Proceedings of the 13th IFAC Symposium on

Information Control Problems in Manufacturing

Moscow, Russia, June 3-5, 2009

Impact of Inbound Logistics on Design of Production System

G. Neubert*, P. Bartoli**

* School of Management ESC, 51-53 cours Fauriel, BP29 42009 Saint Etienne cedex 2 - France

Liesp Laboratory - e-mail:gilles_neubert@esc-saint-etienne.fr

**Renaul trucks, Internal Logistics Engineering Manager, 402 av. C de Gaulle, 69635 Venissieux Cedex- France

Abstract: In today economy, companies tend to focus on their core competencies and to ever more
purchase materials, products and services. This specialisation leads to a highly interdependent business
structure where companies have to re-design their products and their logistics and production systems to
be more efficient. This paper deals with the design of the production system for a future truck launch in
2012. It is based on the so call “fishbone plant”, a short main assembly line where Sub Assembly Lines
are linked. The objective is to define the inbound logistics organisation that optimizes the total cost of
acquisition of the modules.
Keywords: production system design, inbound logistics, modular product design, total cost of acquisition,
Logistic Service Provider, Supplier Advanced Facility, fishbone factory.

1. 1. INTRODUCTION Outsourcing primary activities, those that are directly

Today, globalization and technological innovations call for
improved organizational adaptability and more flexible and
advanced systems relative to manufacturing, logistics,
engineering, information and process technology (Momme,
2002). In order to face the demands of the current business
environment, companies have developed considerable efforts
to break down both intra and inter enterprise barriers with the
aim to establish new kinds of relationships with their
environment. A closer relationship enables the partners to
achieve cost reductions and revenue enhancements as well as
flexibility in dealing with supply and demand uncertainties
(Bowersox 1990, Lee et al. 1997, Bowersox et al. 2000).
Based on transverse and customer oriented organizations, the
concepts of Supply Chain (SC) and Supply Chain
management (SCM) have been widely developed.
concerned with creating and delivering a product, have a
great impact on the supply chain network design. It directly
impacts the core competencies required from the suppliers
and partners in the chain, as well as the manufacturing plant
structure, and finally the product and production system
design.
In this context, it is of a great importance to integrate most of
these make or buy considerations in the earliest stages of the
design phases. Especially in the automotive and truck
industries, the problem is not only to find a specific supplier
once the final product is design, but to design the product so
that it can optimize the logistics and manufacturing flows,
integrating the best competencies at the minimal cost.
2. 2. MAKE OR BUY

To increase their own performances in the supply chain,
enterprises tend to focus now on their core business and to
outsource non-core activities. Outsourcing is an approach that
consists in making carry out by an external partner an
activity, which has been carried out until then internally. As
indicated by Abdel-Malek et al. (2005), outsourcing targets,
on one hand, the concentration of the company on its key
competencies and, on the other hand, economies of scale.
It first concerned support activities such as accounting, HR or
facilities management for example, and progressively,
impacted more sophisticated ones such as transportation,
logistics or production.
Today's competition leads companies to re-design their
existing processes, technologies, products and services in
order to focus on their core competencies. In that context,
enterprises outsource a part of their activities in order to
establish partnerships and privileged alliances, allowing
better external collaboration. A study from Rabinovich et al.
(1999) on the outsourcing of different logistics activities
shows that customer service could be improved and costs
reduced by outsourcing diverse logistics functions such as
internal logistics of production sites or transport
management.
In this context, Supply Chain design consists in defining the
main actors involved on the process flow, and the best way of
achieving the goal meeting the customer’s requirements.

