Model Development of Logistical and Economic Performance Evaluation as Decision Support

TABLE OF CONTENTS

PREFACE

FIGURES

LIST OF ABBREVIATIONS

1 STARTING POINT
1.1 Structural change and fields of action in the automotive industry
1.2 The industry’s structure
1.3 Trends in the chain of value-added of the automotive manufacturers
1.4 Approach and structure of this thesis

2 FIELD-SPECIFIC-FOUNDATIONS
2.1 Plastic injection moulding production
2.1.1 History
2.1.2 Production specifics
2.1.3 Production lot size
2.1.4 Layout-structure and flow of material
2.2 Basics and duties of automotive logistics
2.3 Logistics supply chain exemplifying an automotive supplier of the plastic injection moulding production
2.3.1 Supply-Chain-Management
2.3.2 Information technology
2.3.3 Procurement logistics
2.3.4 Production logistics
2.3.5 Distribution logistics

3 PROBLEM DEFINITION
3.1 Formulation of hypotheses
3.2 Research questions
3.3 Objectives and outlook on results

4 SCIENTIFIC BASICS
4.1 Nomenclature
4.1.1 Logistics
4.1.2 Logistical management
4.1.3 Logistical system
4.1.4 Pull-principle
4.1.5 Planning
4.1.6 Model
4.1.7 Process
4.1.8 Business process
4.1.9 Logistical service
4.2 Status of literature
4.3 Selected approaches of factory and business process modelling
4.3.1 SCOR
4.3.2 Process modelling with ARIS
4.3.3 Process chain model according to Kuhn
4.3.4 Summarising evaluation
4.4 Model-based decision-making models
4.4.1 Problem and method oriented models
4.5 Elements of a performance creation system
4.6 Theory of logistical efficient thinking
4.7 Logistical costs as a central evaluation criterion of logistics performance
4.7.1 Types and elements of logistical costs
4.7.2 Assigning the cost types to the sub-processes
4.8 Production and cost theory
4.8.1 Cost minimisation approaches
4.8.2 Total return functions of a diminishing returns production function

5 REQUIREMENTS FOR MODEL DEVELOPMENT
5.1 Objective
5.2 Methodology of the research basis for problem solution
5.2.1 Methodical tools
5.3 Methodical framework for problem solving
5.3.1 Procedure of executing and gathering relevant data
5.3.2 Content requirements on the analysis
5.3.3 Formal requirements on the process of model development

6 SITUATION ANALYSIS, DEVELOPMENT OF LOGISTICAL PERFORMANCE ELEMENTS
6.1 Requirements and factors on socio-technical logistical systems in the automotive supplier industry
6.1.1 The product lifecycle effect factor
6.1.2 The structural organisation effect factor
6.1.3 Significance of logistics inside a company
6.1.4 The customer demand effect factor
6.1.5 The product effect factor
6.1.6 The production and production lot size factors
6.1.7 The layout / company size / area effect factor
6.2 Analysis and classification of effect relations
6.2.1 Effect interdependencies in the effect system
6.4.1 Volume data
6.4.2 Packaging
6.4.3 Packaging circulation Identification of processes and structures
6.3 Data groups
6.4 Customer and supplier information
6.5 Company specific data
6.5.1 Movement and performance data
6.5.2 JIT-process
6.5.3 JIS-process
6.5.4 Manifest-process
6.5.5 Transport data
6.6 Product and production specific information
6.6.1 Lot size calculation
6.7 Areal data
6.7.1 General storage area calculation
6.7.2 JIS-processing area
6.7.3 Truck preparation area
6.8 Company size
6.8.1 Areal size relations: Production area vs. logistical area
6.9 Database for the application of an external logistical service provider
6.10 General summary of the analysis’ results

7 CONCEPTION OF A HOLISTIC LOGISTICAL MODEL
7.1 Approach for model development and design
7.1.1 Design notes for model creation
7.2 Solution concept
7.2.1 Synthesis of the logistical factors and elements in the meta-model
7.2.2 Anticipated cost progressions in the minimum cost model
7.2.3 Upgraded production lot size model as module element for cost minimisation
7.3 Design of the holistic model
7.5.1 Knowledge data module
7.5.2 Module for areal dimensional company size
7.3.1 System architecture of the user system to be developed
7.4 Data structure
7.5 Constitutive modules
7.6 Concept module for the simulation and logistical performance evaluation…
7.6.1 Concept module for logistical cost calculation in the PDP
7.7 Surface design and system application

8 APPLICATION OF THE SYSTEM SOLUTION AND EVALUATION
8.1 Practical case study and examples from the automotive supplier industry…
8.2 Input data concept model for logistical performance evaluation
8.3 Results and evaluation of the concept model
8.4 Practical application and evaluation of the model during time elapsed
8.5 Determining solution effects and benefit

9 CONCLUSION
9.1 Recapitulation
9.2 Outlook

10 BIBLIOGRAPHY
10.1 Internet

11 APPENDIX
11.1 Categorization and analysis of different model types for logistical decission finding, page 1
11.2 Categorization and analysis of different model types for logistical decission finding, page 2
11.3 Detailed process charts
11.3.1 Goods receipt
11.3.2 Repacking in the area of distribution
11.3.3 Picking and goods issue, process map
11.3.4 JIT- process map
11.3.5 Sequencing and assembly process map
11.3.6 Manifest and shipping process
11.4 Data analysis of the ratio of inbound volume to outbound volume
11.5 Data analysis example of the inventories of the production plants to create a realistical warehouse reproduction for calculation purposes
11.6 Curve progression of the inventory development depending on the variants per material and the production batch size
11.7 Schematical illustration for a container loop calculation (process split of formula)
11.8 Movement relations and distances within and in between functional areas of a production plant
11.9 Exemplary areal structures of three different production plant layouts
11.10 Scheme to enable area calculations of different warehouse types
11.11 Conceptional idea to set up a manifest station
11.12 Regression analysis and hypothesis testing to clearly determine and identify differences within data groups
11.13 Extract of the detailed areal illustration of the analysed production plants…
11.14 Data group structures
11.14.1 Data group structurs of the calculation module part 1
11.14.2 Data group structures of the calculation module part 2
11.15 Simulation data to evaluate the calculation module within the product development process
11.16 Initial supply chain configuration to evaluate the model
11.17 Graphical cost progression of the actual model configuration

