STS SUPPLY STRATEGY AND OPERATIONS THEORY

STs Supply Strategy and Operations Theory



STs Supply Strategy and Operations Theory

1. Introduction

You must love the customer … We do not make profits by producing cars based on speculation, but only on customer order production (CEO “CarCo”).

The reconciliation of operational and supply chain capabilities with market demand is a core challenge for the organisation and familiar concept in literature (Hayes and Wheelwright, 1984; Hayes et al., 1996; Slack and Lewis, 2002). A particularly dominant theme today is the development of supply responsiveness that aims to match supply chains with increasingly volatile global markets (Fisher, 1997; Christopher, 2000; Handfield and Bechtel, 2002). This paper examines the decisions faced by senior managers at vehicle manufacturer “CarCo” over how to develop supply strategy and manage global operations. The firm has grown from a niche manufacturer to global exporter of premium family vehicles with a strong reputation for customer-centric service. A core competence of the brand is delivery precision: the ability to build a vehicle according to customer specification within short order lead times, a phenomenon known in the field of operations and supply as build-to-order (BTO) (Holweg and Pil, 2001; Gunasekaran and Ngai, 2005).

CarCo has traditionally achieved a commendable split of around 80/20 between build-to-order and make-to-stock (MTS) in Europe, the home of its vehicle production operations. Yet, faced by demands from its US parent organisation to achieve ambitious targets for sales growth, CarCo must decide whether to re-emphasise BTO and “customer-pull” or revert to a more traditional industry supply model, which favours aggressive sales activity by vehicle dealerships and “production-push” (Table I). To explore what options are available to CarCo, this paper works on the observations of 50 senior managers during a two-day workshop facilitated by the investigation team. The research examines what needs to be considered for future supply strategy and the factors that influence implementation.

2. CarCo and ST's and Customer-Focused Production

CarCo was one of the first automakers to investigate the value of transforming its distribution and supply channels, and adopting a more customer-focused production philosophy. A major motivator was the realisation that in the mid-1980s the company could sell from stock alone for more than 14 weeks. In 1987 the “Distribution 90” project represented the first of several initiatives to reduce inventory costs and slim the distribution pipeline (Figure 1). This re-engineering of the distribution chain evolved into a redevelopment of the order fulfilment process and management structure. In 1992, faced with a decline in major markets and intensified global competition, CarCo and ST launched “customer ordered production” (COP). This aimed to reduce the optimisation of specific areas of the supply chain such as final assembly, and increase volume and product mix flexibility to satisfy market demand. CarCo today still operates on the principles established by COP, i.e. cars built to order mean satisfied customers and higher margins for the manufacturer, whereas cars made to stock involves discounting and increased distribution costs due to additional inventory financing, handling, vehicle preparation and ...