Analysis of Super Module Initiative for DaimlerChrysler

1
Analysis of Super Module Initiative for
DaimlerChrysler

• ISYE 6203
• Dr. Vande Vate
• April 6, 2006
• Team Members
• Mike Harding Hao Junxian (Peter)
• Joongsup Lee Atul Malik
• Paitee Skooleiam (Tee) Paul Young

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Briefing Agenda

• Company Problem Background
• Problem Statement and Key Items
• Analysis
• Company Costs and Projected Savings
• Facts about DCX and Suppliers
• Assumptions Used
• Outsourcing Options
• Variation in Shipping requirements
• Proposed Solution
• Cost Comparison
• Supply Consolidation
• Recommendation

3
Background Company

• Daimler Chrysler is investigating having an
  outside supplier produce a Super Module for its
  2009 Model Vehicle Programs built at its St.
  Louis Assembly Plant (DCX).
• Outsourcing manufacturing work to the supply base
  can significantly reduce labor costs.
• However, if the supply chain is improperly
  designed it can increase costs in shipping,
  handling, inventory supplier manufacturing that
  can easily outweigh any labor savings obtained.

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Background - Super Module Content
Front Suspension Module (FM)
Brake / Knuckles, Springs / Struts Other Misc.
Components

Powertrain Module (Engine, Transmission, Clutch)

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Problem Statement

• Based on the their preliminary analysis, DCX
  believes that an outsourced Super Module will be
  cost advantageous.
• DCX would like to know the best way to manage the
  Super Module through its supply chain. By doing
  the following
• Examining three proposed options for outsourcing
  to determine which option is the best to minimize
  inventory and transportation costs and while
  maximizing responsiveness and flexibility.
• After determining the best option, analyze it for
  the most effective use of shipping docks and the
  number of modified trucks to incorporate
  pre-existing Modular Rack System (MRS, seen below)

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Problem Statement - Key Investigation Items

• Which supplier should produce the Super Module?
• What is the optimal production / shipping
  process?
• What operating patterns should be followed by
  each Supplier?
• How much inventory does each Supplier need to
  hold?
• How many dedicated shipping docks at the
  Assembly Plant and each Supplier will be required
  to manage the Super Module?
• How many trucks will be needed to ship the
  Super Module?

PM (68 job/hr)
FM (136 job/hr)
PM (68 job/hr)
FM (136 job/hr)
15
13
7
15
3PL
FM (136 job/hr)
PM (68 job/hr)
4
18
9
AP
AP
AP
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Analysis DCX Super Module Cost Breakdown

• Savings / Cost Avoidances
• Material Handling dunnage not required to
  transport Powertrain Module to the assembly plant
  (200K)
• Material Handling dunnage not required to
  transport Front Suspension Module to the plant
  (100K)
• Floor Space not required to display Powertrain
  Module and Front Suspension Module at the
  Assembly Plant (400,000)
• No backup storage area required (500K)
• Less Shipping Docks needed (200K)
• Eliminate need for interchangeable tooling and
  storage on AGVs (400k)
• Eliminate need for lifting device to load Front
  Suspension Module from dunnage to AGV (50k)
• Eliminate need for lifting device to load
  Powertrain Module from dunnage to AGV (50k)
• Eliminate need for material display devices for
  Powertrain, Front Suspension Modules other
  components (500K)
• Costs
• Simple strip system to auto load / unload Super
  Module from shipping trailers and stage to AGVs
  (500K)
• Hoist to load Super Module to AGV (50K)
• Unknown Costs
• Suppliers per unit cost for assembling Super
  Module

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Analysis DCX Super Module Labor Breakdown

• DCX Plant Manpower Impact
• Receiving Super Module vs. separate Powertrain
  Module, Front Suspension Module Other Loose
  Components
• Total for 2 shifts
• a. Direct Labor Operators 10
• b. Material Handling Operators 4
• c. Other Operators (Skilled, Union, etc.) 1
• d. Salary Supervisors (1 to 25 ratio of abc)
  0.6
• e. Team Leaders (1 to 6 direct labor operators of
  a) 1.7
• Pools (based on 18 absenteeism x (ab)) 2.5
• Total 19.8
• Total Savings 2,572,000

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Analysis - DCX Plant Information

• Operating Pattern
• 8 Hours per Shift x 2 Shifts
• 1088 Net Vehicles per Day
• 68 Net Vehicles per Hour

• Manufacturing Objectives
• Flexible manufacturing capabilities
• Build multiple vehicle platforms on the same
  assembly line
• Mix models, options and vehicle content based on
  customer demand
• Reduce un-needed on-hand inventory

Loaded onto AGVs
Body / Chassis Marriage
Auto Load / Unload of Super Module
Shipping Docks
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Analysis - Facts

• Distances between the suppliers, 3PL, and
  Assembly plant are known
• The size and weight for each module type is
  known. Furthermore, by using the Modular Rack
  System, the cube limits hauling capacity.
• Production rates of the Front Suspension Module
  and Powertrain Module are fixed and total
  production for each module is 1088 units per day
• FM is produced at rate of 136 units per hour for
  one 8 hour shift
• PM is produced at rate of 68 units per hour for
  two 8 hours shifts (16 hours)
• Both suppliers currently maintain about 3-5 weeks
  of raw materials for their production processes

