Design For Logistics: Enhancing Efficiency And Cost-Effectiveness In Porsche’s Supply Chain

Analyzing the challenges in concurrent product and supply chain in regards to key characteristics of the development chain in Porsche

Question:

Write an essay on Porsche.

Porsche is among the leading automotive retail corporations in Europe. The company operates in more than 20 nations across Europe, as well as in China and South America. Moreover, the company was established by Porsche Ferdinand together with his two kids known as Ferry Porsche and Louise Piech. In 1949, Louise and Ferry established the basis for the triumphant development of Porsche Company by launching Volkswagen Beetle. Currently, the company represents various brands of Volkswagen Group in retail (through dealers), in wholesale (as an importer) as well as in the after-sales trade (service). Furthermore, the company covers the whole automotive trade spectrum, through distributing spare parts, offering an array of automobile funding services, and the development of internal IT system. Thus, the paper provides a detailed analysis of how Porsche can make its supply more cost effective and efficient using design for logistics concept

Analyzing the challenges in concurrent product and supply chain in regards to key characteristics of the development chain in Porsche

Porsche network is automaker driven, and its value chain comprises of various firms of distinct geographic space, size, and scope manufacturing various products from technological complex to simple systems. Likewise, its supply chain is made up of distinct players including distributors, assemblers, integrators, component specialist, suppliers, and standardization experts (Meyr 2004, p.450; Henderson &Reavis 2009, p.83). All these players work together to ensure that customers get their specified products. However, Porsche Company is facing various challenges in its supply chain and concurrent product design. Even though the company comprehends that its competence lies in its supply chain and concurrent product design, it faces underdevelopment in these areas. The underdevelopment is attributed to the absence of a practical methodology for supply chain and concurrent product design in the automotive industries (Ratha 2014, p.12). Additionally, the company products entail many components increasing the complexity of the downstream (merchandising and distribution) and upstream processes (manufacturing and procurement) which in turn increases the company operational costs.

Detailed analysis of how the new Porsche 911 can apply design for logistics concepts to control logistic costs, make the supply chain more agile/responsive and more efficient

Agility refers to the use of an online corporation and market knowledge in a volatile market arena to exploit profitable ventures (Song & Zhao 2009, p.500). To realize this, companies such as Porsche need to reduce their operation cost and lead times throughout their supply chain. A responsive supply chain, on the other hand, refers to a network of companies that are better positioned to enhance their stakeholders’ value in environments that are competitive by reacting cost effectively and transforming market requirements (Gan & Grunow 2015, p.25).Therefore, through design for logistics concept, new Porsche 911 will be able to design an efficient network of mutual firms founded on leveraging information and people in a most cost-effective way.

According to Harrison, van Hoek &Skipworth (2014, p.63), design for logistics entails the use of design and product approaches that enhances the quality of customer service and reduces logistic costs. The concept is characterized by three key elements including parallel and concurrent processing, transportation and economical packaging, and postponement. Below is a detailed analysis of these three aspects.

Detailed analysis of how the new Porsche 911 can apply design for logistics concepts to control logistic costs, make the supply chain more agile/responsive and more efficient

Transportation and Economic Packaging

This component is involved in product design to enhance their storage and package. An efficient transport system will provide the new Porsche 911with social and economic opportunities including additional investments, employment, and market accessibility. Likewise, an efficient transportation system minimizes operational costs. Harrison, van Hoek &Skipworth (2014, p.63) notes that if an organization does not have a well-connected transportation network, it becomes increasingly difficult for its logistics to bring forth its benefits. On the other hand, an effective transportation network enhances service quality, reduces operation costs, and improves logistic efficiency. Therefore, new Porsche 911 needs to invest in its logistic system to augment its competitiveness in the industry. Additionally, the company needs to focus on designing products that can be stored and packaged efficiently as well as merge at distinct docking points. To reduce transportation costs.