PREFACE

The basis and the working title of this study originated from the practical problems that I can observe daily in my professional work and the collected experiences in the field of production and logistics of different industrial companies over the last ten years as well as from reports and comments of established business magazines and periodicals of automotive logistics. The study at hand was developed while working full time as an executive of the central logistics of the MoellerGroup in Bielefeld from 2005 to 2008. Here, particular gratefulness appertains to the executive board of the MoellerGroup for their complaisant as well as generous support, especially to Dr. Axel Müller for his constructive remarks, suggestions and discussions as well as to Mr Felix von Moeller for his personal interest and promotion of the study. Furthermore, I would like to thank the colleagues of the different functional and working fields of the group that contributed to the success of this study directly or indirectly due to their assistance and constructive critique. I would especially like to thank Mr Holger Schmidt in this regard, who repeatedly found time to deal with my notions and ideas. I want to highlight Mr Aurelian Badet exceptionally, who followed my logistical thoughts and approaches to the simulation of logistical concepts and vitally supported the development of an application tool for the evaluation of the illustrated model development with practical examples. Furthermore, I am grateful to Mr Badet for the controversial, topic related discussions, which not always lead to a professional consensus, but always to a new reflection of problems and solutions. The foundation for the decision and for realising the scientific study is due to my father, who eventually gave the impulse for the PhD studies so that the initial contemplations finally became a serious concern. Continuing encouragement and support by my wife over the final weeks and weekends of the work on the study let me keep to my initial aim and finally lead to the successful completion. The study at hand was accepted as dissertation by the Faculty of Business Management of the University of Economics in Bratislava. I would like to thank my PhD adviser, Dr. h.c Prof. Ing. Juraj Stern, PhD, for the academic freedom and the benevolent support of my approaches and ideas. Furthermore, I am grateful for his calm and confident charisma and his fatherly, caring and friendly way that he has shown to me during the entire time at University in the context of shared professional discussions over the years. I would finally like to thank Mr Ing. Peter Markovič, PhD for the professional, organisational support in the course of my studies and the organisation of the unforgotten international conference, soon to be one year ago.

Bielefeld, in March, 2008 Michael Wiggen

FIGURES

Figure 1-1: Location development of the German OEM and its suppliers

Figure 1-2: Structure of supply relationships in the automotive industry

Figure 1-3: Schematic network of production in the automotive industry

Figure 1-4: Development of the proportion of revenues

Figure 1-5: Forecasting development of the number of suppliers and manufacturers

Figure 1-6: Modular structure of this thesis

Figure 2-1: Procedural methods of production

Figure 2-2: General, non cyclic manufacturing structures

Figure 2-3: Production stages of the companies to be analysed

Figure 2-4: Layout of an injection moulding company

Figure 2-5: Manufacturing stages of traditional injection moulding production

Figure 2-6: Logistics supply chain of a plastic injection moulding production

Figure 2-7: Standard information and communication illustration

Figure 2-8: Tasks and modules of procurement logistics

Figure 2-9: Cost structure VW group

Figure 2-10: Procurement cooperation in different industries

Figure 2-11: Effects and relevance of procurement strategies for suppliers

Figure 2-12: Lead time segments

Figure 2-13: Supply concepts

Figure 2-14: Production-controlling concept

Figure 2-15: Varieties growth, Audi A

Figure 2-16: Lifecycle development

Figure 4-1: The work system according to REFA

Figure 4-2: SCOR-model

Figure 4-3: ARIS-House-of-Business-Engineering

Figure 4-4: Construction of a main process “material procurement” from subprocesses of different cost centres

Figure 4-5: Combination of production factors in the logistics system

Figure 4-6: Dimensions of logistical performance

Figure 4-7: Cost isoquants

Figure 4-8: Minimal costs with alternative process straight lines

Figure 4-9: Minimal cost combination

Figure 4-10: Production surface

Figure 4-11: Relations between the yield curves

Figure 4-12: Relations between cost curves

Figure 5-1: Methodical model for problem solving

Figure 5-2: „MIFA“ material-information-flow-analysis

Figure 5-3: Principles in the logistics chain

Figure 6-1: Classical lifecycle of a product

Figure 6-2: Logistical interfaces of individual business areas

Figure 6-3: Logistical effect relations in a company

Figure 6-4: Effect categories and possible development in the case of alteration

Figure 6-5: Exemplary supply chains of a “JIS-supply concept”

Figure 6-6: Customer and supplier information

Figure 6-7: Packaging related data

Figure 6-8: Complementary packaging means

Figure 6-9: Inhouse movements relations

Figure 6-10: Inhouse- activity- and performance types

Figure 6-11: Means of transports

Figure 6-12: Inhouse warehouse information

Figure 6-13: Layout sequencing zone

Figure 6-14: Curve progression floor space required per variety

Figure 6-15: Other in-house information

Figure 6-16: Curve progression sales vs. area

Figure 6-17: Curve progression logistical costs vs. area

Figure 6-18: Curve progression net result vs. area

Figure 6-19: Curve progressions sales, logistical costs, yield vs. area

Figure 6-20: Diagram-proportion logistical areas vs. production areas

Figure 6-21: Parameter of external warehouses und logistics service provider

Figure 7-1: Scheme meta-model

Figure 7-2: Cost progression based on the meta-model

Figure 7-3: Specifications and effect factors of cost optimum production lot sizes

Figure 7-4: Architecture of the user system

Figure 7-5: Algorithm for determination of company areal size ranges

Figure 7-6: User interface of the simulation module

Figure 7-7: User interface of the module for determining the input

Figure 7-8: Result illustration of an individually configured supply chain

Figure 8-1: Practically relevant input data

Figure 8-2: Result illustration of the model

Figure 8-3: Effects of the input amount when applied on identical supply chain designs

