CASE STUDY

CGN SUPPLY CHAIN MANAGEMENT

METALCRAFT INC

TARAB SYED AHMED 2010A36

DIVYA CHADHA 2010A60

SHUBHANGA PRASAD 2010B19

SAMIRA VEMPARALA 2010B32

TARUN VIR SINGH BANGA 2010B41

KUNAL SINGH 2010C43

AESHA MARU 2010C60

ABOUT THE COMPANY

Tier 1 supplier of automotive parts to large automakers

84 plants, 1 million incoming components per plant per day

Financials 2001 - Revenue : USD 12.8 Billion Net Income : USD 30 million

Automakers

• OEM

• After market

Tier 1 - Metalcraft

• Assemble component into modules

Tier 2 - Phillips

• Convert raw materials into basic automotive components

Tier 3 – supply raw materials

INDUSTRY & METALCRAFT

Sector - Market cap USD 39.2 billion

Metalcraft – Market cap USD 2.8 billion

Major Industry Problem - Cost of defects

Warranty costs total per vehicle > Average profit per vehicle

Metalcraft’s cost – quality problems, delay in parts delivery, warranty costs

Metalcraft Quality control - Scorecard

CASE SITUATION

Who - Rubber Vent Hose Vendor?

Caltek Inc

ElectropartsInc

AutopartsInc

Mark Mueller

Commodity Purchasing

Agent

Mark Letcher

Corporate Supplier

Development Manager

Darell Bonds

Product Engineer

Ellie Smith

Quality Supervisor

METALCRAFT’S SOURCING PROCESS

What is right

• Considers Basic Cost, Weight and Performance targets of the product

• Prototype development capabilities

• Evaluation of Quotes based on:

• Cost Analysis

• Tooling Analysis

• Capacity Requirements

• Program Timing Constraints

What more?

• Financial Health –Transparency of finances

• Expertise – Investments in R&D

• Operational Effectiveness in terms of:

• Responsiveness

• Inclusion of TQC, 6σ, JIT• Customer Service Index

QUALITY CONTROL PROCESS

1

• Determination of Physical & Performance Characteristics

2• Determination of method to evaluate these

characteristics

3• Preparation of Control Plan

4 • Review & Approve Control Plan

5• Quality Checks & Recording Results on Control Chart

QUALITY RATING SYSTEM

Quality System Status

QOS/BOS Status

PPAP LevelPPAP

Slippage

PPM Performance QR PerformanceSignificant Quality

Event

METALCRAFT’S SUPPLIER SCORECARD

WHY

• To be successful Tier 1 automotive components supplier – Zero Defect Rate

• Single, worldwide reference point on Supplier performance

HOW

• Rating suppliers on three dimensions

• Quality

• Timing

• Delivery

• Continuous evaluation of supplier performance

• Not based on single audits

INPUTS

• Electronic Orders from EDI system

• Contact Information

• Quality System Information

PROCESS

• Calculates PPM and Trendline

• Calculates Supplier Quality Ratings

• Calculates PSW Slippage

OUTPUTS

• Consolidated Contact Information

• Quality and Delivery Results by Individual Plants

• Sourcing Recommendation

OPERATIONS OF SUPPLIER SCORECARD

SUPPLIER SCORECARD

Overall Quality Rating

• F (different aspects of quality & performance)

Launch Quality Rejects

• Problems reported in the production startup phase

• Separated launch problems from normal production

Defect Rates

• Measured in PPM

• Classified fit or function rejects

Meeting Timelines

• For certification of new components

PPAP

• Important to ensure Low volume and High volume products meet requirements

• New parts meeting all specifications

PSW

• Components can be used on vehicles for sale

Quality Timing Delivery

Delay in Deliveries induces

• Rescheduling Costs

• Overtime Production Costs

• Expidited delivery costs

Delivery Performance Rating

• Supplier Communication system

• Up to Schedule Shipping

• Problem resolution and prevention

• Overshipment

• Record Maintenance

• Other Performance

USE OF SCORECARD

Buyers

Supplier selection responsibility

Cost and quality implications

Limited information sourcing

Scorecard -Objective metrics,

constricted supplier base

Plant Quality Engineers

Ensures high quality and defect free parts

Indentify recurring defects from

historical data

Address QRs across all plants

Identify and directly contact problem

suppliers

SD engineers

Technical assistance to suppliers

Helped evaluate and identify attention

areas

Learnt about problems after

significant

Suppliers

Helped guide internal movement

Monitor health of relationship with

Metalcraft

Strengthen competitive position

PROBLEM: WHICH SUPPLIER TO SELECT?

• 1. Correct Metrics

• 2. Metrics accurately reflecting information

[A] Standardize Scorecard:

[B] Use of Scorecard by all stakeholders (Product engineer)

Solution

PROPOSALS

1• Scorecard should have detailed data & query

functions – Data by product line

2

• Updation of performance rating should be done statistically

• Negotiation should have no role

3

• Reduce incentive for buyer to buy at lowest cost

• Define minimum level of quality and increase incentive for same

Which supplier is better ? (Outlier)

4

• Standardize strategy for one time spike

• Exclude one-time event (but capture in notes)

Variation in PPM

Metalcraft Supplier Scorecard - Summary

CALTEK INC

Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

2000 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001

Total PPM 640 5165 409 1 696 3 1100 208 77 1 1328 355

Parts Received

(000)42628 55092 61751 67496 62243 66158 45859 46704 66487 41958 56535 56021

5• Exhibit 5: Huge variation in PPM

• Keep standards constants for reasonable time

QRS Points

Quality Performance Data

PPM Performance Points

0 25

1 to 60 20 to 15

61 to 200 15 to 10

201 to 500 10 to 0

> 500 0

6• Continuous Basis for QRS Points

Cost Analysis

Lowest Landed Cost

Currency Impact

Productivity History

Long Term Agreement

Tooling Analysis

Hard Tooling cost

Soft Tooling Cost

Capacity Requirements

Program Timing Constraints

Quality Performance

Delivery Performance

Restructuring Scorecard

Buyer Supplier Development Engineer

Product Engineer Manufacturing Plant Representative

Sourcing Team

DECISION

Risk Associated For Mark with the decision

• Less Critical Component

• Only Visual Quality Check

• Price offered is low

• Not much impact on his incentives

Scorecard - not fully reliable

• Huge fluctuation in PPM values

• Plant rated red even though it has 0 defects in the last 11 months

• Once identified, Company is improving the metrics

Design Capability

• Industry shifting to High end Products

• Future Partnership Prospects

CALTEK –WHY?

Supplier Relationship Management

Stages

Contractual Relationship

Check the Quality and try to improve the vendors

Vendors as partners

THANK YOU

TARAB SYED AHMED 2010A36

DIVYA CHADHA 2010A60

SHUBHANGA PRASAD 2010B19

SAMIRA VEMPARALA 2010B32

TARUN VIR SINGH BANGA 2010B41

KUNAL SINGH 2010C43

AESHA MARU 2010C60