Supply Chain Synchronization Lessons From Hyundai Motor_2

Copyright � 2000 INFORMS0092-2102/00/3004/0032/$05.001526–551X electronic ISSN

PRODUCTION/SCHEDULING—APPLICATIONSPRODUCTION/SCHEDULING—PLANNING

This paper was refereed.

INTERFACES 30: 4 July–August 2000 (pp. 32–45)

Supply-Chain Synchronization: Lessons fromHyundai Motor Company

Chan K. Hahn Department of ManagementCollege of Business AdministrationBowling Green State UniversityBowling Green, Ohio 43403

Edward A. Duplaga Department of ManagementBowling Green State University

Janet L. Hartley Department of ManagementBowling Green State University

One of the challenges of supply-chain management is develop-ing ways to effectively integrate activities across organizationson the supply chain. Hyundai Motor Company developedmechanisms to coordinate production planning and schedulingactivities among supply-chain members. Hyundai Motor’sproduction-and-sales-control (P/SC) department uses regularlyscheduled cross-functional meetings and scheduling policies tocoordinate supply-chain activities. When implementing thisprocess, the P/SC department overcame structural, environ-mental, and behavioral problems. Although Hyundai manage-ment concedes that the process is not perfect, communicationamong supply-chain members has improved, and the P/SCgroup has successfully promoted mutual understanding andrespect among functional areas. The primary benefit, ulti-mately, is improved customer satisfaction through better inte-gration of functional activities.

During the last decade, many firmsdramatically improved their internal

operations, their product quality, their re-sponsiveness, and their efficiency, and re-duced their costs by following the pre-

cepts of such philosophies as total qualitymanagement, process reengineering, andjust-in-time production. However, manag-ers still face increasing competitivepressures to continuously improve. Orga-

HYUNDAI MOTOR COMPANY

July–August 2000 33

nizations seek to enhance their competi-tiveness by exploring the concept ofsupply-chain management (SCM).

The supply chain typically includesmany organizations, starting from raw-materials suppliers and including compo-nent suppliers, subassemblers, final assem-bler, the distribution channel, and endingwith the consumers [Billington 1994; Davis1993; Ellram 1991; Hammel and Kopczak1993; Jones and Riley 1985; Lee andBillington 1993]. SCM focuses on manag-ing the flow of materials and informationwithin the supply chain to make it moreresponsive to customer needs while lower-ing its total costs. Supply-chain managerstry to coordinate and integrate the diverseactivities of supply-chain members to syn-chronize these flows.

Although achieving synchronization isimportant, attaining it within the supplychain is an arduous task. In fact, manymanagers find it difficult to synchronizethe activities of the functional groupswithin their own organizations [Rho,Hahm, and Yu 1994; Souder 1981]. Syn-chronization across organizational bound-aries is likely to be even more difficult. Forexample, Fraser [1997, p. 76] stated that“what we see in our work shows that syn-chronization is almost non-existent in sup-ply chains, and quite rare even within sin-gle companies.”

Although practicing managers and re-searchers accept supply-chain manage-ment as an increasingly important con-cept, few have presented empiricalevidence of how companies actually orga-nize their processes to manage their sup-ply chains. We focus on one aspect ofSCM at Hyundai Motor Company: syn-

chronizing supply-chain activities in plan-ning production. While not the only ap-proach available for achieving integrationwithin the supply chain, the approachHyundai selected involves a centralizedcoordinating group.Supply-Chain Management

Because SCM is an emerging concept,the definition of what supply-chain man-agement encompasses is still fluid [Ross1996]. In discussing SCM, some authorsfocus on materials management, the con-trol of material flows and inventory levelsacross the supply chain [Billington 1994;Davis 1993; Jones and Riley 1985; Lee andBillington 1993]. Others focus on purchas-ing, the activities needed to design, build,and maintain a network of capable sup-pliers [Hines 1994]. Still others concentrateon logistics, exploring such issues as car-rier relationships and transportation[Carter and Ferrin 1995].

