DAIKIN INDUSTRIES

SUPPLY CHAIN
MM5004 – OPERATIONS MANAGEMENT
ITB BLEMBA 21

SYNDICATE 1
Aditya Suherman Ahmad Putra Arifin Tahir
Aditya Octoputra Achmad Rifaie De Jong
Aditya Satrio Prabowo
Aditya Septiana
 1. OVERVIEW OF DAIKIN CASE

Daikin Industries is a manufacturer of Home AC Units.

Problems in Japan, its main market for home AC (97%)

1. Low and Decreasing Market Share (9%)
2. Stagnant Market
1. Long life of product (10-12 years)
2. manufacturers compete for replacing existing installations
3. Low Profit Margins
Customer Priority
1. Speed to Installed -> make or break for retailers
(Delivery above 3 days = lost sales)
2. Level of Cooling
3. Price
 2. ISSUES WITH SHIGA FACTORY
Shiga Factory: Daikin’s only manufacturing base for home AC
During 1997, about 670K units produced.

ISSUES
1. High seasonality (5 months) High FG
2. High number of variations (600) Inventory:
3. Forecast too optimistic Avg. 86 days
4. Frequent lost sales during peak time
5. Unsold Inventory at 4% (units prod – units sold)

Factory produces during down and peak time.

Mixed-model manufacturing (50-70 SKU/day)
Plant is at full capacity during Jun-Jul.
However, sales were frequently lost
During peak time (cannot promise delivery)
 3. DAIKIN SUPPLY CHAIN
DAIKIN relies on 21 SALES COMPANIES DAIKIN does not have EXCLUSIVE RETAILERS. It
to forecast sales as Pre-PO (> 1 month due). sells in Independent Retailers (compete with other
Supplier
At 1 month Due, becomes PO -> Produced brands)
3. Order Parts
F: Monthly

4. Deliver
Parts
DAIKIN2. Forecast
1. Discuss Requirements
or Buy RETAILER
F: Weekly Pre-PO (>1Mo.) F: Continuous CUSTOMER
BUYER
F: Monthly 9. Buy
SALES
SHIGA 10. Order
COMPANY
Factory 6. Sell
5. Oblige to Sell PO F: Continuous WAREHOUSE STORE
F: Monthly 11.
Sell &
Deliver
7. Deliver Finished Goods 8. Deliver Finished Goods
F: 1-2 per Week F: Weekly (esp. Monday)
Sales forecast based on experience and retailer D:1-2 Days
requirements. Optimistic. D: 1-2 Days
Sales Companies do this to avoid stockouts.
Sales Companies doesn’t know Retailer Inventory
 5. DAIKIN PRODUCTION LAYOUT
INDOOR UNIT DELIVERY
AUTOMATED LINES

ASSEMBLY LINE INSPECTION

Process is
Build-to-Stock at down time
& COMPONENTS
Build-to-Order at peak Plastic Outer Cover,
Steel Inner Frame,
Heat Exchanger PACKAGING
COMPONENT
STORAGE
OUTDOOR UNIT
AUTOMATED LINES ASSEMBLY LINE INSPECTION

Refrigerant Tubing
COMPONENTS

Average Finished
Goods Inventory Days: INVENTORY
Average Flow Time is 138 Minutes
Output is at 670,000 for 1997. 86
5. STRENGTH AND WEAKNESS OF SHIGA FACTORY

Strength : Weak :

Not adaptable according to demand

Widest Product Line up Lack of distribution warehouse (high
Distribution logistics directly from factory to inventory)
retailer Forecast dependent by sales company
High Variability of the product

Opportunity : Threat :

Highly Bargaining position of Competitors

Expand area (grab new market outside japan)
Unpredictable peak summer season
Market saturation
 6. WHAT MANAGEMENT SHOULD DO
SHORT TERM
Reduce cost, increase margin, gain share
1. Improve Forecast accuracy
A. Create incentive for
accurate forecasts
B. Approach Retailers to create
open inventory initiative
C. Adopt guarantee form or IT
solution for data collection
D. Work with Climate Agency
2. Consolidate Product Lines
A. Maximize design
commonality between
product cycles
B. Involve Sales Companies
and key retailers in Product
Line consolidation effort.
C. If possible, create flexible
design (to cater > 1 needs)
LONG TERM
Gain Market Lead
3. Improve Production Process 1. Create exclusive retailer
A. Change from build-to-order relationships
to assemble-to-order: 2. Move to lower-cost basis country
prebuild common to serve domestic & emerging
components & forecasted market (next slide)
customized components
B. Increase prebuilt common
components during down
time
C. Use increased capacity as
buffer during peak time
D. Separate Assembly Line
between common variants
and rarer variants
 6. MOVE PLANT TO LOWER-COST COUNTRY
Japanese Market is Stagnant.
Daikin must catch the emerging market to improve its position
This means building manufacturing capability on location.
One location that is close by and has a huge potential is China
A move to China should consider and mitigate all risks.
However, we feel it is inevitable in the future.
UPSIDE RISKS
Lower Labor cost Longer supply chain
Lower material cost (local) Lower Quality perception
Closer to huge market Supplier quality
Potential culture clash
High capital requirement
 QUESTION?

NOTES : FINAL EXAM WILL BE COMING NEXT

GOOD LUCK, STUDY WELL