Parallel and Concurrent Processing

The primary objective of these processes is to reduce manufacturing lead times of the new Porsche 911. The company can achieve this by redesigning its products to allow various manufacturing phases to occur in parallel and can be implemented through decoupling or modularity (Sabri, Gupta & Beitler 2007, p.85). Additionally, parallel and concurrent processing will allow the company to keep distinct inventory level for different parts designed. To enhance its efficiency, new Porsche 911 should utilize large lot sizes to minimize costs and enhance efficient use of its equipment. The company should also invest in centralized facilities to benefit from the economies of scale associated with them.

Postponement

New Porsche 911 manufacturing process commences by designing a family or generic product that is eventually distinguished into a certain end product. Therefore, new Porsche 911 can make use of the concept of delayed differentiation including standardization, modularity, commonality and re-sequencing to enhance the quality of products manufactured and reduces inventory costs.

Overview of how the postponement concept and repositioning of the push-pull boundary can assist in developing an Assemble –To-Order or Build-To-Order manufacturing strategy for the new Porsche 911

A manufacturing firm such as Porsche in the current business environment exhibits the ability to complete customer orders rapidly and at the same time offer them with a wide range of products. It is so unfortunate that quick-response time and increased product variety are always conflicting. Conventionally, industries that focused on manufacturing a restricted line of products considered quick–response time very crucial (Gupta & Benjaafar 2000, p.5). Therefore, they ensured that products were stocked and shipped immediately following the receipt of an order from the customer. However, when the quantity of a product is very high, it becomes unpractical and costly for the company to produce more products. The company will also put itself at risk if the relationship between customer and demand is negative. To avoid such incidents, it is important for New Porsche 911 to embrace build-to-order rather than a build-to-store type of production. Ideally, this means that the production process should commence after receiving a customer order.

Despite the fact that built-to-order approach reduces the exposure of the firm to financial risks and get rid of absolute inventories, it results in prolonged lead times. An alternative strategy to make-to-order is delayed differentiation (an element of postponement) in which an organization produces products whose components and features are specific after demand is realized. In this case, manufacturing takes place in two phases. The first phase entails the production and stocking of an undifferentiated system (Build-to-Stock) and a Build-to-order stage where the firm distinguishes its products depending on customer orders (Van Hoek 2001, p.161). Delayed differentiation has numerous benefits to the company including reducing risks linked to holding an inventory of finished goods whose demand might fail to materialize. Additionally, it maintains stocks of partially-finished products resulting in the reduction of order fulfillment delays (Can 2008, p.5). However, it is too costly for the company to implement delayed differentiation. The cost of implementation includes the cost of process and product redesign to enhance product commonality, reduction in processing efficiency and utilization of extra materials. Incase differentiation might be interfered with, it is important that the company differentiates its products early by carrying forward or postponing some of its work till the demand is desirable.

Transportation and Economic Packaging

Push-Pull Boundary

A company such as Porsche that supplies its end customers with high-volume and customized products will often be tempted to depend on approaches that push completed products into the market because they need finances to offset the cost of producing in bulk. As a result, the company primarily focuses on making the shop more efficient instead of optimizing the whole system. The push strategy is based on customer demand forecasting leading to either oversupply or inadequate supply of products desired by customers (Parry & Graves 2008, p.34). For instance, if the company produces about 17million new Porsche 911 annually, approximately two million of these vehicles will be held up for 40 days or two months in inventory. As a result, there will be an increase in insurance, storage, handling or logistic costs. For this reason, the corporation should take advantage of build-to-order strategy to save itself from lost sales and price discounts. For build to order to be successful, the company supply chain must be flexible in regards to volume, product, and process. In most cases, the company achieves productivity but fails to address volume and process flexibility. Conversely, some have achieved volume flexibility but increased product and process cost. Synergy must exist between these three aspects to enhance the success of the value chain.