Figure 8-4: Logistical cost effects by conceptual changes in the project progression

Figure 8-5: Progress of knowledge compared to the state of research

LIST OF ABBREVIATIONS

illustration not visible in this excerpt

1 STARTING POINT

1.1 Structural change and fields of action in the automotive industry

Worldwide production of automobiles (including vans, lorries and buses) has grown by five percent in 2006 compared to the previous year, reaching about 70 million vehicles and total sales of approximately 2.000 bn USD, according to the association of the world’s automotive industry OICA (Organisation Internationale des Constructeurs d’Automobiles).¹ The industry’s investments in science and development total at about 85 billion USD. Statistically, the automotive industry is the sixth largest economic sec- tor worldwide, employing nine million people directly. The European Union, having a global market share of 34%, is the largest producer of vehicles worldwide.² However, pushed by continuing effects of globalization, the automotive industry is currently un- dergoing an extensive structural change. Radical changes result from increasing re- quirements posed on the companies as well as the necessity of opening new markets, securing market shares and increasing continuously decreasing profitability. The influ- ence of globalization on the industry is exemplified particularly in the strongly in- creased number of production plants, as shown in figure 1-1.

Figure 1-1: Location development of the German OEM and its suppliers

illustration not visible in this excerpt

Source: VDA

In context of those mentioned necessities, foreign locations were quintupled in Central Eastern Europe and China. The chart in figure 1-1 demonstrates the impressive expan- sion of German automotive manufacturers, subsequently referred to as OEM (Original- Equipment-Manufacturer), and its suppliers during recent years. In a KPMG poll of 2005, interviewees³ assume persistent globalization, meaning significant movement of automotive production from North America and Western Europe to Asia as well as, in a small scale, Eastern Europe over the next five years.⁴ The automotive industry has an- ticipated the EU’s eastern enlargement for ten years already and has built plants in Cen- tral and Eastern Europe systematically. While the first phase until the year 2000 was dominated by the opening of factories in Poland, Hungary, the Czech Republic and Slo- vakia, a second phase puts countries like Romania, the Ukraine and Russia into the fo- cus of attention.⁵ Eastern Europe gains increasing significance for the automotive indus- try, resulting in Eastern Europe being named „Detroit of the East“. Compared to the US automotive stronghold Detroit, the Automotive-Region-Eastern-Europe (AREE), con- sisting of nine EU member states and Romania, is capable of further expanding its status. Altogether, approximately over three million vehicles (compared to 1.9m in 2005) will leave Eastern European assembly lines. In two years time, about five percent of the worldwide automotive manufacturing will take place in Eastern Europe.⁶

1.2 The industry’s structure

Traditionally, the automotive industry is characterised by a very large proportion of value creation for suppliers as well as a pyramid of direct and indirect supply relation- ships. Value creation describes the quantification of the own contribution to the value performance. Relative value creation depends on the effort put into manufacturing, re- fining, marketing and customer care of a product and is calculated based on full costs. If all costs connected to a product are summed up, they become one hundred percent. By quantification of the contribution of all involved, relative value creation can be determined. If other companies supply preliminary products, their selling prices are to be taken account of as costs for the own value creation. If distributors market the product, distribution allowance to those partners has to be considered for determining total ex- penditure as well. The ratio of the own value creation to those overall costs is called relative value creation.⁷ The following figure 1-2 illustrates the structure of supply rela- tionships between OEM and suppliers.

Figure 1-2: Structure of supply relationships in the automotive industry

illustration not visible in this excerpt

Source: Supplier structure adapted from Nexolab/ Logistik-Results⁸

The automotive manufacturer tops the pyramid of the industry. Below are the so-called “first-tier-suppliers”. Those large, internationally acting suppliers are mostly module suppliers or system integrators. A module supplier primarily provides assembling ser- vices with merging components of different suppliers into one ready-to-install module. A system integrator does not only take over assembling, but also vital parts of the de- velopment of pre-finished modules. Besides miscellaneous manufacturing technologies, system integrators need to cope with global supply-chain-management as well as com- plexity management. Complexity is a term originated in modern systems theory that can only be described rudimentarily in the context of this study. Bliss⁹ describes complexity as opacity of a system, a system observer or intermediary, which results from the sum of the parts and relations, combinatorial and dynamic variety as well as the logical depth. Complexity management maps increasing complexity based on market requirements and complexity of individual actions to meet those requirements, including all depart- ments of a company. Offering alternatives of a primary product correlates with an in- creased complexity of the product. This complexity leads to a constant effort of syn- chronisation and coordination in all departments. In short, complexity management means the use of complexity in a sense of control in the context of this contribution. Supply-chain-management is a philosophy of organisation and management that aims at cross-company coordination and synchronisation of the flow of information and mate- rial in order to optimise costs, time and quality by integrating the activities of the com- panies that are part of the value creation system (e.g. tier-two, tier-three suppliers).¹⁰

Second- and third-tier suppliers are suppliers of parts (or components, respectively) as well as systems for first-tier-suppliers, to some extend even the manufacturers di- rectly.¹¹

Example for a network of vehicle production

The automotive industry has always been characterised by a large degree of division of labour as well as networking. Typical structures of production and logistics are shown schematically in figure 1-3.¹²

Figure 1-3: Schematic network of production in the automotive industry

illustration not visible in this excerpt

Source: Fraunhofer Institut Materialfluss und Logistik Dortmund.

The share of in-house production of the OEM has declined to about twenty to thirty percent in the production of certain vehicle types. Such a low individual proportion of value creation, compared to prime costs, is scarcely received in any other industry. Ver- tical collaborations, e.g. including a supplier into the process of development, have been established for years.