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Moscow, Russia, June 3-5, 2009
Specifically, in the make or buy dilemma, one of the main
question in the design phase is to find elements to decide
whether it is better to do it by yourself, or to outsource the
activity to a supplier or a partner. This decision, whether to
produce a component part internally or to buy it from an
outside supplier involves both qualitative factors, such as
product quality, risk management, etc., and quantitative ones
such as cost saving, lead time reduction, and so on.
Especially, by contracting with partners specialised on their
domain, enterprises can decrease the costs associated with
physical plant and warehouse, specialized IT systems and
equipment, and so on.
Platts and al. (2002) developed a framework to identify why
operational make-or-buy decisions are made and showed
relevant dimensions to be studied in approaching such
decisions. Their framework suggests four areas that need to
be considered when make-or-buy decisions are made:
technology and manufacturing processes, costing, supply
chain management and logistics, and support systems.
Obviously, this choice to focus on core activities and to
outsource some of the others, leads to an increasingly
dependency of business organisations and a greater
complexity of the supply chain. Supply Chain Management
consists then in seamlessly coordinate the activities of a
company with those of its partners, so that several companies
can finally act as a coherent, functional unit.
One relevant question is to understand how companies are
sourcing competencies in the value chain. A systematic
analysis of the value chain can facilitate effective outsourcing
decisions. Therefore, it is important to have an in-depth
understanding of the company’s strengths and weaknesses in
each activity in terms of cost and differentiation factors
(http://university-essays.tripod.com/value_chain.html).
The value chain concept developed by Porter (1985)
describes activities within an organization. It is a systematic
approach to examining the development of competitive
advantage and consists of a series of activities that create and
build value. The organisation is split into “primary activities”
and “support activities”. The next paragraph of this paper will
focus on the design of one of the five primary activities: the
inbound logistics activity.
3. INBOUND LOGISTIC
As supply Chain management focuses on customer needs,
much attention has been paid to the outbound logistics.
Customer’s demand is different from one to another; for that
reason, companies have customized their outbound logistics
services to fit the needs of specific customer’s segments. In
that sense, under the control of the marketing department
who plays a major role by clustering customer needs, a lot of
works have been done to design the distribution networks.
Appropriate channels have been defined, such as direct
selling, Agent (selling direct on behalf of the producer),
Distributor (also called wholesaler who sells to retailers) and
Retailer (also called dealer or reseller), who sells to end
customers.
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Pointing out this asymmetry between inbound and outbound
logistics’ innovation, Chatur (2005) wrote that”… one of the
most neglected areas of the manufacturing (and retail) supply
chain is the inbound logistics segment. Managing outbound
logistics has always been the strength of the Supply Chain
organization (at manufacturers and retailers)... Similar to the
Marketing department, the Purchase (Procurement)
department has its own unique set of requirements for
inbound raw materials/ work-in-progress and other inbound
material. In addition, modern JIT manufacturing methods
push the Procurement Manager to aim to achieve lowest
inventory models, often at the expense of higher inbound
transportation costs. There is an inherent conflict in
balancing the Just-in-time manufacturing practices (low
inventory, shipment sizes, frequency of shipments) with
inbound logistics and transportation needs (low cost,
visibility of goods).
For a long time now, automotive industry, one of the most
innovative sector, has experimented different ways of
sourcing. Miemczick and Holweg (2004) wrote that there are
a range of options at hand for organizing an inbound scheme.
They described four collection and delivery strategies,
contingent upon delivery volume and frequency, but also
dependant on physical dimensions of the components and
geographical factors: Direct Collection from Suppliers, Direct
Delivery - Supplier to Assembly Plant, Milk-run Supplier
Collections, and Cross-dock Consolidation and Delivery
Direct Collection from Suppliers
• Collection has a dedicated link, whereby the
collecting truck only collects parts from one supplier
site.
• After the collection, parts could either flow through
the cross-dock or are directly shipped to the
assembly plant.
• Common for high-volume or bulk components and
remote suppliers.
Direct Delivery - Supplier to Assembly Plant
• Supplier dispatches trucks with only their
components directly to the vehicle manufacturer
plant.
• It’s a rare case for few high-volume suppliers.
Milk-run Supplier Collections (Often associated with JIT
operations in order to reduce the cost of smaller lot sizes)
• A third-party owned truck visits more than one
supplier, collecting components for delivery to one
plant or other in-transit points.