Although their emphasis may differ,most researchers agree that SCM concernsdiverse activities that were formerly con-sidered the realms of separate functionalgroups, such as marketing, engineering,production, purchasing, distribution, andlogistics (Figure 1). With SCM, the per-spective must shift from functional spe-cialization to horizontal integration of allfunctional activities across organizationsin the supply chain.

With functional specialization, eachfunction is expected to perform specificvalue-adding activities required to achieveorganizational goals. However, such spe-cialization leads to differences in goalsand in interpersonal relationships[Lawrence and Lorsch 1967]. Such differ-ences can create barriers to the coordina-

HAHN, DUPLAGA, HARTLEY

INTERFACES 30:4 34

Figure 1: The supply chain encompasses all the activities that are needed to meet the customerdemand, from raw-materials acquisition in the supply network, to production in the conversionnetwork, to packaging and delivery by the distribution network.

tion of activities among functional areas[St. John and Hall 1991; Shapiro 1977].

SCM extends functional integration be-yond organizational boundaries to includesuch external organizations as distributorsand suppliers. The competitive strength ofa product in the marketplace is deter-mined by the combined capabilities of allmembers of the supply-chain team ratherthan by the manufacturing company’s ca-pabilities alone. Their activities must besynchronized to achieve the maximumbenefits.

Synchronization requires close coordina-tion and timing among the different mem-bers of the supply chain, and that is a ma-jor problem for many companies [Fraser1997; Gumaer 1997; Lee and Khumawala1996]. In case studies of five companies,Lee and Khumawala [1996] found syn-chronization to be a problem and foundfive common causes of misalignment: (1)functional organizations are managed in-

dependently; (2) functional objectives of-ten conflict; (3) information systems do notprovide effective supply-chain informa-tion; (4) customer focus is lacking in theinterior of the supply chain; and (5) thedifferent needs of customers are not recog-nized within the supply chain.

Effective communication and coordina-tion among all elements of the supplychain are essential. Fraser [1997] statedthat four major factors characterize syn-chronized operations: (1) a consistent setof shared data; (2) a systemwide perspec-tive; (3) rapid communication to all rele-vant parties; and (4) proactive response toevents, changes, or exceptions. The ele-ments of the supply chain should functionas a unified competitive entity focused onresponding quickly and efficiently to thechanging requirements of the marketplace.

Although synchronization is an issue inall organizations, few industries offer asmany challenges or opportunities for



supply-chain synchronization as the auto-motive industry. A typical supply chain inthe automobile industry is made up ofthousands of companies engaged in rawmaterials supply, parts manufacturing,subassembly, final assembly, and distribu-tion. The automobile industry in theworldwide market is a highly competitivemature industry, and automobiles aremass-produced commodities manufac-tured with widely available standard tech-nology. In this situation, traditional pro-duction and inventory theoriesrecommend a make-to-stock productionsystem that relies on a high level offinished-goods inventory for fast delivery.

However, the automobile industry hastraditionally allowed customers to choosefrom different models, colors, and otheroptions. This means that it must accom-modate a large number of variations invehicle specifications. The automobileindustry’s problem of simultaneouslycombining a large-volume-production re-quirement with a large variety of small-lotmake-to-order requirements involvingthousands of suppliers and dealers can beviewed as a massive supply-chain-synchronization problem.