1.3 Trends in the chain of value-added of the automotive manufacturers

Fundamental changes to the market environment by increasing equipment diversity and decreasing lifespan of individual vehicle types make consistent realisation of holistic strategies of logistics imperative in order to effectively secure quick scheduled delivery. “It is the customer who determines what a business is”, Peter Drucker said in an often cited statement.¹³ Customers today are able to demand changes until shortly before as- sembling of a vehicle begins. Demonstrably, customers accept this service. Studies at BMW-AG have shown that currently about 140.000 individual requests for change are received every month. Mathematically, each ordered vehicle has to be changed 1,5 times until delivery.¹⁴ After introducing mass production during the 1920’s and “lean production” in the 1980’s, automotive manufacturing is in the process of another up- heaval. As shown in figure 1-4, suppliers will have taken over large parts of develop- ment and production from the automotive manufacturers by the year 2015, enabling them to grow by seventy percent overall.

Figure 1-4: Development of the proportion of revenues

illustration not visible in this excerpt

Source: Mercer, FhG Wertschöpfungsmodell 2015.

Manufacturers lose ten percent of today’s value creation during the same period of time but increase output by thirty-five percent. Design and production-capacities of the manufacturers will be concentrated on brand defining modules and components. Trig- gers of this development are new technologies, increasing vehicle-complexity and a vast variety of vehicle types on the one hand, which raise costs for design and production, as well as constantly increasing quantities on the other hand and customer services as a more profitable investment alternative for automotive manufacturers, compared to pro- duction. For the supply industry (including service providers), massive growth is immi- nent. Suppliers are going to experience considerably increased value creation in the fields of electric installations, electronics, body structures and drive train, while chassis and interior design sectors will grow relatively slow. Increase of value creation utterly varies depending on module or place in the value chain. Accordingly, it is possible to identify future potentials for suppliers and service providers by analysing fields of growth for the OEM. Module manufacturing and assembling by suppliers will have grown by about 250bn Euros in 2015. Alongside, the proportion of design value crea- tion for suppliers is to be expanded. Proportion of design value creation represents pro- portionate design costs of suppliers in the fields of equipment, engine, chassis and body structures. For example, suppliers might conduct complete design of interiors or enter- tainment systems. Additional demands of product and service range, resources and competences lead to a further consolidation of the supply industry besides strong growth. The following chart in figure 1-5 allows forecasting a bisection of currently about 5.600 suppliers to approximately 2.800 in 2015.¹⁵ This performance and flexibil- ity driven market environment, originated in changing customer demands, which shows in increasing individualisation of vehicles and niche concepts as well as an altered com- petitive pressure by overcapacities and a realigned Block Exemption Regulation (BER) force the OEM to reassess their own effectiveness and efficiency. The new BER deregu- lates trading of spare parts for vehicles and increases transparency for consumers. The right of the suppliers to brand their products with their own logo and to deliver directly to authorised workshops and independents is strengthened. This means increased choice for consumers and more price competition for the automotive manufacturer.

Figure 1-5: Forecasting development of the number of suppliers and manufacturers

illustration not visible in this excerpt

Source: IML, Dortmund and IPA, Stuttgart.

In consequence, the BER reduces the traditionally close links between authorised work- shops and automotive manufacturers. The changed definition of the term “original spare part” as a product of the supplier, no longer the vehicle’s manufacturer, allows even authorised dealers to order spare parts directly from suppliers. So far, original spare parts had to be obtained via the particular manufacturer or importer. The reassessment of the OEM’s efficiency often results in a redefinition of the individual core compe- tences and internal labour, traditional roles and task sharing between OEM and suppli- ers change. No response to these changes might lead to losing access to customers and therefore sales. Customers indirectly push almost all suppliers to move at least parts of their production to low wages countries by the means of forced prices that can only be achieved by lowering costs of production. To stay in business, suppliers need to follow the OEM and build regional or local networks of logistics. Many suppliers therefore are in a dilemma between the necessity to follow their customers and the aligned invest- ment risk.

1.4 Approach and structure of this thesis

This thesis chosen modular structure is based on the scientific process developed by Ulrich who favours practical relevance of scientific studies in order to secure efficient application in relevant conditions. He follows the approach of a symbiosis of practice and science, which is basis and orientation of the modus operandi of this study and shown in detail in figure 1-6.

Figure 1-6: Modular structure of this thesis

illustration not visible in this excerpt

Scheme for new solutions and possible improvements. Summary and outlook.

