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Task 8 Do French cars keep running?
Tutorguide Task 8: Logistics cost – optimising stock
Introduction: After-Sales Vehicle Parts Distribution Critical for Success
(Article by Robert J. Bowman; http://www.glscs.com: Global Logistics & Supply Chain Strategies, 2008)
While well-built cars, trucks and construction equipment are important to retaining customers’ brand loyalty, readily available after-sales parts and service are even more crucial. Here’s how in Europe Volvo, Toyota, and Peugeot-Citroen, support the less glamorous aftermarket side of the business. Automakers like to think of themselves as existing on the cutting edge, but in one respect they are decidedly old-fashioned: In an age of disposable merchandise, they stand or fall on the quality of their after-sales service. An indifferent dealer, a poor repair job, a delayed part — it doesn’t take much to shift customer loyalty to another car company. Managers of the aftermarket pipeline are expected to have critical parts close at hand. At the same time, they are under intense pressure to keep distribution costs down, especially in relation to their direct competitors. For many producers, the answer to this apparent paradox rests in centralized warehousing tied to sophisticated information systems. Europe has proved an especially fertile breeding ground for such solutions, and the emergence of the European Union has encouraged companies to consolidate regional distribution at a handful of points. Nevertheless, there are numerous obstacles to centralization, even within the relatively harmonized EU. Peugeot and Citroen The European distribution strategy of Peugeot and Citroen also assigns top priority to aftersales service. Research by the French automaker shows that 45 percent of customers maintain brand loyalty when they are happy about parts and service yet unhappy about the car. Only 14 percent stay with the brand when the situation is the other way around. In other words, “dissatisfaction due to the vehicle itself is now less important than poor quality of service,” said Jean- Louis Faucher, managing director of spare parts logistics for the PSA Group (Peugeot and Citroen). Repair professionals are equally adamant about high-quality service. They named parts availability as the number one criterion for choosing suppliers, with delivery time second, Faucher said. Price was in seventh place.
“Dissatisfaction due to the vehicle itself is now less important than poor quality of service.” — Jean-Louis Faucher of the PSA Group
Together, Peugeot and Citroen produce around 2 million cars a year in 2000 and already around 3.5 million in 2006, 60 percent of them for export. Ten percent of the $3bn in annual turnover comes from spare parts sales. With new players crowding the after-sales sector, the PSA Group relies on distribution efficiency to retain market share. Any part ordered by 4 p.m. is delivered the following day before 9 a.m. to any service point in France. The daily fill rate is currently running at 97.6 percent for urgent or emergency orders, and 96.1 percent for routine stock renewals. Quality control was reinforced by ISO 9002 certification, helping the PSA Group achieve a 50 percent cut in ordering and handling errors. Average orderdelivery times have been nearly halved as well, with 95 percent of deliveries now completed within
Developed by @R.Mannie Email: firstname.lastname@example.org
Oosterhout.000 in 1996 to nearly 175. with much of the burden falling squarely on logistics. used for SCM purposes.nl . Together those factors will determine the most efficient routing for the shipment of service parts. the automaker expects to achieve reductions of 15 percent in operating costs. the PSA Group faces demands for more frequent shipments to developing markets such as Hungary. has remained at 99 percent for the past four years. based on the average numbers of shipments. Within four years.000 order-lines weekly. SAP. They charge a fixed price monthly. 75 dealers). one of Europe's leading logistics groups and one of the top ten in the worldwide logistics industry.000 by 2006. 100 dealers) and the region Begium and Luxemburg (approx. like Michelin. At this site are stocked 40. As the quality bar is raised. Faucher said. Europe and overseas. while softening the impact of flat growth in aftersales service. Urgent orders are taken care of with night delivery to almost all destinations. The fill rate for emergency orders. Poland and Slovenia. Of course they make use of an ERP –software. Vesoul.Case International Operations Planning five days or fewer. The system is dubbed the “2-3-4 combination. The primary warehouses also will be retooled to concentrate on stock renewals and distinct geographical areas.000 orderlines weekly. and 20 percent in the value of its parts inventories. All of this is taking place against a backdrop of internal cost-cutting. the Centre Benelux Nederland (CBNL) is responsible for the delivery of all spare-parts for Citroën Benelux dealers. three types of transit times (ranging from five days to a matter of hours).000 different spare-parts. The CBNL warehouse is designed and large enough to deliver for Peugeot dealers as well.Mannie Email: ra2nie@zonnet. Most parts are being restocked from France. the number of parts worldwide is increasing.000 monthly. CBNL delivers stock-orders within 5 days (40. divided into region the Netherlands (approx. and four types of frequency (from once a week to twice a day). servicelevel 95% reliability. both in France. The PSA Group has just two primary warehouses carrying complete parts inventories. said Faucher. Meanwhile. And together with the daydeliveries for big stock orders. the number of local suppliers has brought down to a minimum. Another exception in the delivery system are the tyres. Rounding out the network are 24 secondary warehouses. servicelevel 97% reliability). Melun covers France and overseas for Citroen alone. all these transportations movements have to be paid to Gefco. CBNL.” for two types of orders (routine and urgent). Everyday several trucks with material arrive from France to replenish the stock at the Oosterhout facility. from just over 145. Faucher predicted a steep rise in parts reference numbers. Netherlands In the Netherlands. and owned by the PSA Group (!). The cost are €120. while performing 99%!) and urgent orders the next day (26. involving vehicle breakdowns. Transportation is done by Gefco. under pressure of the PSA logistics department. Through steady advances in logistics quality. The revamping of PSA’s parts logistics structure calls for the conversion of primary and relay warehouses to handle both Peugeot and Citroen parts. They also have local suppliers. which are directly delivered from Michelin warehouses (but ordered via Citroën ordering system). but for company reasons (strategic/tactical plans?) this option has been postponed. guided by a matrix that matches complexity of the repair job with order priority and frequency of delivery. half of them operated directly by local branches of Peugeot and Citroen. The facility at Vesoul stocks both Peugeot and Citroen parts for France. despite efforts at standardization. the company has been able to offset the rising cost of overall customer service. Faucher expects the logistics network further to evolve. but. Developed by @R.
