SMART (car) and Smart Logistics
Executive Overview
This paper presents the situation of a company that introduced the SMART car into the European market. Micro Compact Car AG , a company owned by Daimler Benz, introduced Smart (a two seater car) into the market as one of its new and most innovative designs and implemented completely different supply chains that were also new in the market. Different modules such as complete rear or front ends are assembled on site. Additionally, suppliers are involved in the final assembly and design of the car through co-ownership. The suppliers also have major shares in the manufacture of the smart car. Since MCC is using a different approach to manage smart car manufacturing, it faces several challenges such as controlling and managing the supply chain.
Since MCC can be seen as a trend-setter in mass-customization of the supply chain, its activities are quite relevant to automotive practitioners. In 1998, one or two cars filled the parking lots of downtown Amsterdam. The company saw a great potential of their new design because it would stand out from the rest. Smart car came in various colors and its spectacular design attracted the attention of most individuals in the town. Most people liked the new approach, hence demonstrating that MCC had developed a concept that would revolutionize car marketing, logistics, and production.
Swatch and Daimler Benz developed a new mobility concept that eliminates heavy environmental pressure resulting from increased traffic. The Smart car is designed in such a way that it ensures continuous individual mobility. The company grew at a fast rate due to its unique approach thus leading to increased productivity and profitability. The supply chain concept used by MCC was unique in various ways: Customers contribute the configuration of the smart car, MCC and suppliers are integrated in such a way that the suppliers’ premises adjoin MCC’s assembly hall, and suppliers are also co-investors of production.
Overlooking installation and development of the supply chain, the management of the company found out that they were facing other challenges. Some of the challenges include how to ensure effective management of operations, how to co-ordinate control of different activities, and how to develop the supply chain without interrupting the operations of different suppliers. The concept used by MCC is highly valued because other leading car-manufacturers see it as the future to developments in the automotive industry. Most suppliers and manufacturers monitor the failures and successes of MCC to determine the future of their operations.
The Smart car is 2.5 meters in length, 1 meter 53 centimeters in height, and 1meter 51 in width, which make it suitable for in-city use. Despite its small size, the car ensures maximum comfort and safety to the driver and the other occupant. The car is also designed in such a way that it is environment friendly. Dismantling the car parts creates less pollution. In addition, the car uses a small and energy efficient engine. The exchangeable parts also increase the life cycle of the car. What makes it even more attractive is that it can be designed according to the customer’s specifications.
MCC faces challenges in the introduction of the Smart City Coupe because it is a new concept in Europe. Since competition in the automotive industry in Europe is quite high, MCC aims to create new sales processes, and new market through the use of unconventional channels. Some of the unique selling points of Smart car include its design, environment safety, its large interior, safety, the technology used, and customization. This paper aims at identifying some of the challenges faced in various production processes as well as the supply chain and the problems could be solved.
Why MCC should assemble the Cars
MCC should carry out assembling of cars itself due to various reasons. First, this move will allow MCC to gain control of the production process. Once MCC leaves suppliers to assemble the cars, quality may be compromised. Some suppliers may wish to make huge amounts of profits thus cutting down on the amount of money spent on inputs. Such suppliers will use materials that are of lower quality; thus leading to low quality cars.
MCC can also gain control over other elements of production such as production reclamation, flexibility, the time taken to finish assembling the smart car, and the qualification of teams. For instance, the company will gain flexibility on assembling different modules. If the company carries out assembling of the smart car by itself, it will decide when it should assemble either module A or Module B. The company may also decide to assemble both modules at the same time to meet demand of consumers. Since the company will avoid possible delays, it will be able to meet the high demands of consumers within a short time thus gaining a good reputation. This also applies to responding to urgent orders made by clients. When customers get their cars within the stipulated time, they will gain trust in the company.
The other important element of controlling the assembling process is determining the qualification of personnel, the final product assembled, and ensuring that employees are time conscious (Carter & Liane, 2011).When suppliers take control of assembling, it will be difficult for MCC to determine the type of employees it recruits. The suppliers may not be keen on the employees leading to provision of substandard services. MCC will be able to supervise the assembling process at each stage to avoid unnecessary errors that may tamper with the quality of the car.