Assessing whether inventory management and risk pooling theory can be used to explain the rationale for an ATO strategy for a new Porsche 9/11

Risk pooling entails the use of a centralized inventory system rather that a decentralized inventory system (Du 2009, p.2). The use of a centralized inventory is attributed to the fact that when there is an increase in demand at some retailers, there is a likelihood that the demand declines on average at some retailers. For instance, aggregating demand across distinct locations results in an increase in demand from a single customer being offset by a decline in demand from another customer. This decline in variability results in a reduction in the safety stock and consequently a decrease in average inventory (Ganasekaran, Lai & Cheng 2008, p.560). In this regards, if new Porsche 9/11 decides to maintain a separate safety stock and separate inventory, it is mandatory for it to maintain a higher level of inventory compared to when its safety stock and inventory are pooled. As such, the benefit of risk pooling is that it becomes less expensive to function with a similar service level. Risk pooling is also characterized by fewer inventories. Porsche Company should take into consideration risk pooling when making decisions in the following areas:

Product flow and warehouse location: The risk pooling effects should be taken into consideration when decisions are made regarding whether to strategically place the new Porsche 9/11 warehouse in a more centralized place or near the customers. However, if the company decides to set the warehouse in a more centralized location, it will benefit from aggregate demand. Nonetheless, the company needs to take into consideration proximity and other factors that might cause it to maintain numerous warehouses. New Porsche 9/11 is highly vulnerable because it is a high variability and low volume product and can be affected significantly by the risk pooling.

Parallel and Concurrent Processing

Inventory management: As per the above discussions, when there is a decline in demand variability, less safety stock is needed to counter fluctuations. Besides, a more consolidated inventory reduces the company vulnerability to obsolescence and enhances its management. Since Porsche Company has few options and products, its inventory turnover is higher, and its inventory can be turned numerous times in a week (Rana, Osman & Islam 2015, p.7).

Product Design: Risk pooling can be of great benefit to the company if it is making decisions in regards to the complexity and choices in new Porsche 9/11 design. Therefore, the lesser the options or color choices, the simpler the elements of the supply chain and demand forecast because it becomes easier to determine aggregate demand.

Postponement: In designing new Porsche 9/11, the company can utilize delayed differentiation so that it can design more generic cars and later include some detail once customers provide their orders. Delayed differentiation will allow the company to utilize aggregate demand which is very accurate compared to the demand for products that are already differentiated (Oeser 2015, p.43). Therefore, Porsche company need to utilize postponement strategies at the sequencing phase of the manufacturing process until market intelligence provides information on the color choice of customers at distinct locations.

Push-Pull strategy: The first phase of the supply chain greatly depends on a push strategy whereas the final phase relies on a pull strategy. For example, parts of new Porsche 9/11 can be produced but assembled once the demand in the market is high or the company receives an order from the customer.

Transportation: If new Porsche 9/11 warehouse is more consolidated there will be a reduction in transportation costs. Moreover, reductions regarding transportation costs are as a result of shipments being made in larger batches (SWcreenivas & Srinivas 2009, p.6).

Assemble to Order Strategy

According to Ganasekaran, Lai & Cheng (2008, p.560), component commonality is crucial in achieving product diversity at reduced costs and is one of the major pre-condition for assemble-to-order systems. For Porsche Company to implement component commonality, it has to make a decision regarding the extent to which its components should be standardized. According to research, the value of component commonality relies on the allocation rules, lead times, and the costs of the component. Therefore, it is important that inventory management and risk pooling theory be used to explain the rationale for an ATO strategy for a new Porsche 9/11.

Conclusion

Conclusively, Porsche to successfully compete in the current customer-driven markets, it is important that it manufactures new Porsche 9/11 model that meets every customer requirements. Given the fact that the company manufactures a wide range of products that satisfies the demand of various consumers, it is not cost effective to hold them is stock. Besides, time is a crucial factor in the production of new Porsche 9/11 model. For this reason, the company can be responsive by providing clients with reliable and short lead times. In fact, as a concept, postponement enhances the efficiency of the agile and lean concept in the company. Therefore, the company needs to make use of postponement as a strategy to manage uncertainty in the automobile industry.

References

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