In the automotive industry, differingfunctional objectives and an extremelycomplex supply chain impede synchroni-zation. For instance, generally sales de-partments want to make many optionpackages available with short deliverytimes and competitive prices. Manufactur-ing frequently counters that increasingproduct variety means decreasing effi-ciency and quality and delivery perfor-mance. To further complicate the problem,automobile manufacturers often purchase

over 10,000 parts and subassemblies fromoutside suppliers. This means that theymust coordinate information and activitiesamong a huge number of domestic andforeign parts suppliers. In addition, manyfinal manufacturers do not know thedepth or configuration of the supply chainbeyond the first- and second-tier linkages[Miyashyita and Russel 1994].Hyundai Motor Company

Hyundai Motor Company was estab-lished in December 1967 as a part of theHyundai Group, one of the largest busi-ness groups in Korea. Hyundai started itspassenger-car production in 1968 by as-sembling imported knockdowns (partsand subassemblies) from Ford MotorCompany. By 1975, Hyundai became thefirst Korean auto maker with integratedmanufacturing facilities, and Korea be-came the 16th country in the world to pro-duce its own model of automobile. Hyun-dai Motor now has production facilities inKorea and in 13 other countries with a to-tal capacity of over 1.8 million cars an-nually, and it plans to open other manu-facturing facilities in Korea and in othercountries. The company produced around1.3 million units per year for the last threeyears, making it one of the top 10 automo-bile companies in the world in terms ofvolume.

As is typical in the auto industry, theupstream portion of Hyundai’s supplychain is very complex. Hyundai has ap-proximately 400 first-tier suppliers, 2,500second-tier suppliers, and an unknownnumber of third- or higher-tier suppliers.Although domestic sources in Korea ac-count for the vast majority of the sup-pliers, Hyundai also relies on foreign sup-


INTERFACES 30:4 36

pliers for some materials and parts.The structure of the sales and distribu-

tion portion of the supply chain is differ-ent for Hyundai than for companies in the

Hyundai has approximately400 first-tier suppliers, 2,500second-tier suppliers, and anunknown number of third- orhigher-tier suppliers.

US automotive industry. Hyundai’s do-mestic distribution is handled by 700 salesoffices owned by Hyundai Motor and by200 independent dealers. These sales of-fices and dealers have demonstrationmodels but carry no other inventory.Thus, customer orders in Korea are filledby delivery from inventory held at theplant or distribution centers, or by sched-uled production. By holding limitedfinished-goods inventory at the plants ordistribution centers, instead of at specificsales offices, Hyundai maintains the great-est flexibility to respond quickly to specificcustomer demands with low overall costs.Hyundai tries to make deliveries in sevendays or less for domestic orders if the or-dered model is in a popular color and hasfrequently ordered options. If the colorand options requested are not frequentlyordered ones, Hyundai promises deliverywithin 15 days.

The company also exports its automo-biles to over 80 countries throughout theworld. Hyundai’s export market accountsfor approximately 45 percent of total sales.The export items are shipped to destina-tions through regularly scheduled ship-ping lines. For export vehicles, the deliv-

ery lead time is 45 days.One goal of Hyundai’s sales and distri-

bution system is to minimize finishedgoods inventory while maintaining com-petitive delivery lead times. Hyundai triesto keep no more than seven days worth offinished vehicles on hand. This inventorygoal is very aggressive even compared toJapanese automotive companies. Typically,Hyundai tries to minimize its finished-goods inventory by delivering vehicles di-rectly to customers as soon as they arecompleted. Hence, it must carefully coor-dinate and monitor customer-order prom-ises, production schedules, and supplierdeliveries.Supply-Chain Coordination Issues atHyundai Motor

All automotive companies must developproduction schedules. Managing the con-flicting goals of increasing product variety,reducing delivery lead times, and reduc-ing costs is difficult. To address this prob-lem, about 15 years ago, Hyundai Motororganized its production-and-sales-control(P/SC) department to mediate conflicts be-tween manufacturing, the domestic andexport sales departments, and the domes-tic and foreign purchasing departments.Hyundai decided to use a centralized ap-proach to achieving coordination becausemost of its manufacturing facilities and re-lated functional areas were located at Ul-san, Korea. This centralized location madeit fairly easy for the new department tocoordinate its efforts. This group facedfive key issues: (1) synchronizing sales andplant capacity, (2) balancing requests fromthe domestic and export sales depart-ments, (3) dealing with shortages and ex-cesses of inventory due to schedule



changes, (4) coordinating new product in-troductions or part changes, and (5) syn-chronizing order-launching and deliveryactivities.