The introductory part of this thesis is about describing the automotive industry, concen- trating on its vitality and mutability as well as typical features and trends of the sector. Initial point is the increasing globalization and accompanying cost pressure. In chapter 2, theoretical foundation and background to this study is supplied, starting with an over- view of the historical development of plastics as well as specific properties and aims of plastic injection moulding in a supplier’s company. Additionally, the classical layout of manufacturing, individual production stages, structures of producing and flow of mate- rial inside and beyond operational plastic injection moulding are going to be pointed out in order to discuss perspectives and problems. Furthermore, fields of logistics will be described holistically, covering approaches and foundations of procurement to distribu- tion, based on changing market conditions. Those fields of logistics are shown in critical coherence to the aims, philosophies, concepts and spheres of activity of the automotive industry. Following this, the general consequences and demands of logistics at suppliers are dealt with initially, while chapters 5 and 6 will show a more detailed and specified insight. Besides, distinct dependencies and areas of conflict between suppliers and manufacturers are pointed out next to the often-cited approach of asymmetric supplier- customer-relations in favour of the latter. In chapter 3, the findings drawn from the first two chapters are going to be summarized shortly and descriptively compressed into a problem definition. Based on this problem, hypothesises, research issues as well as pri- mary and secondary objectives of this study are derived consecutively. Chapters 1 through 3 illustrate the foundations and framework this study is based on. They are sup- posed to procure the essential background, which has influenced and supported the de- velopment of this study significantly. Chapter 4 informs about the scientific literature’s profile, structure and boundaries in regard to logistical content. Included, the approaches of integral logistics management and heuristics as possibilities of planning, optimising and application as well as selected approaches of factory and business process model- ling as a possible foundation to deduce design approaches of automotive logistics will be analysed. Additionally, the structure of logistical incentive systems and their ele- ments are described as well as correlations between production and cost theory. Besides defining the scientific framework and the modus operandi, a field of terms is introduced that is relevant to the wide range of application of the problem to be analysed. Chapter 5 argues the development of the basic position and methods, which are the foundation of the model-based design methodology. For problem-solving and further proceedings, a comprehensive problem-solving model is created that is partially connected to the methodology of the models used in theory and in practice. Therefore, content-addressed as well as formal requirements on the method are elicited. Chapter 6 is devoted to the analysis of requirements and factors of logistical systems as well as studying of the ef- fect interdependencies in an active system. In order to increase findings and to affirm the consistence to theoretical foundations, basic and analysed data about development and to evaluate effect interdependencies in different domestic and international automo- tive supplier companies for interior plastic components is collected (or analysed, respec- tively) from databases. Furthermore, the chapter supplies the basic data necessary to determine and differentiate equations for logistical efficiency rating as well as data, processes, information and requirements of specific companies and individual custom- ers in order to regulate material flow. Relevant data is transferred into a designated data and process model; scientific literature parallelly provides theoretic reference. This sys- tematic process as modus operandi to identify concrete details allows a systematic col- lection of applicatory relevant data with consistent theoretical reference by combining scientific foundations and analysing different problem areas at suppliers. As matching of the preceding considerations and findings, chapter 7 forms another focus of this study by defining the design. First, gained insights are decomposed and circumscribed in order to infer similarities as well as structural or functional matches. Emphasis of this chapter will be the smart integration and arrangement of the results to a determined mathematically-logically linked model structure. The realisation of this model structure, respectively the implementation of the contents of the functional concept components, shall be achieved by the means of an automated solution. As complement to the design, the developed model will be applied and evaluated in a case study in the further course of this chapter. Finally, the essential findings of this study will be recapitulated and judged in regard of applicability and use in comparison to the set objectives in chapter 8. The results of the evaluation might allow mapping out areas for further research. The development of the exemplary solution is very specifically applied to small and me- dium-sized automotive plastics suppliers for plastic interior components, the algorithm is universally applicable.

2 FIELD-SPECIFIC-FOUNDATIONS

2.1 Plastic injection moulding production

2.1.1 History

Humans have used high molecular, organic raw material since earliest times in the form of textiles made of natural fibre, wood and leather. Concrete conversion of natural mate- rials into what is known as plastic polymer materials began in the first half of the 19th century with cellulose. But it took until the 1930s that plastics became economically relevant, after Herbert Staudinger, a German Nobel laureate, had offered scientists, pri- marily of the industrial nations of that time, inducement and key to new synthesises by creating a model of the structure of plastics of molecular chains. Industrial manufactur- ing of polymer materials began amidst the 19th century with the manufacturing of latex, a natural rubber made from rubber plants. First and most important area of application for polymer materials was the electrical industry with its need for lagging. During the first decades of the 20th century, the rapidly increasing automotive industry drove the growth of the rubber industry.¹⁶ Introducing synthetics into vehicle construction allowed designers for the first time to design three-dimensional shapes and to choose colour and surface design independently from natural specifications. Stylists embraced this possi- bility entirely and synthetic material almost became a style icon in design. Vehicle inte- riors of the 1950s and 1960s show a colourful picture of this creative era. During the 1970s and 1980s, synthetics lost credibility and acceptance and got the negative conno- tation of plastics as a result of the attempt to recreate natural materials artificially.¹⁷ Meanwhile, plastics technology allows to produce geometrically challenging moulded parts with accurate surface design of textures and gloss levels by the means of innova- tive injection moulding, material and tool technologies (lamination, in-mould- decoration, back-foaming etc.), in a way that impression and feel are almost indistin- guishable from natural materials. Besides design, moulding, lightweight construction and multifunctional requirements on the plastic item, demands of active and passive safety are important today (e.g. carpeting parts for force absorption or airbag covers).¹⁸

2.1.2 Production specifics

The organisation of automotive plastic injection moulding is characterised by a coexis- tence of several different procedural methods as shown in figure 2-1.

Figure 2-1: Procedural methods of production

illustration not visible in this excerpt

Source: Adapted from Günther and Tempelmeier, 1995, Prozesstypen der Produktion, cf. p. 57.

For example, while the preliminary product stages are often characterised by serial pro- duction, final assembly of modules and systems is usually done by continuous produc- tion. The transition between the different procedural methods is usually smooth. The profile of an existing or to be developed production system is described by the respec- tive characteristics of its procedural methods. It is aimed for adding further procedural steps directly “online” to injection moulding (or extraction, respectively) in plastic in- jection moulding production to avoid buffer storage or storing of unfinished parts. An- other aim is to reach low processing time and a small stock on hand in order to have positive economies of scales (e.g. decreasing marginal costs, depending on the applied production factor). Production of spare parts is characteristic for the method of single production. Single production allows producing individual products in low quantities, following specific customer demands. Single production shows, besides irregular flow of materials, locally concentrated similar equipment, meaning production design fol- lows the principle of classical workshop production. Concluded from the described pro- cedural focus, three basic procedural methods can be described as borderline cases of the multitude of mixed cases found in industrial practice, as it was shown in figure 2-1.

2.1.3 Production lot size

A lot size (also lot) is understood as the amount of goods supplied together or manufac- tured without idle times or refitting on one or more machines. In the automotive plastic injection moulding industry, production lots are usually manufactured in defined, so called “batches”. Emphasis in the course of planning lot sizes is minimising total costs for the company and maximising production value. Besides raw material and equip- ment, the manufacturer primarily incurs expenses of logistics, production and tool setup costs.

Logistical expenses

Logistical expenses contain costs for administration and disposition, transfer to and re- moval from stock, generally storing and capital commitment. In chapter 4.5, types and constituents of logistical elements as well as their sub-processes are explained in more detail.

