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Henri Fazan is managing director of Yamamoto Corporation VHS tapes' production in Nîmes, France, which is responsible for 20% of the whole division sales in Europe. Currently, in 1996, the company is facing dawdling sales cause by a decrease in demand, a drop of unit price and value, as well as the rising inventory levels, which "eats away" a significant share of operational profits. Such decline is partly due to market's external factors, namely the unification of Philips/Sony and Toshiba, led by the IBM in developing the innovative DVD specifications, which were announced in 1995 and finalized in 1996. The first DVD players, disks, and even films ("Twister") were made available in Japan in 1996, in 1997 in USA and in 1998 in Europe  .
In order to stay competitive despite the new DVD concept, and to retain high contribution margins, there is a dire need for Yamamoto to streamline its business model. This would allow Yamamoto to regain lost market share, increase profits and to efficiently satisfy customer requirements through better control of supply chain operations.
On his way back from the corporate managerial conference, Henri Fazan ponders over strategies which will improve the European VHS supply chain management process, currently used by Yamamoto Recording Media Division. Innovative approach will reduce lead time to market, reduce inventory and increase inventory run rates.
Current Process - 7 weeks: Analysis
The current supply chain process is facing problems in the following three main areas:
Production & Distribution planning; logistics; distribution centres; warehousing;
Inventory Management: raw materials orders; work-in-process; finished goods
Information Flow: integration of systems and processes throughout the supply chain to share information, such as demand forecasting/ indicators
Henri Fazen, as a managing director of Nîmes production plant, was directly responsible for production planning, whereas other Yamamoto's divisions controlled inventory and logistics/warehousing. The importance of the information flow for leveraging a successful and distinctive supply chain operating model to sustain competitiveness is therefore critical. Sharing the information from the retailer throughout the chain, provides the production plant, as well as other supply chain partners, with accurate information, so that correct amounts of VHS tapes are produced and delivered.
The current production and distribution/supply planning is extremely slow and inefficient.
Order Processing Flow Chart
NSC submit order to P/S
NSC receive order
P/S est. production plan
Plan reviewed by Production Planning (NÐ¾mes): determine raw materials
Production plan confirmed; XL schedule developed
4-7 weeks 5.10 10.10 21.10
From the time the National Sales Companies have submitted an order before the 5th of each month, to the delivery of the finished order (lead- time), 4 to 7 weeks pass. In certain cases, during the plan analysis by the production planning team in Nîmes, it was discovered that some of the raw materials had to be re-ordered, which took over three weeks. In order to avoid this delay, production plant accumulated stock of materials. The problem is that the plant runs on predicted demand, rather than on actual demand - push strategy. The excessive length of lead times is one of the conditions leading to the Bullwhip effect, where each segment further down the supply chain goes slower than that above it. The long lead-times between the stages of the supply chain, as in Yamamoto's case, result in change in demand requirements to be extremely slow in moving up and down the chain, thereby allowing excessive changes to occur in the other stages of the chain.
Henri Fazen believes that if production could reduce its transformation flow to 7 days, the planning flow would improve as well. As per the pull-strategy, the Nîmes plant would be run on the actual demand, and not on the forecasted one (Agile Manufacturing), thus increasing efficiency and improving the management's cost control structure.
Currently, since no finished goods are stored at Nîmes plant as inventory, the finished pallets were loaded into containers and shipped directly to NSC distribution centres, Yamamoto Logistics Europe (YLE) or, very rarely directly to the retailer. The bulky nature of packaging, as depicted below
2 4 6
6 4 2 2
was too diverse, considering the nature of goods. According to Henri, the packaging process greatly contributed to the high inventory. Moreover, the requirement for replicating a unit packaged in different rolls (bulks) directly affected production and transportation expenses.
If the demand for storing finished goods in bulk loads at YLE was streamlined, more emphasis could be made on direct shipments from the plant to the customer. Direct shipment will avoid cross-docking at YLE, and help to implement Just-In-Time inventory strategy, which, in turn contribute to the reduction of lead time to market.
Henri Fazen's Vision: From 7 weeks to 7 days
As per Henri's vision, the Yamamoto Europe's new supply chain must:
Support, enhance and be an integral part of a company's coherent strategy (information flow across departments)
Leverage a distinctive supply chain operating model (JIT, Lean manufacturing)
Execute well against a balanced set of operational performance objectives (7 days)
Focus on a limited number of business practices, which best achieve operating objectives (Production-Packaging, Inventory, Logistics)
To reengineer the supply chain at Yamamoto Europe, Henri looked within his own business operations. The critical factor was to be able to ship in full container loads directly to the customer. In addition, Henri looked forward to gaining full control over special packaging, which will make redundant the tendency of NSC to outsource this kind of work. Manufacturing and packaging would be separate processes, and production at Nîmes would be reorganized in a way where VHS tapes would be made to stock, then packaged as per customers' requirements. Basically, packaging would not be carried out before customer's orders were received.
Modified production cycle
The plant will have a small stock of semi-finished products, stored as bulk inventory, which, upon the receipt of customer's orders is removed from stock and combined with other bulks, again, according to the customer's orders. The Kanban System of Inventory Management is at work at this point, or Pull Strategy - when upon removal from the bulk inventory of the assembled product, an order to produce another pallet of single wrapped tapes will be automatically initiated. Hereby the bulk inventory replaces shipping to YLE the packaged units.
The main advantage of this bulk system is that inventory becomes flexible, and its duplication is not a problem. Moreover, lower inventory levels reduce operational costs.
Since supply chain management spans all movement and storage of raw materials, in addition to work-in-process inventory, Henri's new production system will contribute to reduction of raw materials' safety stocks, allineating the whole production schedule and synchronizing supply with demand - externally as well as internally.
If Henri's strategy succeeds, customer satisfaction levels are bound to rise. Indeed, if delivery was to decrease to 7 days, due to customers' placing order on existing bulk stock, Yamamoto's reputation will ameliorate. A value chain will be created, which is complimentary to the SC, and includes important aspects of customer value, such as timelines.
Henri's vision will revolutionize Yamamoto Europe's supply chain management, beginning with his own production centre at Nîmes. The main challenge faced by Henri now is improving the information flow between different departments, and seeking management's support and approval. YLE is already changing its focus; for them storing packages was a burden. The product managers, on the other hand, remain to be "conquered".
Yamamoto's current conceptualization of the supply chain is based on a "push" system; Henri's idea will introduce lean manufacturing and "pull" system where a customer's order pulls the whole production line; thus decreasing costs and increasing profit from operations.
Despite numerous challenges, Henri Fazen should definitely continue to pursue his vision.