Synchronizing sales requirements andplant capacity is an important issue be-cause production capacity and sales re-quirements do not match perfectly. Foreach model, production capacity tends tobe fixed in the short run, yet sales fluctu-ate. The sales function wants to meet cus-tomer demands quickly and thus wantsscheduling flexibility until the last possiblemoment. However, to increase efficiencyand reduce costs, manufacturing, inven-tory control, purchasing, and supplierstypically prefer a smooth, stable produc-tion schedule.

Another issue faced by the P/SC depart-ment was balancing requests from the do-mestic and export sales departments. Fre-quently, domestic and export salescompete for the limited production capac-ity. One problem in accommodating re-quests is that domestic and export saleshave different patterns of aggregate de-mand. Although the demand for specificmodels varies, the domestic aggregate de-mand for vehicles tends to be quite stable.The export demand tends to be lumpy be-cause of shipping schedules. Meetingthese different demands with limited pro-duction capacity in a cost-effective manneris difficult.

A third issue was shortages and exces-ses of inventory due to schedule changes.Changing a production schedule can causeshortages and excesses of inventory. In ad-dition, schedule changes can cause a rip-ple effect upstream in the supply chain.For example, when planners schedule pro-

duction of more cars of a certain modelthan initially planned, the plant may runshort of parts for those models, while car-rying excess inventory of affected parts forthe models whose schedules were re-duced. The suppliers may also experiencea shortage or excess of materials or partsbecause of the change. Therefore, supply-ing accurate information promptly iscritical.

Coordinating new product introductionsor part changes was another issue facedby the group. Coordinating engineeringchanges and new model introductions are

Sales offices and dealers havedemonstration models butcarry no other inventory.

two of the most difficult challenges asupply-chain manager may face. Product-design changes affect the entire supplychain. Downstream, sales and distributionmust phase out the inventory of the exist-ing model and switch over to selling thenew models when new models are intro-duced. Upstream, suppliers must changetheir production processes and carefullycoordinate the phase out of parts and sub-assemblies while preparing to producenew parts and subassemblies required bydesign changes.

Synchronizing order-launching and de-livery activities was the fifth key issue.Hyundai, like other automobile compa-nies, uses an order-launching anddelivery-sequencing system to improve itsproduction and inventory efficiency[Hahn, Watts, and Kim 1991]. About 28percent of the purchased items are deliv-ered by suppliers on at least a daily fre-


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quency and in the sequence required fordaily production. To accomplish this,supply-chain managers must coordinatetheir order-launching and delivery deci-sions with the production schedules to en-sure that suppliers maintain the correct se-quence. This approach requires goodcommunication, rapid information flow,and stable production schedules.Supply-Chain Synchronization Duringthe Production-Planning Process

Hyundai’s production-and-sales-controldepartment synchronizes production-planning activities across facilities andfunctional areas. The P/SC departmenthas final responsibility for the productionschedules for all of Hyundai’s domesticmanufacturing facilities: the master pro-duction schedule (six-month productionplan), daily production schedules for eachmonth, and weekly production schedules.The interface among purchasing, produc-tion, and sales is especially critical duringshort-term planning. Thus, this processprovides one illustration of the supply-chain management perspective at HyundaiMotor.

