Supply chain management is a vast topic, with a lot of material written about and on it. This part of literature review will give an over view about different supply chain models, but majorly we will discuss the model of Build to Order supply Chain. The concepts of Build to Order Supply Chain along with its differences as compared to the other type of designs and strategies in supply chain. After the conceptual section, a thorough learning will be done in the automobile industry in relation to the build to order supply chain. The entire conceptual segment and other theories will assist us in the development of the problem questions in our research.
Supply Chain Design
When a supply chain is designed perfectly to fit accordingly with the product or service, a lot of benefits can be derived and might enforce the product flow athwart the value chain. Compatible supply chain design also helps in countering to the varied customer demands. Making and designing the supply chain is not the end of chapter, the duty of the supply chain manager starts fright after the designing phase. The supply chain manager has to cope with the different dimensions of the industry along with efficient implementation of the supply chain model and design (Reeve & Srinivasan, 2005; Collin et al 2009).
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The two well known critics Reeve & Srinivasan (2005) in the field of supply chain management explains four major kinds of supply chain designs is relevance to their pros and cons as well as the features and different strength of those models. They also placed this duty on the shoulders of supply chain manager that he should be competent enough to identify the need for changes and should modify the plan and supply chain design according to the requirement of the situation.
Four types of Supply Chain Designs
Reeve & Srinivasan (2005) have elucidated that every product reaches its end consumer more or less through any one of these four basic supply chain model structures.
There are different types of products and their supply chain designs differ with each type. Products which are low involvement products on the consumer's part are supplied through Build-to-Stock supply chain. Low involvement or low-value products do not offer a provision of customization or configuration, the customer has to buy what is supplied to the retail outlets or directly from the storage house (Blanco, 2002).
Products which follow build to stock are usually daily consumables like soaps, detergents, toothpaste etc. Consumers want a quick delivery of such products usually rather than order and then wait for the ordered product carrying the special features and specifications which it was made to order for, therefore Build-to-Stock supply chain is best for such cases as the price of such products is also low like the involvement, Build-to-Stock supply chain does not offer any kind of flexibility of choices to the customers (Blanco, 2002).
Configure-to-Order is much more complex and difficult type of supply chain to be implemented effectively and efficiently in practical life. Configure-to-Order supply chain offers the customer leverage in choice in the configuration and specifications of the product. This model of Configure-to-Order is mostly implemented for the products like computers, cars, laptops etc. where there is a margin of customer's choice and customization in the product. However the product is formed through already stocked inventory of raw materials or parts (Papadakis, 2003). Customer however has to wait after he/she places an order till the final product is delivered to him to be utilized and enjoyed (Miller & Wacker, 2000). This is one of the aspects which are difficult to handle for a supply chain manager in a product like car, because there the need for minimization of Order-to-Delivery lead time arises. Order-to-Delivery lead time is the time from the point of order till the event of delivery of order takes place. A customer is satisfied if he gets his specified product quickest possible. Therefore responding to the customer's need and satisfying him becomes a task in Configure-to-Order supply chain. The automobile industry is currently trying to put the Configure-to-Order model of supply chain into action with the support of their suppliers and contractors. Some of the automobile companies are trying to reduce their Order-to-Delivery lead time from months to weeks, and those currently in weeks to days (Willcox, 1998; Reeve & Srinivasan, 2005).
Always on Time
Marked to Standard
Different customers demand differently. Therefore to cater the needs and demands of such customers who want the product completely on their specifications including the type of material and parts to be used in the ordered product, Build to Order supply chain is used. Build to Order supply chain is similar to Configure-to-Order; with a slight difference that here in Build-to-Order even the raw material is of customer's choice. The process of Build to Order supply chain starts from the point when customer places an order with specific configurations as well as material requirement. Once the order is received with all the details, then the suppliers are contacted and asked for the production of specific material or parts required for that ordered product. Therefore a very firm relationship should exist between the dealer and producer. Customer enjoys very high customization in Build to Order supply chain model. That is why products developed from Build to Order supply chain are costly (Fredriksson & Gadde, 2005).
The fourth and the most difficult and expensive design of supply chain is Engineer-to-Order supply chain. Engineer-to-Order starts from the inception of the product that is the designing of the product takes place after the customer has ordered for it (Gosling & Naim, 2009). Such products are actually customized products because not only just the material or parts are of customer's choice but the complete idea of the product is to cater a specific customer's need. Such products are usually less in number and therefore transported in single product at a time to a customer. Examples of Engineer-to-Order are space shuttles, sports bikes and cars etc (Reeve & Srinivasan, 2005).