MCC should assemble the smart car to maintain the knowledge and skills of conducting the process. If the company leaves assembling duty to suppliers, it will have to train them on appropriate and efficient ways of assembling the car. Training suppliers will help the company disclose much information to them, making the process open to the suppliers. Overreliance on suppliers also makes MCC to lose the skill and capability of assembling the cars by themselves. If MCC’s employees are not involved in the assembling process at all, they will eventually lose their knowledge, skill, and competency on the process. For MCC to keep the production process secret, it should assemble the cars.
Keeping information on the relevant knowledge and skills helps to avoid the risk of disclosing too much information to the suppliers. Once suppliers get all the information necessary to assemble the car, they may decide to deviate and form their own product that is similar to the one offered by MCC. This will lead to increased competition in the market thus reducing the profitability of the MCC and the number of customers buying from it.
Strategic fit can only be gained if MCC assembles the smart car by itself. Since the smart car is a new product launched by MCC, the company should invest a lot of time in it to understand customers and to get their honest opinion. Once MCC leaves the assembling task to suppliers, it will lose direct contact with consumers. Even though the company will reduce the production cost, it may end up losing in the long run if it is not able to meet the expectations of consumers. Having direct contact with consumers helps to understand what feature it should improve, what it should add, and what to eliminate. If complaints or suggestions are made by consumers, suppliers may have little to do over the situation so it would be advisable for the company to assemble the cars by itself (Carter & Liane, 2011).
If assembling is done by suppliers, they will have control over MCC especially on the price. MCC will finally lose control over the suppliers possibly leading to reduced profitability and productivity. The suppliers will have greater bargaining power than before. The company may also be forced to overpay suppliers if they have control of the production process. It will be quite challenging for MCC to estimate the accurate amount of money spent by the suppliers in the assembling process. Additionally, MCC will not be able to fully control the performance of suppliers because they are in control of the entire production process. To gain a greater bargaining power than suppliers and to control their performance, MCC should assemble the smart cars.
Assembling of the smart cars will enable MCC to gain control on efficiency. It is important to note that MCC may not be in a position to fully control the time taken for the production process to be complete. Different suppliers of smart car components may delay causing overall delay of the assembling process (Fawcett, Ellram & Ogden, 2014). MCC cannot also make sure that suppliers assemble the cars on time. The company may lose some customers due to delay especially if the order was urgent.
To improve on efficiency of communication between different stakeholders, MCC should take control of the assembling process. Poor communication may result to poor performance leading to substandard services. Constant communication between employees, the company will suppliers and the company with consumers help improve understanding between the parties (Carter & Liane, 2011). Public relations are also improved hence the company is able to understand what their clients want and what they feel about their products.
How MCC Should Control and Assure Performance in the Supply Chain
Individuals involved in making purchases or other supply chain activities should demonstrate professionalism and integrity in their involvement. According to Lu and Swaminathan (2015), the important qualities in the supply chain include showing reasonable care, honesty, and diligence to various activities. Such qualities should be demonstrated among stakeholders, suppliers, as well as the public sector.
MCC should protect its confidential information if it has to gain control over the suppliers. Once the suppliers do not understand some of the procedures involved, they will always listen to the company for instructions. The same case also applies if the suppliers do not have adequate knowledge and skills on various production process. The suppliers will understand that they cannot operate without MCC thus showing that they are still under the control of the company.
MCC should also refrain from engaging in activities that could lead to conflict of interest. Such activities include accepting favors, accepting gifts or offering special treatment to certain suppliers. All individuals should be treated fairly to avoid possible conflicts. The individuals giving out favors may start producing substandard services and MCC may have little to do to control the situation because it is prone to their favors. Once MCC is fair to all companies it will be able to control all production activities of the smart car.
All activities that are related to the supply of the smart car should be conducted in an open manner which is based on responsive management. This means that procurement and contracting will be done in a transparent and fair manner (Mangan, Lalwani, & Lalwani, 2016). The individuals involved in supplying should make sure that resources are used responsibly by skilled people. High performance will be enhanced if skilled personnel use resources responsibly.