• Milk-run collection either leads to a direct delivery
to one assembly plant or consolidation in a cross-
dock.
• Most common arrangement in the automotive
industry.
Cross-dock Consolidation and Delivery
• Consolidation points allow for components to be
unloaded and reassembled into new outgoing loads
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Moscow, Russia, June 3-5, 2009
in a different sequence, together with parts from
other milk run collections.
• Used with direct collections and milk-runs where
volumes do not justify dedicated trucks or suppliers
have components destined for several plants of the
same manufacturer.
From now, main focus on logistics optimisation has been on
inventory management and control. A lot of works have been
carried out on the independent optimization of inventory
levels. To overcome the local minimization of costs for either
the vendor or the buyer, and to move toward the global
minimization of all costs for the two parties, it is essential to
optimize the logistic process as an integrated system and to
exchange information about production, demand and
shipments data (Persona and al., 2005).
To deal with the objective of global performance in the
supply chain, new business processes have been implemented
these last years on the logistic segment. They generally imply
a new way of managing relationships, more collaborative,
between a company and its partners. Derrouiche (2006)
proposed a synthesis of some of these methods such as Quick
Response-QR (Troyer and Denny 1992), Efficient Consumer
Response-ECR (Kurt et al. 1998), Continuous Replenishment
Policy-CRP (Alberto and Zamolo 2005), Vendor Managed
Inventory-VMI (Jonah and Hui-Ming 2003), Collaborative
Planning, Forecasting and Replenishment-CPFR (Vics 2006)
and Synchronized Consumer Response-SCR, Rapid
Replenishment-RR and Centralized Inventory Management-
CIM (Disney and Towill 2002).
In this context of innovation on inventory management and
collaboration with partners for replenishment optimisation,
suppliers or third-party logistics companies have taken a
range of additional responsibilities including the management
of local warehouses. Techniques, like Supplier Advanced
Facilities and Consignment Inventory, have been
implemented. By this way, the supplier holds part of his
inventory at his customer location (in his store or warehouse)
and allows him to consume directly from this stock. The
customer purchases the inventory only after he has resold or
consumed it.
In many cases now suppliers want to be near their assembler
customers to achieve short and fast supply. By locating their
factories in a close proximity to their customer, suppliers
have enabled spatial and organizational integration. Finally
suppliers or logistics partners have extended their activities to
the overall management of customer’s inventory and inbound
logistic. The ultimate integration is achieved when supplier
and customer operations are tightly synchronized with
sequenced-in-line supply (SILS).
To design the global organisation for producing and
distributing new products, companies have to take into
account these different items:
• module design, shape and complexity,
• module assembly line,
• make or buy parts, sub modules or modules,
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• location and competency of the partners
• etc.
These choices have a great impact on the reactivity and
flexibility of the whole supply chain and finaly on its ability
to be reconfigurable depending on the consumer demand
evolution, in term of volume, but also in term of product
redesign.
Especially, in the case of large volume with great variety of
final product, like in car or truck industries, the production
process design of the assembly line is depending on the
splitting of the production and logistic activities between the
car manufacturer and the suppliers and logistics providers.
The next paragraph will describe a case study carried out
with Renault Trucks (RT) Company to help in the design of
the assembly line for a new truck for 2012. Especially, it will
present how the inbound logistics considerations are taken
into account in the design process to optimize the total
product cost.
4. CASE STUDY
Some research projects have addressed the problem of design
for production management, design for postponement or
design for logistics. The case study described in this paper
focuses on the integration of inbound logistics consideration
in the design of a product and production process in Renault
Trucks (RT) Company.
4.1 The fishbone factory
Truck manufacturers, as well as automotive ones, have
moved from the design, production or procurement of
discrete parts to the design, production or procurement of
modular systems. The manufacturing system is actually based
on a so call “fishbone plant”. It is made of a short main
assembly line where sub assembly lines, producing or
sourcing modules, are connected (see fig. 1). The main
advantage of modularity is the ability to integrate new
product variations quickly and at low cost, by mixing and
matching components within modular product architecture
(product variation can occur in pre-assemblies).
Each physical module, made for a specific functionality of
the final product, is designed so that it results from the
assembly of independent sub modules. The design must also
integrate standardized interface, so that the connection of the
sub modules can be facilitated.
Fig. 1. Design of the fishbone factory