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Analysis - Assumptions

• Potential of many unique Super Modules being
  required due to a wide variety of available
  components
• Left hand drive vs. Right hand drive
• Suspension stiffness
• Engine Sizes (Diesel, Hemi, etc.)
• Transmissions (Auto, Manual)
• Varying electronics, emission requirements,
  export requirements
• Data complexity narrowed down to 5 key Super
  Module combinations

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Analysis - Assumptions

• Average value per unit of inventory
• Front Suspension Module 3,500
• Powertrain Module 6,000
• Super Module 11,000
• Supplier assembly costs for producing the Super
  Module are equal (including initial set-up,
  holding costs, labor, etc.)
• Each truck can transport either 48 Super Modules,
  48 Powertrain Modules, or 96 Front Suspension
  Modules via the Modular Rack System
• Assumed production rate of the new Super Module
  would be 68 units per hour
• Initially rate of travel will be assumed
  constant
• 30 minutes for legs between the FM, PM, and DCX
• 15 minutes for legs between the 3PL and any other
  node
• Other time consideration is 30 mph
• Loading time for non-AGV system is 20 minutes per
  truck (loading or unloading)

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Analysis Outsourcing Options

• Based on the requirement from the Assembly Plant,
  we determined that the system was a pull system
• Analyzing the components of the system, it is
  mainly deterministic with its main variability
  coming from transportation times, loading and
  unloading times, inspection times, and assembly
  line reliability rates (maintenance failures).
• Looking at the three proposed solutions, we
  decided on a completely lean, deterministic
  system with the assumed travel times for each leg
  for initial comparison
• Shift times were staggered
• Inventory was the same (272 Front Suspension
  Modules)
• Main difference was travel times/distances,
  number of trucks, and loading times (not
  including vehicle inspection)
• Truck cycle is load, travel, inspection, unload,
  load empty MRS, travel, then unload empty MRS.
  Fuel cost was calculated with 5mpg and 2.50 per
  gallon for 250 days

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Analysis Lean System PM Supplier producing
Basic IDEA of 192 Min Window Lean Supply Chain
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Analysis Variance on Number of Trucks

• After the initially comparison pointed entirely
  to the Powertrain supplier as the best option.
  We took this option and introduced some
  variability into the system to account for travel
  time, inspection times, and loading times. We
  will assume that each element of the truck cycle
  is independent of each other. Also that the
  variability for loading and travel remain
  constant for the entire trip. Also since,
  distance was important during the cost
  evaluation, we assumed a mean of 30 mph or 2
  minutes per mile. Loading times for AGV systems
  are assumed to be deterministic (maintenance).

The following were standard deviations we picked
initially st 20 seconds per mile si 3
minutes per inspection (10 of mean and mainly
human interactions sl 3 minutes per event (15
of mean because requires MHE) Holding any one of
these fixed we could vary the other up to the max
value and still maintain the same number of
trucks.
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Proposed Solution PM Supplier Produces SM
Shipping Unloading
15 miles
Production Loading
Powertrain Module Processing
Super Module Processing
9 Miles
Shipping Unloading
Build Broadcast
Assembly Plant
Specialized Truck for shipping Super Module
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Cost Comparison PM Supplier vs DCX

• After looking at the different aspects of the
  system and how the Powertrain Supplier is the
  best alternative to minimize the costs in the
  supply chain.
• Total Estimated Savings over Program Life
  1,224,000
• Note - Cost per unit does not include
• 1. cost of capital for up front investment
  costs
• 2. inventory holding costs other than floor
  space to store it

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Supply Consolidation Existing Inventory
Managing supply

• What are the complexities?
• Variability in modules

- Variability in components, from various
suppliers
PM 125 components, 50 suppliers FM 31
components, 11 suppliers SM 57 components, 10
suppliers
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Supply Consolidation

• The replenishment is scheduled to share the
  transportation cost among products from the same
  supplier.
• - Find the right demand
• Daily production x Usage x Usage by BOM
• Compute EOQ and T respectively for different
  parts
• step 1Round T to nearest power of two,
  minimal T
• Re-compute order quantity (QDT) and thus holding
  cost with reduced transportation cost (A)
• - step 2 Decrease T for all parts towards T
• Re-compute order quantity (QDT) and thus holding
  cost with A unchanged

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Supply Consolidation For each Module

• Summary of cost saving

EOQ
Step 1 result
Step 2 result
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Supply Consolidation Comparison
Summary of cost saving
12.30 saving
16.80 saving
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Recommendations

• Our recommendation is to proceed with the
  outsourcing of the Super Module production to the
  Powertrain Module Supplier.
• PM Supplier does not ask for more than 12.40 a
  unit
• Reduces liability involved with in-house labor
• Potential savings or cost avoidance 1.2
  million
• Allows PM Supplier to increase inventory
  shipments from, thus reducing their cyclic
  inventory cost
• In addition, we recommend some raw material
  consolidation in shipments for both the FM and PM
  suppliers to reduce inventory costs.

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• Questions
• ?

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Cost Comparison Back-up Data
DCX does work in-house
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Cost Comparison Back-up Data
DCX outsources work