Hyundai Motor’s Supply Chain Management

Supply Chain Management and Logistics

Hyundai’s background and global reach

Question:

Write a report on Hyundai Motor’s supply chain management.
 

This report is on Hyundai Motor’s supply chain management. An analysis has been done on the product flow, information flow and cash flow from a manager’s perspective. Also by referring to various sources, we have also analyzed its production planning that includes planning for raw material and scheduling process. Mapping its efficiency and loopholes, we have also suggested ways of improvement by applying concepts of supply chain and its theories.  Also we have gone through, different forecasting models and selected the one which is best suited for it.

The Hyundai Motors is a South Korean Company with its headquarters in Seoul. It is a automotive company and was founded in 1967 along with its subsidiary, Kia Motors. Together they make Hyundai Motor Group. Currently it is ranked 4^th largest automobile manufacturer in the world. It has many plants in Korea and in many other countries worldwide. Its largest plant is in Ulsan (Korea) with 5 manufacturing plants and transmission plants (Hyundai motor Company, 2016). It also has test and crash test sites. It has 2 more sites Asan plant and Jeonju Plant. Its other plants include plants in  Alabama , China, India  , Czech , Turkey, Russia and Brazil. In 2015, its yearly sales of vehicles were 1,867,166 (both domestic and international). Its employees are more than 75000 and its vehicles are sold in more than 193 countries through more than 6000 showrooms and dealers (Seok, 2015). For research and development, it has 6 centres worldwide (three in Korea and rest in India, Germany and Japan). The company started developing flexible fuel vehicles in 1988.  In 1991, it developed its first electric car. It started with manufacturing hybrid cars in 1995. Hyundai also participated in World Rally Championship in 1998 and 1999. Its famous models include Accent, Verna, Sonata, Coupe, Dynasty, Pony, Lavita, Stellar, Terracan, Entourage, Galloper , Trajet, Veracruz/ix55. 

In order to beat the competitive environment, companies thrives on efficient supply chain management that includes that include the flow of raw materials from suppliers to end users, information flow from the manufacturer to the consumer offer, purchase, dispatch, invoice etc. Cash flow is also part of it where cash flow is also observed from the customer to the manufacturer. Efficiency in all the three is required to get maximum productivity from the given resources.

Hyundai has many suppliers (that include many first tier suppliers, 2^nd tier supplier, 3^rd tier and higher as well) that are domestic and international. Its sales and independent dealer have only vehicle models and don’t carry any inventory. This helps it to quickly handle customer demands with low expenditure. It has a specific delivery time period for domestic vehicles and slightly longer period for international deliveries (Hahn, Duplaga, & Hartley, 2000). They try to keep minimum inventory and also maintaining lead time. In order to achieve this goal, they rigorously watch production schedules and coordinate with client deliveries. This task is not very easy and conflicts/ problems keep coming up from time to time. So to resolve it, Hyundai made production and sales control department (Duplaga & Hartley, 2000). This department helps to synchronize, balance customer requests and deal with excess or shortages. But, this department also faces issues as follows:

• Production and sales requirement not always meet, due to limited production capacity.
• Domestic and international sales managers have to compete to meet the delivery deadlines.
• Wherever there is a change in the production schedule, it leads to shortage or over supply of inventory.
• Changes in the current design or new product addition, arise lot of coordination issues (Ethical Consumer Research Association Ltd., 2015).

Efficient supply chain management as a competitive advantage

Hyundai is using  a system called order launching and delivery sequencing to enhance its productivity, which requires managers to coordinate between delivery deadlines and production schedules. 

Optimizing various resources: costs can be reduced by efficiently using the plant space, so that the fixed cost of the company can be used. In the same way machines optimization can be done by maintaining it and its schedule. In this way its maintenance cost and downtime can be reduced. Logistics can also be optimized by checking the packing, storing items and disposing waste. From the waste things that can be recycled can be checked that can further reduce the cost.

Managing Information Flow: information system of any organization should be capable of collecting and sorting the large amount of data, analyzing it to make its information, foresee the future needs on the basis of information and it should also help to track the productivity. So, Hyundai should foster its information system, so that it can make better use of it.   

Hyundai’s management gets most of its tasks related to planning, sales, resolving conflicts  and coordinating various departments by its production and sales control department. Suppliers are not involved in the production  plannings but they are informed of the planning process  by a network called EDI system.

The Production and sales control department faced many problems like planning process was not defined due to which there were lots of issues  related to production planning and coordination. Also, since  this was the new department, so they were not lacking any experience and the kind of rules and policies required to run the department (Siemens Product Lifecycle Management Software Inc., 2016). Lack of training was the other issue that they were facing to solve daily problems and handle conflict

Moreover, managing information flows were also one of the problems because Hyundai was not having a common database to link different groups. Therefore, in the starting  the department had to gather data from various sources and develop the  plans. The  department had to bring together  data from the different functional groups. Then the staff members use to make the master production schedules. Due to all this work, staff members were left with very little time to look into other issues (Hyundai Team, 2016).