Build to Order Supply Chain
As the competition is increasing day by day in the market, each company belonging to different industrial sectors are striving to maintain their market share through modifying and changing their strategies and also by controlling their operational management. This is done to secure their existence in the market as well as to sustain and increase their revenues (Gunasekaran & Ngai, 2005).
The aspect of business which companies have found to be most profitable and lucrative if managed and designed properly is Supply Chain management and therefore a lot of manufacturers are going for the option of Build to Order Supply Chain (Parry & Graves, 2008; Gunasekaran & Ngai, 2005).
Build to Order supply chain is kind of amalgamation of different strategies if supply chain like Just-in-Time, Lean manufacturing and also Agile manufacturing. Lean manufacturing in itself incorporates Just-in-time strategy in it. Lean manufacturing focuses on least waste or resources, efficient operations with the help of least inventory to manage. JIT plays a pivotal role in lean manufacturing because Just-in-time reduces the inventory stocking and directly transfers the product to the customer (Hallgren & Olhager, 2009). The another approach which forms Build to Order Supply Chain is Agile manufacturing which deals which responding and reacting to the changes in the environment may these changes be due to internal factors or external factors like the sporadic demands and needs of the customers. Agile manufacturing not only counters these uncertainties but it also converts these uncertain factors into opportunities and get benefit out it by coming up with innovative ideas about new products in the market. All these three approaches when combined together form build to Order Supply Chain (Narasimhan et al., 2006).
Build to Order Supply Chain is flexible system which provides the facility of self-chosen specifications to the customers. In this kind of system the customer directly interacts and deals with the Original Equipment Manufacturer, without having to deal with the retailers and middle dealers. But the manufacturer should provide such display place where the customer can communicate with the manufacturer and place an order with specifications (Parry & Graves, 2008).
Manufacturers who follow Build to Order supply chain follow build to Stock approach with few of their suppliers where the need of specifications does not intercede, for example, if Toyota Car manufacturer uses Build to Order supply chain, they can have its suppliers for tyres and other less costly parts of cars, following Build to Stock supply chain. They do not have to wait for the order to start their production. Tyre manufacturer delivers its stock in advance. Parts like car engines or interior cloth design can have specifications and variety, therefore companies use Build to Order manufacturing model (Parry & Graves, 2008; Gunasekaran & Ngai, 2005).
Difference between Traditional Supply Chain Management and Build-to-Order Supply Chain
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The most prominent difference between the tradition and Build to Order supply chain is that in traditional supply chain, customer is catered from already produced bulk quantity of the product however, in Build to Order supply chain customer is dealt with royal treatment and their needs are fulfilled with their own choice and type of product. In traditional supply chain, logistics is done on the bulk basis; large quantities of product are distributed at same time to reduce the cost, while in Build to Order Supply Chain, the main focus is customer's needs and so the delivery method is also recognized by the specifications provided by the customer. Build to Order supply chain has flexible and fluctuating supply chain that is no proper trends can be recognized however in traditional supply chain the target is carry and sustain a stable production throughout. The biggest drawback in traditional supply chain is the large Order to Delivery lead time, on the contrary that's what companies choose Build to Order for, to minimize the Order to Delivery lead time to its most (Gunasekaran & Ngai 2005).
Build to Order Supply Chain: Objectives
Gunasekaran & Ngai (2005) explain few major objectives of Build to Order supply chain:
Build to Order supply chain identifies the best possible range of associated products keeping in view the needs of the consumers.
Determining the perfect core competency in relation to the product with added values.
Minimize the cost of supply chain.
Build to Order creates a completer format of information flow in an organization, identifying the ways and methods through which information which flow.
Build to Order Supply Chain: Responsiveness & Flexibility
As the world is becoming more global and is changing day by day, type of customer needs are changing in the same way. Due to many reasons like advancement in the technology, change in taste and preferences, companies need to be flexible enough to respond to the changes in the external factors which influence the customer's behaviour and in turn affects the business of the company (Hsu & Wang, 2004). Thus, companies are focussing on becoming more and more responsive and flexible. The model of Build to Order Supply Chain helps the companies to become flexible and responsive because this model of Build to Order Supply Chain is based on being flexible enough to cater to the specific and unusual needs of the customers and respond on time to make the customer satisfied and happy. Where this model of Build to Order Supply Chain is delicate and a bit complicated, it saves the cost of inventory storage and cancels the dependency on the future predictions of trends and also the working capital management (Waller, 2004; Fredriksson & Gadde, 2005).