Hyundai’s domestic sales offices carryno inventory of finished automobiles otherthan the display models. A typical cus-tomer visits one of these sales offices tobuy an automobile. When a customer de-cides on a particular model, the salesper-son uses a computerized information sys-tem that includes data on the availableinventory at the plants and distributioncenters to determine whether Hyundai canmeet the order from finished-goods inven-tory. If the required model is available, thesales person gives the customer the deliv-ery date for the vehicle. The vehicle is de-

livered to the distribution center (total of15 centers) nearest the customer’s home.The customer has the option of picking upthe vehicle at the distribution center orhaving it delivered to his home for an ex-tra charge. If the requested vehicle is notavailable from inventory, the salespersonchecks the current production schedule toprovide the customer with a delivery date,entering the customer-order information

Export demand tends to belumpy because of shippingschedules.

into the computer system and transmittingit to the sales headquarters for data con-solidation and analysis in real time. Hyun-dai tries to make deliveries in seven daysor less for domestic orders if the orderedvehicle is in a popular color and has fre-quently ordered options. Otherwise,Hyundai promises delivery within 15days.

Based on the accumulated customer or-ders and sales forecasts, the domestic salesdepartment provides its requirements tothe P/SC department. Similarly, the ex-port sales department consolidates all ex-port requests supported by letters of creditand transmits the consolidated export re-quirements to the P/SC department. Theproduction-planning-and-control depart-ments at the manufacturing plants providethe P/SC department with current infor-mation about available plant capacity bytime period. The capacity situationchanges because of such factors as mainte-nance schedules and planned overtime.Based on sales and capacity data, theP/SC department develops preliminary



plans to be reviewed by involveddepartments.

When the purchasing/materials depart-ment receives these preliminary produc-tion plans, it checks their feasibility interms of parts and materials availabilityfrom suppliers. The purchasing/materialsdepartment works with suppliers to en-sure that they can deliver the specifiedquantity of parts and materials on time.Earlier the department had given the sup-pliers estimates of its parts and materialsrequirements for the next several months.It then provides the suppliers with the fi-nal production plans for confirmation twoweeks prior to actual production. All thesuppliers are connected to Hyundai’svalue-added network, and communicationabout scheduling takes place through thiselectronic data interchange (EDI) system.If changes are necessary, the supplierstransmit the information to Hyundai forpossible actions.

Based on the requirements provided bythe domestic and export sales departmentsand available plant capacity information,the P/SC department develops all produc-tion schedules. The first production sched-ule developed by the department is themaster production schedule. Many func-tional groups must exchange informationand coordinate their efforts to come upwith an acceptable master productionschedule. The P/SC department’s primaryrole in this process is to coordinate thevarious functions in the supply chain (Fig-ure 2).

The master production schedule is de-veloped in monthly time buckets on a six-month rolling horizon basis. The six-month planning horizon gives the

purchasing department and suppliersenough lead time to acquire necessary im-ported raw materials, parts, and knock-downs (subassemblies). Suppliers thatneed imported materials or parts get con-firmed orders four to six months prior tothe actual production date plus anothertwo to three months of forecasted sched-ules. For parts manufactured domestically,suppliers get a one-month confirmedschedule plus one to three months of fore-casted schedules.

Representatives from the sales, produc-tion planning, and materials departmentstypically hold a meeting between the 20thand 25th day of each month to developthe monthly master production schedules.The manager of the P/SC departmentchairs the meeting. Ten days prior to thismeeting, the P/SC department asks thedomestic and export sales departments tosubmit expected sales data. Based on thisdata, information on production capacity,and parts and materials availability infor-mation, the P/SC department develops apreliminary production schedule for dis-cussion at the meeting, which it distributesin advance.

The day before the main meeting, theP/SC department holds a preliminarymeeting to resolve the differences amongdepartments by soliciting suggestionsfrom all participants. Attending the meet-ing are 25 to 30 people—section managersof the involved functional areas or theirstaff members who develop the schedulesor both. Any issues not resolved duringthe preliminary meeting are handled dur-ing the main meeting attended by seniorexecutives from each functional area.