Individuals involved in the procurement process or carrying out other related activities should abide the company’s code of ethics. Mangan et al. (2016) note that this will ensure that suppliers are keen in the activities that they carry out to avoid facing disciplinary actions. In the long-run, employees will make provision of high quality services a tradition of the company. This practice will challenge suppliers to work to improve the procedures and policies related to their knowledge and skills.
Proper communication and trust helps to build the relationship between MCC and the suppliers. Trust is also developed between the suppliers and buyers if they are in good terms with the company. Trust is developed if the planning process involves different stakeholders and when production delays are reduced significantly. With proper communication channels between the supplier and MCC, it will be easy to make design changes and make specifications of the smart car. High performance is enhanced if a company conducts different activities effectively (Lu & Swaminathan, 2015). The suppliers and the company will cooperate to ensure the success of the whole process since it is a win-win situation.
MCC should offer equal opportunities to different suppliers in different parts of the world. Creation of equal opportunities for different suppliers leads to satisfaction, encouraging high performance. Suppliers from different regions will feel encouraged to work hard and to improve the quality of their services o attract more investments in their company (Lu & Swaminathan, 2015). Increasing the number of different suppliers in different regions leads to healthy competition among themselves to prove why they are better than the rest.
MCC should start rewarding the best performing suppliers. Giving awards helps to improve the quality of services provided, the efficiency of operation, the time taken to perform various activities, and improved customer relations. Additionally, the suppliers will become innovative to find ways of improving their performance. MCC will also gain control because it can set targets for the suppliers depending on their size and their capital base. Those suppliers that meet the targets can be rewarded thus leading to high performance.
Effective inventory management will help MCC to gain control on its suppliers. MCC will be in a good position to control emerging concerns in the outflow and inflow of the inventory. According to Lu and Swaminathan (2015), the inventory will enable the company to determine its current financial position, its stock and the rate of flow of its products. MCC will also be able to understand the problematic issues related to inventory outflow and inflow and come up with corrective measures within a short time to avoid possible losses. The strengths of the supply chain will also be identified thus coming up with ways of maximizing on the strengths to lead to more benefits.
Why MCC should Gain control over operations and Regain Control
Mutual benefits between the supplier and MCC should be enjoyed for the company to build and retain a good working relationship. If both parties benefit, they will find ways of eliminating the disturbance to achieve balance in the workflow. MCC should come up with measures of ensuring that the suppliers have some control on various aspects of supply for the m to feel challenged to come up with better ways of improving their operations.
If MCC Company wants to fully take control of the supplies to avoid unnecessary disturbances, it should take over the operations initially carried out by the suppliers. This means that the terms of contract between the company and the suppliers will change. According to Stadtler, (2015), by taking over the operation, MCC will be able to be fully responsible of their actions. Delays in various operations will also be reduced because buyers will directly be dealing with the company. Other types or related activities such as making orders, modifying the car parts, and making deliveries will be more effective since MCC will have full control, the processes will take a shorter time than before thus increasing the consumer’s trust.
Disturbances caused by financial imbalances will also be significantly reduced because MCC will spend less than what it spent before. Christopher (2016) states that in the case where the suppliers are in full control of various production processes, it is quite challenging to determine the correct estimate of the amount of money spent on such activities. Once MCC takes control of the operations, it will be able to determine the correct figures. Possible losses will be eliminated thus investing in other stages that need to be improved. This results to increased control and high productivity within the company.
It is advisable for MCC to take over the operations for it to gain full control over the operations. The contract between the company and the suppliers should only cover the suppliers but not the assembling of the cars. In cases where the supplier is in charge of various operations, it may take enough time to identify the problem and to find ways of solving the problem. Some of the disturbances may be because of poor operations by the suppliers (Stadtler, 2015). MCC might undergo losses if the suppliers continue making mistakes in either assembly process or delivering the car.