Working and following the model of Build to Order Supply Chain makes the manufacturing of the company strong to counter to the altering demands in the market. Build to Order Supply Chain requires a very firm and long lasting relationship management with the suppliers and dealers of the raw materials and parts and also with the middle components assembly line dealers. There needs to be a strong bonding even with the distributers. There are a lot of differences between conventional supply chain and Build to Order Supply Chain. Because in conventional supply chain, the work-in-process inventory as well as finished goods inventory is maintained at the end of the day but in Build to Order Supply Chain model there is no work-in-process or finished goods inventory maintained. The orders are collected, assembled and delivered. No inventory in hand (Wagner et al., 2003).
Dimensions of Build to Order Supply Chain
Table (1) The three dimensions of the Build to Order model (adapted from Holweg &Pil, 2001)
ï‚§ It connects the customer demand to the production directly to avoid the intrusion of forecasting in decision making.
ï‚§ Does not depend on the inventory stored of finished goods; rather bring the customization closest to the customer need.
ï‚§ Coordinating with the staff and the dealers in order to take full advantage of the full capacity rather than relying on it.
ï‚§ It links all the suppliers and dealers, so that each player knows his part.
ï‚§ Understanding the cost of the alternatives and then planning the product range.
ï‚§Expand the plants of production to control the high volumes of production.
ï‚§ Updating the sales information in the supply chain system to avoid any order delays.
ï‚§ Creating the systems so strong in order to become more responsive.
ï‚§ Attract customers through reasons like gifts rather then cutting off price.
Optimization through the whole value chain, instead of only in certain division(Table 1)
Build to Order Supply Chain: Factors that Affects
The factors which affect the Build to Order Supply Chain model are the rising manufacturing cost because of the clash between varied customer needs and the decrease in the efficiency of the operations (Berry & Cooper, 1999; Salvador et al, 2002). Researchers say that this rising of the manufacturing cost and the its affects on efficiency has a negative impact on the economies of scale, that is instead of having decreasing costs with every increase in production, companies experience an augment in marginal cost when production is increased which finally leads to the cost of being flexible. (McCutcheon et al., 1994; Fisher & Ittner, 1999)
Build to Order Supply Chain: Benefits
Build to Order Supply Chain model helps the company and the manufacturer to be updated and modernized automatically because the customer orders the product in accordance to the changes in the market, so the company in catering and responding to the needs and requirements of the customer individually, it becomes up to date in comparison with the market. This is one of the benefits of using Build to Order Supply Chain model (Fre-driksson & Gadde, 2005).
Build to Order Supply Chain: Limitation
Implementing the model of Build to Order Supply Chain costs a manufacturing company a lot, changing the internal organizational design and technological advancements along with giving trainings to the employees, in all Build to Order Supply Chain model is expensive. Flexibility and being responsive to the needs of customers is the pivotal characteristics of Build to Order Supply Chain yet there are still some limitations to this model of Build to Order Supply Chain because the speed of the delivery of order still depends on a lot of other intermediaries, and also it depends on the availability of the raw materials and certain parts of the products which are provided by the sole supplier in the market, so the traffic at the suppliers cannot be controlled so the Order to Delivery lead time management is restricted to a certain limit (Holweg & Pil, 2004).
Since 1975, automobile industry has seen a growth of 2.2%, an industry which does not allow new entrants an entry very easily due to high barriers still with this growth rate is facing lot of trouble to sustain its profits and business in the market. Automotive industry has gone through a lot change yet the basic concept of car has not changed ever since "Ford" came up with the idea of variety of different parts of cars, still the car is made of four wheels, run by gas, the overall body made from metal being pressed and shaped down (Holweg, 2004; Holweg & Pil, 2008).
Previously only small auto-workshops used to make customized cars on the requirements of few customers only but then it was made open to general public as well and gradually it came to the phase where general public can get their cars customized on their choice and build on order by the manufacturers. This approach is been followed all over the world by the most famous and world renowned companies like 'General Motors' , 'Toyota', and 'Ford'(Holweg, 2008).
Build-to-Order Supply Chain in Automotive Industry
The automotive industry is not an easy industry to compete in; there are a lot of dimensions of the competition in this industry like the style of model, brand consciousness, etc. the competition becomes tough because of the external pressures from the competitors (Fujimoto, 2006).
The news is in circulation that many car manufacturers are on the verge of implementing the basic Build to Order Supply Chain model as they anticipate to save their cost of inventory management through this model (Autoweek Online, 4 July 2002). An automotive industry has a complex form of supply chain as it incorporates full service supply, on the other hand global sourcing with some dealers across boundaries, or simple outsourced activities in the assembling of a car and so on. It has become a target of original equipment manufacturers to simplify the complex form of the supply chain design not on the expense of efficiency, because that is the main purpose of existence for original equipment manufacturers to cater to the need and demands of the customers with effective and efficient dealing. Kumar (2001) says that the pivotal step in any supply chain design is to integrate the suppliers and dealers to the most which in turn speeds up the assembling process and the customer gets his/her order delivery on time cutting the Order to delivery lead time short.