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4.2 Designing of a physical module
The objective of the inbound logistics is to make the right
part available at the right place at the right time in the right
quantity. This just in sequence organisation must ensure a
high level of quality of service to the production plant. The
aim is to design the product / process and inbound logistics
organisation to achieve the lowest total acquisition cost.
As a starting point, this project concerns the Physical
Modules of the new Cabin design for the future vehicle that
will be released in 2012 by Renault Trucks. The company has
identified 22 modules such as cockpit, seats, doors, insteps,
rear cab suspension attachment, etc., that need to be studied
to improve flow and production management of the new
cabin.
The global development process of the truck includes the
inbound logistics impact. As the company is not starting from
scratch, it was asked to the logistics department to extract
from the previous projects and the existing manufacturing
processes of the actual trucks all the useful data, in order to
propose an optimal organisation for the future truck’s
Inbound Logistics.
As the inbound logistics is going from the supplier’s shipping
point, to the point of consumption on the assembly line, the
main activities carried out on this process are:
• Packaging.
• Transportation (including packaging return and extra
transport).
• Warehousing and inventory management.
• Kitting, repacking, etc.
• Handling (internal and external).
• Linefeeding.
• Etc.
The decision to keep inside or to outsource one module or
one activity on the process is based on one side on the Total
Cost of Acquisition, including the logistics costs, and on the
other side on physical criteria such as:
• Module/process complexity
• Size of the module and size of the preparing order
area
• Workers knowledge and competencies
• Existing of Painting parts in the module,
• Etc.
The objective is to take into consideration all the constraints
and various costs due to the inbound logistics, in order to find
the optimal solution in terms of organisation, plants,
warehouse, flows and costs.
4.3 Inbound Logistics alternative for process design
The actual inbound logistics organisation for the main cabin
assembly flow involves different partners running on the
production site:
RT: the truck Assembler.
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It is involved in the inbound logistics for most of the parts.
The main operations to be done on this process by RT are:
• Sourcing and replenishment of the parts
• Goods receiving
• Warehousing and inventory management
• Kitting or Kanban from stock
• linefeeding from warehouse, kitting area or sub
assembly lines
• Packaging management and return
LSP: Logistic Service Provider.
It is in charge of some inbound logistics activities, such as
internal sequencing. Under the control of RT, it is doing
goods receiving from different suppliers, warehousing and
picking in order to deliver in a synchronous or sequenced
way the parts to the assembly Line.
SAF: Supplier Advanced Facility.
It is autonomous; located very close to RT production site; it
is running a production cell in order to deliver in a
synchronous way its sub modules to the assembly Line.
These different ways of organising the inbound logistics from
the supplier’s shipping point, to the point of consumption on
the assembly line have big impacts on the global
development process:
• Design of the product: number and types of modules
• Design of the modules and sub Modules: size,
splitting, interdependence of the sub modules
• Design of the main assembly line
• Choice of the partners: SAF, LSP or internal
manufacturing
• etc
The design team of the new truck has requested the logistics
department to optimise their process by studying the impact
of the inbound logistics choices to the total cost of raw
material/modules when they arrive on the assembly line.
In the actual configuration, the inbound material flows can be
divided into 3 categories (see figure 2):
1. Batch supplies from local suppliers, if they are within
3days of normal transport and handling time, or from a
pick up point.
2. Small parts supplies operated by one tier supplier. This
supplier has the full responsibility to purchase, procure,
transport, store the goods, and supply them up to point of
consumption.
3. Modules and sequenced supplies from a nearby facility to
timely receive the module from the supplier in line-
sequence and in one single flow at the point of use. This
sequencing can be achieved from the supplier location (if
it is within the lead-time), a Supplier Advanced Facility
(possibly within the plant), or a pick up point or Logistic
Service Provider.
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In the Inbound logistic process, from supplier’s shipping For each operation the unit logistic cost was either calculated
point to the point of use on the assembly line, 3 different using information’s extracted from the actual data bases of
segments are identified: external (from supplier to RT the company or estimated by modelling and measuring the
company), internal (From raw material to point of use on the actual situation. Here are some examples of unit logistic cost:
assembly line) and modules.
• Administrative cost
• Inventory value
• Inventory capital tied-up
• Setup cost
• Volume cost
• Square meter cost
• Handling cost
• LSP Cost
• SAF cost