MCC will also be in full control of building the reputation of the company if it takes control of the operations. When suppliers are involved, there is a breakdown of communication between the company and their buyers. By fully getting involved in the operations, the company will be able to pay attention to market fluctuations, buyer’s opinions, and current trends (Christopher, 2016). Identification of such issues will enable MCC to eliminate disturbances through being proactive in coming up with relevant solutions to possible challenges.
Why MCC does Not Strive for Short Lead Times
Late delivery time could possibly be because of errors in the supply chain. From the presentation of the case, it is quite clear that MCC is effective in the operation it is in charge of to eliminate delays. Most of the production processes of the smart car carried out by MCC takes a few hours. For instance, making modifications on different car parts such as the dashboard takes approximately two hours while the assembly process takes about five hours. The time taken in such activities clearly shows that a delay lasting for more than a week is not possible.
Since the company has taken corrective measures to reduce the time taken to make deliveries through efficient processing activities, there must be problems in the supply chain. For MCC to reduce the delays and aim for short lead times, it should identify the errors made in the supply chain. One of the ways of solving the problem is reducing the number of suppliers. Reducing the length of the chain makes it easy for processes to be conducted within a short time. Maintaining a short supply chain enables a company to track the challenges within the chain for a short time (Christopher, 2016). In case of any problems arising MCC can make corrective measures at the particular point of weakness. Currently, MCC does not strive for short lead times possibly because it does not have full control on the long supply chain. It will be quite challenging to ensure that the needs to clients are met within short lead times because the company may not be in a position to control some of the operations carried out by the suppliers.
The other possible reason as to why MCC does not strive for short lead times is because the processes and transactions involved in the supply chain are complex. For complex operations, time is taken to pass different stages. For instance, if various documents have to be signed at different stages, there are high chances that there will be delays resulting from people needed to sign or time taken to understand the customer’s specifications. Simplifying the transactions will involve eliminating some procedures hence reducing the time taken to complete the operations. Some of the complex processes that need to be simplified include security issues, customer clearances, and regulatory restrictions among others (Mangan, Lalwani & Lalwani, 2016). Doing so may be challenging because it may increase security threats that may lead to losses in the long-run. To ensure that short lead times are implemented, MCC must ensure that the number of complex processes and transactions are reduced to only retain the most vital ones.
The other reason why MCC may not be striving for short lead times is because it is not in position to control the activities of reluctant suppliers. Christopher (2016) asserts that reluctant suppliers slow down various operations such as ordering, making deliveries, and assembling of the car. Reluctant suppliers may lead to lack of trust between buyers and the company due to inefficiency. To eliminate the risks involved in associating with reluctant suppliers, MCC should develop strategies of identifying the least performing suppliers or ranking them according to their performance. Eliminating such suppliers helps to increase the efficiency of operations thus reducing the lead time. Elimination of reluctant suppliers also motivates others to improve their performance thus ensuring that little time is taken to complete transactions and operations.
Why the Final Assembly is done at the Plant in Hambach
MCC finally decided that the final assembly process should be conducted in Hambach to ensure that the process of production becomes continuous. Ensuring a continuous production process helps to eliminate possible delays at various stages of production. The delays that occur in the assembly of the smart car make the entire process discontinuous thus increasing inefficiency. If the final assembly process is carried out at the plant in Hambach, MCC will gain control over the process thus reducing any possible barriers in the process. Once possible barriers are eliminated, the assembly process becomes smoother and takes a shorter than before.
Carrying out the assembly at the plant in Hambach also allows MCC to supervise the process in an improved manner thus eliminating possible errors. Since MCC aims at satisfying their customers, carrying out the assembly of the car at a localized position enables them to meet the needs of their clients. In case of any errors, they can be traced and rectified within a short time.
Assembling of the smart car at the plant in Hambach was meant to increase motivation and trust among the stakeholders. Carrying out the assembly process at a localized place enable individuals to eliminate procedures that are not accepted by the rest of the team.. If any new assembly process is suggested the concerned parties will also have to consult each other thus increasing trust among themselves (Carter & Liane, 2011). Since the assembly process is carried out at a particular place, employees will feel motivated to work hard to challenge each other thus leading to increased productivity and improved quality of services provided. Delays in delivery will be minimized thus meeting the requests of customers and building a good reputation of the company.