All of the above mentioned points of concern for car manufacturers have one answer to it, Build to Order Supply Chain model. Build to Order Supply Chain model helps the manufacturer to reduce the waste as well as control the over production. Majorly the original equipment manufacturers have targeted to achieve maximum efficiency at the same time reducing their Order to Delivery lead time. Few have targets to change their lead time from months to weeks and some from weeks to one week. (Miemcyzk & Holweg, 2004).
Table (02 )"Targets of car manufacturers for their lead time" Taken from Miemcyzk & Holweg, (2004)
Suppliers in Build to Order Supply Chain in Automotive Industry
There are different types and kinds of supply chain models but for each model to be successfully implemented, there are majorly three player which play part in it its success, the supplier, the manufacturer and the customer, though their level of contribution might differ in different situations. The one who is most responsible or accountable in the complete supply chain is the supplier. (Coyle et al., 2002).
Suppliers in Automotive Build to Order Supply Chain
The over all concept of Build to Order Supply Chain model is different from that of the conventional or traditional styles and models of supply chain in automotive industry. It does not follow the approach of Build to Stock supply chain model, because the whole concept of Build to Order Supply Chain is to provide the specific and unique designs and configuration in vehicles. Fisher (1997) suggests that the main aspect and point of concern for the supply chain managers, which they should focus more upon is the perfect collaboration between the suppliers and the production department of the car manufacturers. The major factor which can cause any trouble and form a hurdle in the efficient implementation of Build to Stock supply chain is the geographical factor. That is to say if the suppliers are located around thousands of miles away then the whole concept of Build to Stock supply chain model fails here and can result in a big hazard for the company's Supply Chain. Companies collapse due to the wrong implementation of the Supply chain (Miemcyzk & Howard, 2008). To manage with the issues of lead time of Order to Deliver and to mitigate the pressure on the suppliers to reduce the lead time of Order to Deliver and to deal with it efficiently planning the schedule between the planned production and the orders placed by the customer, strategies are followed, Suppliers Park is one of such strategies.
Manufacturers who have implemented the Build to Order Supply Chain in their businesses sometimes need to be flexible in their in the Supply chain due to the external factors. To cope with this flexibility required by the Build to Order Supply Chain, concept of Suppliers Park is introduced. Supplier Park is the group of suppliers which are located in the nearby area of the assembling department or Original Equipment manufacturer. (Miemcyzk et al., 2004). Wherever the concern is related to Supply Chain or logistics, location of the suppliers has always been point of apprehension for the companies. As Miemcyzk et al., (2004) says and explains that the suppliers considered being in the close proximity of the assembly should be with in 3 kilometres to the assembly plant of the manufacturer. One of the many advantages of the Supplier Park is that the manufacturer can rely on the supplier easily and the bond of trust gets stronger because manufacturer knows that the time of delivery for the finished parts and raw material to the original equipment manufacturer plant will hardly take few minutes as the suppliers are within their reach (Larsson, 2002). The closeness between the assembling plant and the suppliers and dealers creates an articulation between the flow of information as well as physical flow related to the process of transfer of goods (Firgant & Lung, 2002).
The shift to the use of the Suppliers model along with the use of Build to Order Supply chain has allowed the companies to reduce their lead time of Order-to-Deliver. Therefore a lot of known companies like Ford, GM, Fiat, BMW, Mercedes and Volkswagen have implemented this strategy (Miemcyzk & Howard, 2008). The introduction of Suppliers Park in the industry of automobile has resulted in reduction in the costs, an augment in the delivery service quality along with the efficient bond of Just-in-Time strategy (Pfohl & Gareis 2005).
Synchronous, Sequential Just-In-Time in Supplier Parks
In automobile industry, one of the leading characteristic of Supplier Park is sequential and synchronous Just-In-Time. In this model, the complete car assembly is dependent on the timely delivery of parts and raw material. Sequential Just-In-Time imposes dealers and contractors to transfer client ordered parts and raw material in the precise similar series and coordinated with the last process at the assembling plant of original equipment manufacturer (Hoekstra & Romme, 1992). The incorporation and the ability of reaction could move to subsequently stage if the place where the strategy of synchronous sequential Just-In-Time is created, is move towards the back, upstream in the sequence and flow. This will facilitate us just not simply to build synchronous deliveries linking first-tier supplier and the Original Equipment Manufacturer, but this will be practicable to bring out synchronous sequential deliveries among second-tier and first-tier dealers and contractors as well. This would budge the decoupling stage upstream in the series as well. The decoupling demonstrates that in what manner a purchaser's instructed order reaches into the flow of goods and consequently cracks order from forecast- focused actions. (Lyons et al., 2006).