Production expenses

Production expenses are costs, which occur in the course of producing goods and ser- vices (e.g. administrative expenses, production expenses per unit). These expenses are quantity-dependent.

Tool setup expenses

In the beginning of the handling of a lot or while lots are changed (e.g. setting up or adjustment of machines), tool setup expenses occur. Setup is the preparation of a work- flow system in order to perform a certain task. Evaluation of the input of production factors and their costs allows calculating tool setup expenses that depend on the lot size per unit. These factors, which are essential for operational planning, are called action parameters. Typical action parameters of operations are, for example, retail prices, pro- duction output, factor input, stock and operational capacities.¹⁹ Action parameters rele- vant to determining lot sizes will be described below. Because manufacturing a product usually needs several working operations, considering the manufacturing structure is always imperative. It is distinguished between:

- Linear manufacturing structure,
- converging manufacturing structure,
- diverging manufacturing structure

and the general manufacturing structure. Multistage manufacturing structures cause interdependencies that need to be considered when storage cost increases are weighed up against setup cost savings. Early production and storing of unfinished goods is nec- essary to manufacture and store finished goods in a multistage production process.

These circumstances must affect a net requirements calculation. In the production plants of the Moeller Group that will be analysed, mostly converging or linear manufacturing structures can be found. The following figure 2-2 shows selected products and related machines by the means of a gozintograph; numbers represent products, letters represent machines.

Figure 2-2: General, non cyclic manufacturing structures

illustration not visible in this excerpt

Source: Own illustration, loosely adapted from Günther and Tempelmeier, cf. pp. 176ff.

Because the planning of lot sizes is always done for a specified, finite period of plan- ning, which is divided into a specific number of periods, it is reasonable to define the length of a period as the time necessary to produce one single unit. All relevant action parameters (e.g. tool setup expense ratios, storage expense ratios, primary quantity re- quired, capacities and machines) are assumed to be deterministic. As shown by figure 2- 3 below, the situation may occur that a machine is used for a product or working opera- tions that are assigned to different low-level codes (cross-level competition of re- sources).²⁰ Besides limited machine capacities, no deficiency is allowed to occur when lot sizes are calculated for a possibly unplanned increase of expenses (e.g. purchasing instead of producing, employees doing overtime). The companies to be analysed regard a segment of production, which works according to the flow principle, as a single- staged production system that is embedded into a multistage production context. The actual injection moulding process forms the main production segment in the production system. Ninety-five percent of all products to be produced in the plants are determined as first production stage by the injection moulding process. The segment highlighted and represented by “production stage n” in figure 2-3 is not including pre-produced components into the injection moulding process but passes its first production stage components to following production stages.

Figure 2-3: Production stages of the companies to be analysed

illustration not visible in this excerpt

Source: Own illustration.

Thus, possible following production stages to manufacture finished parts are merely finishing and completion stages. In further context, concentration of lot size planning therefore lies on any “Product k” in this production stage.

2.1.4 Layout-structure and flow of material

Injection moulding machines have been improved to be fully automated manufacturing machines in preceding years. The machines are often linked and affixed directly to other production units (e.g. feeding portal to extract parts, grabber, cutter or laser). These linked systems are almost never flexible and thus vulnerable to disturbances. Inflexibil- ity of production in the plastic injection moulding industry is also supported by a spe- cific production lot size of a product (batch) needing to be produced in order to achieve cost-effective manufacturing of the parts per production unit. The layout structure of an injection moulding company has changed marginally during recent decades. Compared to the past (or former trends, respectively), imperative in-house tool shops have been substituted successively by plain maintenance for tool manufacturing that is very cus- tomised and therefore cost- and employee-intensive. Today, production-necessary tools are no longer manufactured by the injection moulding companies themselves but com- missioned in low-wage countries (Portugal, China etc.) and imported. Where two manu- facturing processes could be found in the past (injection moulding and tool shops), usually just injection moulding remains, accompanied by a maintenance department for machines and tools.²¹ Injection moulding is characterised by the material flow of plas- tics and components, which originates with raw material storage (central material sup- ply), continuing with the actual manufacturing process and quality inspection, ending with reworking (or assembling to finished parts storage, respectively) and shipping. The described material flow is illustrated in figure 2-4.

Figure 2-4: Layout of an injection moulding company

illustration not visible in this excerpt

Source: Adapted from Feldhaus, Ullmann, 1993, Layout eines Spritzgießbetriebes.

Injection moulding and the aligned manufacturing process are characterised by medium- sized or larger orders. In the analysed manufacturers, an average batch production tool (tonnage being between 500 to 800 tons) operates for about five to ten hours until tool change is imminent, this time being defined by cycle time and production lot sizes. The time for a tool change highly depends on the size of a tool, the tool change’s automation level (e.g. automated tool changers), the qualification and teamwork of the tool setters as well as the number of “setters”. Tool change can therefore vary between five minutes and three hours. Manufacturing process for plastic injection moulding parts is per- formed in four stages, essentially. The raw material (granulate) is fed to the dryer in the first stage, in order to remove absorbed moisture from the granulate before further proc- essing. Pre-drying depends on the material and is not always imperative. The second stage sees the manufacturing tool installed to the injection-moulding machine. Before the machine is started, program data (product-specific process parameters) are fed to the machine’s controller in stage three. In stage four, the machine’s production begins. Detailed process stages are shown schematically in figure 2-5, minding their precise se- quence.

Figure 2-5: Manufacturing stages of traditional injection moulding production

illustration not visible in this excerpt

Source: Own illustration.

