Creating A Parts-oriented Order Processing Supply Chain - Part 2

The motivation to change the current parts ordering situation usually comes during a crisis, causing business teams to review their current processes and analyze new solutions. The objective of aligning order slotting and material scheduling is to create stability in order processing which leads to reduction in freight and material handling costs.

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You can read Part 1 of this article here.

Stability through transparency

The motivation to change the current parts ordering situation usually comes during a crisis, causing business teams to review their current processes and analyze new solutions. Or the motivation may come from the need to modernize information technology systems and convert outdated resources, such as mainframes, to new technologies. The motivation also comes from the company mergers or reduction of business units leading to the need for common system platforms.

The objective of aligning order slotting and material scheduling is to create stability in order processing which leads to reduction in freight and material handling costs.

flexis AG developed a software solution module that link to the OEM’s existing ordering systems to create a connection between orders and parts. During the process of booking orders, the solution module not only check if parts are available for a given feature combination, but also checks the supply pipeline including current advanced shipping notices (ASNs) between different supply chain nodes. This enables the order slotting module to control the slotting of orders based on whether or not sufficient supply is available or in-transit for an on-time delivery, or a supplier call has been made which would provide coverage for the order. The slotting module also considers the most cost-effective assembly production facility to allocate the order based on sufficient part inventory and production capacity. The merged data from order slotting and material scheduling provide information on the respective demands as well as on the existing part inventories and supply capacities. This data is visualized at different levels so that various divisions, departments, or business owners can have access to the same information at any given time. This facilitates the coordination of decisions for order and part supply re-planning, as well as avoiding unnecessary duplication of work in Sales, Logistics, Purchasing and Production.

In the case of managing the supply chain, simulations allow for analysis to be done to help verify ‘what if’ situations. For example, a simulation may be used to determine what happens if a container is lost somewhere in the supply chain. Through the simulation, one can determine which days of production and what orders are affected by the delayed shipment as well as when additional supply parts are required.

In terms of supply disruptions from natural disasters, fires, port strikes, or other unforeseen interruptions, the system allows for rapid analysis of the total impact on all orders, across multiple facilities and regions. This allows for re-planning based on market priorities, balancing of production facilities and regional requirements. During the simulation analysis, you can look at order changes, supply changes, capacity changes or transportation mode changes. This allows transportation streams to be scheduled earlier and in the most cost-effective way to get back to a stable supply condition.

Verification using the flexis solution module not only includes information about what is in-transit within the supply chain, but also whether the maximum delivery capacity has already been exceeded. A supplier can only deliver parts based on a defined capacity or contractual agreement. If the defined capacity or production quantity has been exceeded or is being used at a faster rate than projected, an OEM can use the information to coordinate more available capacity at an earlier stage.

This leads to many beneficial effects for OEMs and suppliers:

  • Customer promise dates are checked against capacity leading to improved delivery performance
  • Reduction of short-term troubleshooting measures by the early identification of demand and capacity changes
  • Holistic optimization of  the supply chain as opposed to local optimization only
  • Integrated transparency across processes (e.g. alignment sales plan / production program)
  • Securing long-and medium-term supply call-offs
  • Verification of actual parts inventory pulled earlier by several weeks

Lower costs and better on-time delivery

The early parts coverage check allows a considerable amount of time to be gained between the detection of capacity shortage and the production of the order. With more stable long-term plans, short-term production changes can be avoided leading to a significant reduction in both transportation costs and material management costs. Using optimized order slotting that considers both orders and material conditions, OEMs and their suppliers can also reduce fluctuations in the supply chain. This avoids the associated bull-whip effect and permanently reduces the amount of work in process. This applies particularly to long-lead-time components. WIP inventory can be reduced by ten to 30 percent through the reduction of large safety stocks, warehouse inventory and handling costs.

With Sales and Production more closely integrated from a systematic organization point of view, personnel can be used more efficiently. Elaborate due date checks, manual coverage calculations, and inefficient processes to determine allocations for part shortages can be a thing of the past. Simply by avoiding duplication of effort, personnel expenses are reduced by up to 50 percent. In times of skill shortages, this is an important consideration.

By the capacity checked slotting of orders and permanent transparency across the entire planning horizon, the on-time delivery can be significantly improved. At reference installations, flexis customers report an immediate increase in delivery performance.

The linking of information from Sales and Production at the part level earlier in the order slotting planning process is a relatively new concept. Only a few automotive manufacturers are working with this innovative approach to bring more visibility to their supply chain. In a time where global supply chains have become the standard and in which big OEMs are frequently acquiring new businesses, this approach undoubtedly meets the current needs of the automotive industry. Many OEMs rely on common global sourcing and have decided that perhaps a single supplier will deliver modules to all of their plant locations globally. In order to achieve the desired synergies, innovative systematic solutions must be used which eliminate the separation of demand and capacity, and thus keep stability in the global supply chain.


About the author:

Oliver Reisch. Oliver is the COO of flexis AG and member of the company’s board responsible for Professional Services. Oliver has been with flexis AG since 1998 and focuses mainly on topics related to Advanced Planning and Scheduling. He holds a master’s degree in aerospace technology and worked previously as a project manager at Fraunhofer-Gesellschaft for five years. For additional information go to www.flexis.com

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