In the diagram shown below, the illustration 1 gives you an idea about the extended space among the group of providers which builds flow of goods impracticable. The releases of parts and raw material ordered by the customer on his choice are in lot of changeable volumes and the point of decoupling exists in Original Equipment Manufacturers provision. In diagram 2, with introduction of Supplier Park, the point of decoupling has shifted to the next tier contractor because of the close propinquity among the supplier rows. This therefore made it achievable for the company to formulate Synchronous Sequential deliveries among the second and first dealers and the first and Original Equipment Manufacturer. The diagram 2 portrays more incorporated suppliers which allow an elevated level of Build to Order Supply Chain in the car manufactured than picture 2 which is more conventional surroundings. The neighbouring supply also gets better openness and decrease in pipeline inventory (Lyons et al., 2006; Czuchry et al., 2009; Morris et al., 2004).
Figure: Degree of Build to Order Supply Chain with and without supplier parks adopted from Lyons et al., (2006, p. 1098)
OEMs in Build to Order Supply Chain in Automotive Industry
The distribution of the automobile industry necessitates Original Equipment Manufacturers to discriminate and individualize their merchandise. The automotive producers have, in current years, responded with an enormous growth of their product model range and kit alternatives. The most important prerequisite of Build to Order Supply Chain surroundings is supple procedures, so that corporation can take rapid pronouncement and adapt changes in the schedule to cater to the unique customer demands (Holweg & Pil, 2001). Cars are now not assembled under one top, but numerous ventures and entities are concerned in making a single car. Thus, the Original Equipment Manufacturers must think and focus upon linking all nodes in Build to Order Supply Chain. They must bind their client orders to their manufacturing timetable and dealer's production agenda. The traditional mass construction concepts, based on estimates, of automobile market do not match the needs and cannot cater to the unusual customer demands (Mandel, 2008).
Build To Order Supply Chain Manufacturing System
The business dealing in the car manufacturing should have their assembling plants or original equipment manufacturers should be well equipped with new technology in the market, which in turn helps in the smooth flow of information and steady communication between the suppliers and the assembly plant. Because the main target of Build to Order Supply Chain is to minimize the lead time of order to deliver to the most possible, communication gap can create a havoc for the company and the whole system of supply chain can fall under the pressure from the clients and customers (Mandel, 2008).
In practical implication it is very hard to integrate every single player in the complete value chain with all information that flows in the chain, so build to order/build to stock separation stage will come to a decision as to who should receive what amount of information and when (Mandel, 2008).
Build to Order/Build to Stock boundary in Build to Order Supply Chain
Build to Order/Build to Stock factor will play a very vital role in the upcoming automobile industry, because it creates a line demarcation between the suppliers who are manufacturing to stock from those who are producing on the specific customer orders. The diagram shown below explain that Build to order/build to Stock boundary serves as the last signal of buffer where the parts and the raw material are sent to the warehousing for storage purpose and not to the assembly plant for the assembling of customer ordered product.
Build to Order/Build to Stock border in customer driven network adopted from Mandel, 2008, p. 210.
Build to Order/Build to Stock separation points is affected by a lot of factors like the lead time for order to delivery, product type, the kind of technology been used by the original equipment manufacturers, time strategy followed by the original equipment manufacturers and most of all depends on the kind of supply chain model (Mandel, 2008).
Order Management in Build to Order Supply Chain Environment
The process of Build to Oder Supply Chain is characterised by order management, because it all starts from the point when a customer places an order for the product, it is not driven by the estimates or forecasts. So while creating a schedule for production, it is very important to incorporate all such orders from the customers and clients. The factors which affect the most in order management in Build to order Supply Chain is the time span allowed between the start of the car and the final deliver point to the customer as well as the no. of cars ordered for. There are three different kinds of orders.
There are three different types of orders depending upon the type and no. of cars ordered for.
Short term Orders
Short term orders constitute to the maximum share in revenues as well as the largest share of demand in the market. Short term orders usually comprise of the individual orders from the customers and are of mostly one car. The over all system of the short term orders is that the customer commonly orders only few days before the due date of deliver like for example 5 to 6 days, or asks for some changes in the configuration and settings of the car, hence the manufacturing of the cat starts long before the due date of delivery.