repair costs.


Maintenance and investment: though there is a reduction in logistics operations but there is an increase
in the maintenance operations, 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.


Reduced lot size: In order to realize the benefits of reduced lot size the assembly line should also be
equipped for quick change overs.


As per strategy and vision of the company, Bosch realizes the importance of sustainability
and it tries and inculcate this value in every process and every decision it takes. The same
vision also applies to Supply chain and logistics network.
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, these wide
variety of products has caused Bosch to have different supply chain strategies for different
The variety of strategy mainly lies between either being agile or lean. For standard and high
life products it tries and eliminate waste and establishes a le lean supply chain, 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.
Comparing Bosch with Toyota, shows that they both have a different range and level of
product and both have their own tailor made systems. Most of the strategies related to
Supply chain are dependent on their Production systems, though Bosch Production system
(BPS) is derived from Toyota Production System (TPS) but it has it own customization in it.
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, instead it negotiates and fixes a low price through bulking the order for itself
and also its supplier, without investing in the suppliers raw material.
The level of maturity is way higher for Toyota as compared to Bosch but, since the BPS is
still very young as compare to TPS and is continuously improving by incorporating CIP. 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.