This production stage forms the actual manufacturing process that is composed of heat- ing, injecting and cooling. After opening the tool, the units are extracted manually, or with the help of an extraction robot, from the tool and inspected for shape and dimen- sion accuracy. By adjusting the machine’s process parameters, shape and dimension tolerances can be balanced. The injection-moulding tool is of high significance in the entire injection moulding process. The tool is decisive for the required moulding qual- ity, undisturbed production, short cycles, long operating life and thus for cost-effective production.²²

2.2 Basics and duties of automotive logistics

Automotive logistics have experienced a large change of meaning in recent years, com- parable to the progress in some fields of technology, not least because of an increasingly fierce cutthroat competition, which is expressed by a faster international equalisation of product and process quality. Added are shortened innovation cycles, higher market transparency and increasing individualisation of customer demands. Individualisation of customer demands of the OEM not only influences sourcing and distribution concepts directly, but also logistical design of the entire logistical system in a company. Charac- teristics of automotive logistics, compared to traditional companies of the raw material, machine or tool manufacturing industries as well as New Economy companies, are, be- sides individual customer demands, specified ways of supply and standardised informa- tion concepts in order to achieve short delivery periods, high delivery quality and deliv- ery on schedule. Specific ways of delivery of the automotive industry will be explained in detail in chapter 2.3.5 below.

2.3 Logistics supply chain exemplifying an automotive supplier of the plastic in- jection moulding production

In order to illustrate the characteristics of automotive logistics as well as to work out logistical fields and principal approaches to the development of a comprehensive and broad efficiency rating for logistics, the different stages of a plastic injection moulding production’s logistical supply chain are visualised in figure 2-6 by the means of process flow diagram.

Figure 2-6: Logistics supply chain of a plastic injection moulding production

illustration not visible in this excerpt

Source: Own Illustration, logistical chain plastic injection moulding production in the suppliers industries.

It is noticeable that the modules of the supply chain allow the supplier different grades of freedom to design process and material flow. This means that the supplier is rela- tively “free” in designing his supply chains in the fields of procurement and production logistics, while supply and delivery strategies in the field of distributive logistics are generally determined “fix” by the OEM. The logistical chain for product manufacturing generally begins with demand-driven procurement of pre-products necessary for fin- ished products. Disposition of the necessary materials is assigned in context of MRP- operations (Material-Resource-Planning), based on dispatched requisitions of customers and the product manufacturing structures based on production systems. Between pro- curement and distribution logistics, production logistics is placed. Its task is the type and amount appropriate, locally and temporally matching of the production processes supply with the necessary commodities. Generally, those commodities are raw materials (granulate), parts (clips, switches, rails etc.) but also half parts to complete module components as well as empties for the finished products. Production logistics controls all operational middle production inventories and movements. Interfaces to procurement and distribution are goods in warehouses as well as half and finished parts storage. The task of distribution logistics is to supply manufactured products type and amount appro- priate, locally and temporally customised in order to stay in schedule.

2.3.1 Supply-Chain-Management

The design and organisation of the supply chain network gains dominant competitive relevance in context of internationalisation and extreme dynamics with the distribution of new products and services via different channels in heterogeneous markets. By open- ing markets and, correlating, increased outsourcing and relocation activities of core competences inside the supply chain, networks of ever increasing complexity emerged in the automotive industry. The mass production system introduced by Henry Ford in the last century can no longer comply with market and customer demands. The founda- tions (or efficiency and success, respectively) of the mass production system have been and are depending on stabile, long-term predictable market environments that allow a production of large amounts of homogeneous goods. The most important reason for the tayloristic principles being less efficiency increasing, often rather the contrary, is the increasing heterogeneity of demands. Additionally, the classical principles of scientific operation reach their limits for most markets have changed from being sellers’ markets to buyers’ markets. In their teamed study “Einführung in die allgemeine Betrieb- swirtschaftslehre, 2005” Wöhe und Döring describe sellers’ and buyers’ markets as fol- lows: The sellers’ market is characterised by the economic development stage of scar- city economy (unsaturated markets). Demand is larger than supply. Bottleneck of the operation is either procurement or production. In this case, companies try to expand procurement or production capacities rationally. In contrary to the sellers’ market, the foundation of a buyers’ market is the affluent society (supply > demand). In saturated markets, companies have to deal with distribution difficulties. Primary efforts of the companies are to animate demand and preferences for the own catalogue in order to overcome the distribution trough. Buyers’ markets are characteristic for industrial socie- ties.²³ Customers are not willing to accept problems caused by organisation, such as not entirely fitting products, long delivery periods or interface problems in processes. The new consumers’ behaviour is a relevant factor of influence to the development of goods and services of all kinds. In buyers’ markets, microeconomic aims of “quality”, “time” (needed for development and delivery) or “flexibility” are treated as equally important next to the classical aims of “productivity” and “cost-effectiveness”.²⁴ Supply-chain- management (SCM, German: “Management der Lieferkette”) is the process motivated design and the operation of all activities, from procurement of raw materials and semi- finished products, via customer sales to disposal. This perception is the integrative phi- losophy “to manage the total flow of distribution channels from the supplier to the ulti- mate user”.²⁵ In the scientific literature, no general concept about the understanding of SCM exists. Reason for this is especially that the development of SCM began in prac- tise²⁶ and was later used reactively by scientific research in the 1990s (cf. Cooper, M., C., 1997, p. 12). After early discussions about the significance and consequences of the approach of SCM, most authors meanwhile agreed that SCM described a new quality of company and network leadership and was not only a temporary fashion.²⁷ This SCM philosophy is based on a holistic approach. The idea of SCM is to plan and control a logistical network in its entirety.²⁸ The primary aim is to optimise costs and perform- ance variables in all elements of SCM. Therefore it is important to integrate all suppli- ers, manufacturers and distributors as co-operation partners into a commonly beneficial “win-win-relationship” in order to improve and stabilise the competitive position and to reach a global optimum, especially regarding costs, batches, delivery times and stock in all companies. The limits of law and techno-economics are to be considered when inte- grating a supplier into a “supply-network”. Especially transport and storage in a com- pany improve vitally when switching to modern SCM. While logistics have regarded product flow widely independent from institutional problems, supply chain management explicitly integrates structuring and coordination of autonomously acting operational units in a value creation system into the analysis. SCM therefore emphasises, in contrast to logistics, the inter-organisational aspect of a logistical management task. Supply chain management can be regarded as a new approach of business administration, which extends over the boundaries of a single company. It does not only cover logistics, but all other fields of business administration (e.g. marketing, IT, production, administration, accounting and controlling).