How MCC can Maintain a short supply Cycle and short Lead Times
A short cycle can be maintained by reducing the length of the supply chain. MCC involves several suppliers in its supply chain thus increasing the time taken to complete various operations. Different suppliers play different roles in the cycle thus making it quite challenging to make deliveries on time. Reducing the number of suppliers means that the few remaining ones will have more duties than before (Carter & Liane, 2011). As a result, the cycle reduces significantly thus increasing MCC’s control over the operations.
Setting targets will also help to maintain short lead times. The company as well as the suppliers will be challenged to come up with strategies that will enable them to meet the set targets. Employees will also be motivated to work harder to achieve the set goals. On the other hand, the management will find it important to come up with other strategies that help to improve the efficiency of operations. Increased efficiency of the production process will lead to short lead times.
Improving the skills and knowledge of employees helps to increase their competency in duties and responsibility. The company should invest in training programs to enable employees to gain multiple skills and knowledge thus reducing the number of employees at different stages of the production process (Fawcett, Ellram & Ogden, 2014). Reducing the number of production stages as well as the number of employees reduces the cycle and the lead-time. Training also enhances the knowledge of employees thus leading to possible increase in variety and complexity of the smart car. Increased knowledge and skills through training and other education programs could lead to other important innovations to the company.
Increasing accountability for different procedures such as delivery, assembling, ensuring product quality and cost helps to reduce the delivery time and to shorten the supply cycle (Carter & Liane, 2011). Once suppliers understand that they are entirely accountable for an operation, they will do their best to ensure that they do not derail the process. The time taken for various activities will reduce significantly to avoid possible delays.
Conclusion
MCC’s Smart Car Coup design due to its outstanding features motivates other car manufacturing companies to advance their designs. Some of the most attractive features of the car include its small size thus easing congestion on roads, customization of various car parts, being environment friendly, its large interior, and improved safety and comfort for occupants. The short lead time of manufacturing the car is also an attractive quality of the company.
Some of the major challenges faced by MCC in the launching , delivering, and marketing of the smart car include how to ensure effective management of operations, how to co-ordinate control of different activities, and how to develop the supply chain without interrupting the operations of different suppliers. Launching the car in most parts of Europe is quite challenging due to the high level of competition from other car manufacturers.
`MCC should get involved in the assembly of the smart car so that it may gain control over the production process. Assembling the car enables to maintain the knowledge and skills of conducting the process thus avoiding future competition from suppliers. Assembling also enables the company to keep information on the relevant knowledge and skills to avoid the risk of disclosing too much information to the suppliers. Assembling the car also allows the company to pay attention to consumer demands and to maintain high performance and efficiency of operations. MCC should also take over operations to ensure that it is accountable of the production process. Being in control of operations will allow the company to find corrective measures to avoid unnecessary disturbances.
Assembling of the car at Hambach plant was also meant to increase the efficiency and control of operations by the company by ensuring that the production process is continuous. Some of the strategies that can help to ensure that the production cycle is short and to reduce the lead time include; reducing the length of the supply chain, reducing the number of suppliers by eliminating reluctant ones, training employees, awarding suppliers for outstanding performance, and increasing accountability on different production activities such as making deliveries and assembling among others.
References
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Christopher, M. (2016). Logistics & supply chain management. Pearson UK.
Fawcett, S. E., Ellram, L. M., & Ogden, J. A. (2014). Supply chain management: From vision to implementation. London: Pearson.
Lu, L. X., & Swaminathan, J. M. (2015). Supply chain management. International Encyclopedia of Social and Behavioral Sciences, (2nd ed.), edited by James Wright. Elsevier, March 2015. Retrieved from SSRN: https://ssrn.com/abstract=2758860 or http://dx.doi.org/10.2139/ssrn.2758860
Mangan, J., Lalwani, C., & Lalwani, C. L. (2016). Global logistics and supply chain management. New Jersey: John Wiley & Sons.
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