4.5 Application to the cockpit of the Cabin

A simulation was done on the cockpit sub module of the

Cabin. The total number of parts in the sub module was
extracted from the Bill of Material (BOM) in the ERP and 3
Fig. 2. Inbound logistics flows hypotheses were simulated as a first step:

• H1: Actual organization with the inbound logistics

4.4 Inbound logistics and Cost evaluation activities run by 3 actors: RT, one SAF and one
LSP.
Once the different sourcing options are known, the objective • H2: All the inbound logistics activities run only by
of the logistics department is to understand where the costs RT.
are. The optimal choice for inbound logistics relies on the
control of how the product is brought to the production line, • H3: Buy the cockpit as a module manufactured by a
i.e. to define for each component or sub-module, the best SAF and in this case, all the inbound logistics
organisation from supplier to point of use on the main activities are only run by the SAF.
assembly line.
The results of the simulation highlight different points such
To test different scenarii, an application was developed to as cost splitting, level of investment for RT, or direct labor
simulate various inbound configurations. The principle is depending on the inbound logistics solution (see fig. 3 and 4)
similar to the method used to define the production standard
cost by using product’s manufacturing data sheets. In Other results such as square meters used, or volume of
operation management, the routing document usually details packaging, number of references moved, are also available.
the way of producing a particular item, including operations
to be performed, their sequence, work centres used etc. This
document describes the path a product follows on the shop
floor as it is manufactured through the production process. It
describes the sequence of the manufacturing operations, how
operations are performed, the type of equipment required, the
tools to be used, etc., and permits both scheduling and
standard cost calculation. The objective of this work was to
define a similar inbound logistics data sheet in order to
simulate different configurations.
First of all, inbound logistic operation’s were identified. For
example, 12 distinct operations were identified for the
module’s flow and 24 operations for the internal flows (From
raw material to point of use on the assembly line) such as:
• loading,
• unloading,
Fig.3. Inbound logistics costs
• transferring between buildings,
• kitting,
• picking,
• packaging return,
• etc.

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Moscow, Russia, June 3-5, 2009
Fig.4. Inbound logistics resources utilisation
6. CONCLUSIONS
In the paradigm of modern business, the concept of supply
chain has been widely adopted as a network of facilities that
move, stock and transform goods. The problem adressed in
this paper was how to configure a new product’s supply
chain, especially its inbound segment. There are different
possible configurations, and each of the options is
differentiated by its production time and direct cost added.
Given these various choices along inbound logistics segment,
the problem is to select the options that minimize the total
cost of acquisition.
In the case of big manufacturers, the design of the production
system depends on what part of the product is made or
assembly by the manufacturer on the manufacturer site and
what part is sourced as a part or a module. One key issue is
whether the considered activities are in the core business of
the manufacturer or not, and another is the minimisation of
the cost of the final product.
One of the 8 Logistics Golden rules defined by the Volvo
group relies on the « lowest total acquisition cost ». It is
essential for the company’s performances and mandatory for
suppliers’ selection. In this case, there is of great need for the
company to be able to simulate the impact of inbound
logistics configuration on the total cost of acquisition. This
paper has presented a first step in this direction. A prototype
was developed on a single module to evaluate the feasability
of simulation and the results are promizing.
As a conclusion, lowest Total cost Acquisition must be
consisered as one parameter in the strategic decisions of the
company. Defining and evaluating the elements that
constitute the cost of a part helps in understanding what parts
and processes to select as company’s activities and what parts
and processes to outsource. Especially in the product design
phase, where people from different department work together
in a multidisciplinary team, it gives good basis for decision
making.
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VICS: Voluntary Interindustry Commerce Standards
Association: www.vics.org/committees/cpfr/.