2.3.2 Information technology

Support of modern information technologies is essential to realise information exchange between participating companies in a “supply network”. Here, information technology works as the “enabler” that makes new methods and business models possible in the first place. Classical ERP-systems (enterprise resource planning), which are used in most companies, are not replaced by SCM-applications but supplemented. Specific in- vesting in interfaces results from the necessity of a homogeneous IT environment in supply chains, indispensably because of standardisation deficits in “collaboration work- flows” and IT-systems. These would be devaluated into sunk costs if a partner was sub- stituted from a specific supply chain.²⁹ Complex supply chains require efficient infor- mation and communication management alongside all chain links. The automotive industry has used standardised electronic data interchange (EDI) for communication and information exchange of, e.g., order, delivery and billing data for several years. Figure 2-7 below visualises a standard communication concept between suppliers, manufactur- ers and a logistical service provider (LSP) based on the EDI-VDA standard to handle single-stage stock keeping close to an automotive manufacturer.

Figure 2-7: Standard information and communication illustration

illustration not visible in this excerpt

Source: Own illustration, standard flow of information concept in the automotive industry.

[...]

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¹ Organisation Internationale des Constructeurs d’Automobiles, http://www.oica.net/, queried on Dec. 12th, 2006.

² Portal of the European Union, http://europe.eu.int/comn/enterprise/automotive/pagers- background/sectoralanalysis/index.htm, queried on Dec. 21st, 2006, Automotive Industry: Sec- torial Analysis, 2004.

³ KPMG is among the leading German accounting and consulting firms. The 2006 poll, con- ducted in 2005, was the fifth KPMG annual poll about the opinion of automobile industry man- agers in a row. It is based on 140 quantitative interviews with executive managers, 50 in North America and 90 in Europe in Asia. 105 of the interviewed work for suppliers, 35 for automotive manufacturers.

⁴ KPMG, Impulse in der Automobilindustrie, Managerumfrage 2005/2006 im Auftrag von Applied Research & Consulting LLC, cf. pp. 1ff..

⁵ Dudenhöfer, F., Mittel und Osteuropa Perspektiven, Jahrbuch 2005/2006, cf. p. 336.

⁶ Sihn, W., Palm, D., Matyas, K., Kuhlang, P., Chancen und Potentiale des „Detroit des Ostens“ für Automobilzulieferer, Automotive Region Eastern Europe, adapted from a notice of Nov. 13th, 2006.

⁷ Kaack, J., http://www.mittelstandswiki.de, queried on Sept. 14th, 2006.

⁸ NEXOLAB GmbH, LOGISTIK HEUTE, 2005, Agieren in Netzwerken, Lieferantenstruktur, vgl. Seite 12.

⁹ Bliss, J., 2002, cf. p. 128.

¹⁰ Wildemann, H., Aufsatz Supply-Chain Management; http://www.tcw.de, queried on Sept. 9th, 2006.

¹¹ Junior Beratung Bayreuth, 2003, Marktstudie über die oberfränkische Automobilzuliefererin- dustrie, cf. p. 27.

¹² Kuhn, A., Ergebnisse und Umsetzungserfolge der Logistik-Netzwerkforschung, Fraunhofer Institut Materialfluss und Logistik Dortmund.

¹³ Drucker, 1954, The Practice of Management.

¹⁴ Bischoff, J., Junghanns, T., Lässig, H., Ausgabe I/2004, Supply-Chain Management, cf. p. 7.

¹⁵ Fraunhofer-Institute IML in Dortmund and IPA in Stuttgart as well as Mercer Management Consulting, data and facts refer to a teamed survey, 2005 „Future Automotive Industry Structure (FAST) 2015“.

¹⁶ Menges, G., 2002, Werkstoffe Kunststoffe, cf. pp. 1-3.

¹⁷ Plath, T., Fleischer, D., Woite, B., 2000, Kunststoffe im Automobilbau, cf. pp. 41-45.

¹⁸ Stauber, R., 2000, Kunststoffe im Automobilbau, cf. pp. 1 and 235.

¹⁹ Kilger, W., 1973, Optimale Produktions- und Absatzplanung, cf. p. 16.

²⁰ Tempelmeier, H., 2005, Bestandsmanagement in Supply-Chains, cf. p. 122.

²¹ Feldhaus, A., 1993, Instandhaltung von Spritzgießwerkzeugen, cf. p. 35.

²² EMS-Grivory, http://www.emsgrivory.com/, queried on Jan. 1st, 2007.

²³ Wöhe, G. and Döring, U., 2005, Einführung in die allgemeine Betriebswirtschaftslehre, cf. p. 447.

²⁴ Reichwald, R. and Piller, F., May 2006, Interaktive Wertschöpfung, Open Innovation, Indivi- dualisierung und neue Formen der Arbeitsteilung, cf. p. 28.

²⁵ Cooper, M., C. and Ellram, L., M., vol. 4, 1993, no. 2, Characteristics of SCM and the Implica- tions for Purchasing and Logistics Strategy, cf. pp. 13ff.

²⁶ SCM: The term „supply-chain-management“ was created by consultants of Booz Allen Hamilton. Some of the first scientists analysing the term were Stevens, G.C. 1989 (cf. Stevens, G.C. 1989) and Towill, D.R. et al. 1992 (cf. Towill, D.R., 1992).

²⁷ Göpfert, 2002, Einführung, Abgrenzung und Weiterentwicklung des Supply-Chain Manage- ments, cf. p. 27.

²⁸ Bretzke, W., R., Barkawi & Partner, 2006, Sieben Thesen über die zukünftige Entwicklung of logistic networks, Supply-Chain-Management 11/2006, cf. p. 7.

²⁹ Cf. Bretzke, Barkawi & Partner, 11/2006, l.c., p. 7.