Also, there were many rapid changes happening in the global environment due to which the pattern of demand was beyond expectation. During 1990s, Hyundai launched its new model ‘Sonata’ in Korea and its demand increased explosively. The production department was not ready to cope with such a huge demand in the given time due to which lead time was extended to 5 months which became a concern for sales department. This resulted in conflicts and lack of coordination between different departments (HMMA Team, 2016).

There are many behavioral problems that the organization had to face. As an impact of the above mentioned problems, there were many changes in the formulated policies and plans. This caused lots of confusion which ended up in frustration.  

Hyundai’s suppliers and delivery processes

A behavioral problem issue was taking responsibility. To be effective, final production plans must be based on accurate planning data, such as sales forecasts, available capacity, and materials plans. The responsibility for developing and providing these data rests with the involved departments. However, as the representatives of the various areas developed the final plan through the process of compromise, some participants tried to make the P/SC meeting or department responsible for developing and providing the best data. This problem probably arose out of the participants’ frustration when their best estimates were revised as part of the compromising process. Closely related to this problem was that of departmental representatives concentrating on supporting their departmental positions. This meant that the final decision was sometimes determined by force of personality instead of logic. 

Supply chain Management training: Training is very essential to the employees of the organization in order to get best out of them. Only if they are trained that they know what to do and how to do smartly. Needs and demands are changing regularly, so employees should be updated with current knowledge to beat the global competition.

Integrating processes of logistics with suppliers: it is important to integrate the logistic process with the suppliers, using certain softwares like ERP. This will help the customer to have a better understanding of the customer’s inventory so that any changes that the suppliers need to plan, they can do them by checking the inventory to get realistic goals and plans. 

Once the manager and the forecaster have formulated their problem, the forecaster will be in a position to choose a method.

There are three techniques that are used

1. Causal models.
2. Time series analysis and projection
3. Qualitative techniques

Causal Method: The first method is named so because it uses cause and effect relationship between the demand and factors causing it. The factors can be prices, availability of raw material etc. it is a bit complex method, but quite reliable than other two. This can also take past trends and connect them with different variable to forecast for future. It include:

Autoregressive moving average with exogenous inputs 

Qualitative Techniques: It uses qualitative data and is based on the discretion of experts, consumers etc. It is mainly used when any past data is not available or something that is done for the first time. (Zhou & Gu, 2014).

Time series analysis and projection: there are various methods to use this method:

Linear prediction, moving average, trend estimation, extrapolation, exponential smoothing, growth curve, etc. it mainly uses past data, analyze it to estimate future outcomes from it (Chambers, Smith, & Mullick, 1971).

The best model to forecast Hyundai Motors is Causal Model. Since it’s a very old company now and has lots of data not only from its domestic sale but also international sale as well. This data can help a lot to give global trend with respect to different scenarios.  For example, it has a sale data of many countries, some of which are underdeveloped, developing or developed. So over the years under what circumstances, sales decrease or increase and the effect of competition can give a lot of information that a novice will take years to have. Many factors such as related businesses, economic changes, social environment and stability and safety of a country are the factors  that a person can use which doing causal method.

This method can also use time series analysis and consider mathematically the relevant causal relationships.

The causal model also takes predictions of important events, promotions of different locations in case data is available. It will connect them with methamatical equations to give the final product flow chart. (Ferrari, 2011) 

Conclusion

In the above report, we have studied about a Korean multinational company – Hyundai Motors.  It is ranked 4^th largest automobile manufacturer in the world. It has many plants in Korea and in many other countries worldwide. With the change in business environment, it adapted to the changes of supply change management where it integrated lot of processes to coordinate between supply and production. They try to keep minimum inventory and also maintaining lead time. In order to achieve this goal, they rigorously watch production schedules and coordinate with client deliveries. This task is not very easy and conflicts/ problems keep coming up from time to time. So to resolve it, Hyundai made production and sales control department. This department helps to synchronize, balance customer requests and deal with excess or shortages. But, this department also faces issues like production, shortage and excess supply etc. we have also discussed its planning and scheduling processes where they keep the information track of the client orders, maintain inventory, planning delivery and then final dispatch. Their coordination and loopholes are discussed.

Finally we have gone through some forecasting techniques and concluded that causal method is best suited to forecast for Hyundai Motors, due to ample data available since it’s not new in market, having insights of trends and patterns over the years. 

Chambers, J. C., Smith, D. D., & Mullick, S. K. (1971, July). How to Choose the Right Forecasting Technique. How to Choose the Right Forecasting Technique. 

Duplaga, E., & Hartley, J. (2000, July 01). Supply-chain synchronizaton: Lessons from Hyundai Motor Company.Supply-chain synchronizaton: Lessons from Hyundai Motor Company. 

Ethical Consumer Research Association Ltd. (2015, April 16). Hyundai Motor Company – Supply Chain Management.

Ferrari, B. (2011, November 28). Hyundai Moves Closer to Closed Supply Chain Network Model. 

Hahn, C. K., Duplaga, E., & Hartley, J. (2000). Supply-Chain Synchronization: Lessons from Hyundai Motor Company.