The slow movers represent 10% of all orders. slow movers and dead stock. WMS. 45 percent are average or middle fast movers. night and day delivery. They think that somehow they could save money on the slow movers. Approximately 10. overstocked. reducing cost. etc. lead time. latest delivery.000 different stock items. about 1. and the lead time is 2 days. large. understocked. the safety stock level is 25% for category 1 items and for category 2 items it’s 50% of the average weekly demand. In the BT I will come back on this issue when telling students about several aspects of logistics and supply chain management. volume and weight data. Developed by @R.000 items were appropriately stocked and more than 5. the company determined that nearly 20 percent of all spare-parts were fast movers. the company invested approximately €10.000 parts have a value of less than €100 (€50 on average) and have been in the inventory for a sufficient period. This number is again adjusted by 2. They also use a safety stock level of 50% of the average weekly demand. safety level.000 new items on stock. Based on long experience with daily inventory issues.000. Based on the degree of servicelevel and lead times of supply.nl . of which was 0. they have to deal with the available space and the monthly cost of stock per item. Instead of 40. The stock can furthermore be devided into fast movers. The overstocked component represented approximately €80. They have to make use of the so-called EOQ-model (Economic Order Quantity) and reckon with the type of stock.Case International Operations Planning Looking at these large numbers of different spare parts. glass.) Students should practice in calculating order quantities and the total stock cost. ordering costs. CBNL knows which parts belong to which category and gets detailed data out of their WMS. 32. energy included) for past year were 1. They get information about the numbers delivered per week. Other parts have a value of about €300 on average. The cost of holding stock is set at 20% of the value of the items per year and used for both categories under €100 en (largely) above €100. More importantly. facilities. Task description Core of this task is to let students understand the practical implications of making calculations for optimizing the stock of a company. plasics. Many logistic elements are mentioned in the text: distribution strategy.5% would be considered as dead stock. About 5. fast movers. (To rectify the situation. metal.Mannie Email: ra2nie@zonnet. and 2. The WMS is a decision support system for spare parts management.000 items were understocked and could impact customer service levels. in all their varieties. that is concerning the way the reorder levels and quantities are calculated.000 to address the understocked items. electronic components.) The total cost of holding stock (all infrastructures.000 items were considered to be overstocked.5 percent are slow moving parts. For the first category the ordering cost is set €50 per order. More than 25. the logistic center actually needed only 39. and looking at cost development. Through analysis.. small. middle fast movers. For the second category the ordering cost are €75 per order and a lead time of 1 week. etc. stock and urgent deliveries.3 million euros.000.5 million euro for slow movers parts only. Step 1 Finding the key logistic issues. routine stock renewal. emergency orders. service level.000 of the overstocked parts were considered obsolete. the price. the type of replenishment (delivery times. management doubts the liability of their system. slow movers.
average stock. What is the consequence of such a working method/ service level? Why would management doubt the reliability of the inventory system? What kind of system would CBNL make use of? How does it work? How can it work? Which parameters will have to be important? Is there maybe some kind of formula involved? Step 5 2 3 4 5 Learning goals : What are different reasons for holding stock? What is an order point system and which kinds are there? (reorder level system. and how inventory management makes a part of it. from CBNL to dealers). Management indicates a problem they have with their stock levels. especially in relation to slow movers. In other words.875 D-I= D-II= Q-I= Average stock = I = ½ Q + SS (safety stock) Ordering frequency: Total cost: Supply: Av.Case International Operations Planning Step 2 Finding the central problem. Step 3/4 To stimulate the discussion you can ask the following questions: How does the distribution system work? (From France to CBNL. they want to optimize their stock. What is the EOQ formula? On which assumptions is the EOQ formula based? Why is this often questionable in practice?! What do ERP.000 parts D = 165d*17. and want to reduce their cost by finding a way to lower the stock levels. given in TG Business Trainings During the business training students will get more insight in logistics management in general. SCM.Mannie Email: ra2nie@zonnet. ordering frequency and total cost of slow movers per category.000 * 50 weeks = 165.nl . Value) D= 33. Slow movers : 17. K: Ordering cost.5% = 28.000 = 6650 parts Category I (<€100): ¼ * 6650 = 1663 Category II (>€100): ¾ * 6650 = 4988 Q = √ (2 x D x K / I) = D: Demand per year. Stock * I + Ordering cost: x times x cost per order.5% of 38. by making use of an Excel-sheet *** Q-II= Developed by @R. *** The exact calculation will be given during the trainings. and MRP1&2 mean? 1 What does inventory management imply? 6 Theory : Handout. Step 7: (LG1) Calculate the order quantities. Operations management. cyclical review system). I : Inventory cost (% of inv.
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