During this process, the participants


INTERFACES 30:4 40

Figure 2: The P/SC group coordinates the efforts of sales, manufacturing, purchasing, and sup-pliers to develop an acceptable master production schedule. We summarize the activities of thevarious functional units and the complete process in this flow chart indicating the timing ofactivities in the date column, where D refers to the date of the production-and-sales-controlmeeting. For example, 10 days prior to the P/SC meeting (D-10), the P/SC department sends outan announcement of the meeting and requests sales data from the domestic and export salesdepartments.

confirm the next month’s (M � 1) sched-ule and develop the following month’s(M) schedule. For example, the Marchschedules are developed and agreed uponin January. Once the next productionschedule (M month) is agreed upon, theP/SC department asks the sales areas toprepare a detailed breakdown of themonthly plan by model and trim level.Once this detailed plan has been acceptedby the parties involved, the productionschedule is finalized, and within five days,the P/SC department distributes it to allrelevant parties for appropriate action.

Once it has the final master productionschedule for period M, the P/SC depart-ment breaks it down further into weeklyand daily production schedules by plant,model, trim level, engine type, and desti-nation. It develops the weekly productionschedules two weeks prior to the first pro-duction week. The first two weeks’ portionof the schedule are considered firm, andthe remaining two weeks are consideredto be tentative. The department then draftsdaily schedules for the finalized month,distributing them to the manufacturing,domestic-purchasing, and foreign-



materials areas for further comments. Fol-lowing their review, it calls a monthlymeeting to finalize the daily productionschedules for the month.

Within two days of the meeting, theP/SC department distributes finalizeddaily production schedules to all involveddepartments for their actions. For exam-ple, the export-sales department developsits shipping schedule on the basis of thedaily schedule, and the data-processingdepartment prepares tables that compareplanned performance to actualperformance.

Based on the finalized weekly schedule,the data-processing department developsthe daily assembly-sequence list, specify-ing the order of vehicles with exact op-tions to be assembled each day. It also de-velops the supplier-delivery-notice list thatis compatible with the daily-sequence list.For such items as seat assemblies, the sub-assembly lines and supplier-delivery se-quences must be totally synchronized withthe order of the vehicles on the sequencelist so that the workers on the line do not

have to search for the right parts.Responding to changes and informing

all involved parties quickly are importantaspects of supply-chain synchronization.The P/SC department updates monthlysales and production schedules (MPSs) atthe regularly scheduled meetings or atspecially called meetings. It calls specialmeetings when changes in the sales ormanufacturing environment, such as ashift in demand or problems with a sup-plier, warrant adjustments to the masterproduction schedule.

Any request for revision of the masterproduction schedules must be made ac-cording to previously agreed upon policyguidelines (Table 1). The P/SC departmentconsiders such requests in light of avail-ability of capacity and of domestic andforeign materials. The extent of possiblechanges increases for time periods furtherinto the future since the tentative portionof the MPS permits more flexibility. Thesepolicy guidelines encourage give and takebetween marketing, manufacturing, andpurchasing, while also recognizing the im-

Timing MonthTotalvolume Model Color Comments

P/SC meeting (M � 2) M � 1 0% 10% 10% Adjustments made during the20–25th day of each M 10% 20% 20% regular P/SC meetingmonth M � 1 10% 30% 30%

M � 2 15% 30% 30%M � 3 20% 30% 30%

Thursday of each W 0% 0% 0% Adjustments made during the weeklyweek (W � 1) W � 1 0% 0% 0% production schedule meeting

W � 2 10% 30% 30%W � 3 10% 30% 30%

Table 1: Master production scheduling policy guidelines specify the timing and the extent ofrevisions for the total volume, the mix of models, and the color mix. In this table, M refers tothe second month after the production-and-sales-control (P/SC) meeting month and W refers tothe next week after the meeting time. Considering the total production volume, the month M isa time fence and M � 1 is a firm portion of the schedule.


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pact of schedule changes on suppliers.Evaluation of the Process

The P/SC department ensures that allfunctions take an integrated-supply-chainperspective during the planning process.Hyundai management believes that theP/SC department has been effective in re-solving conflicts and synchronizing activi-ties among the sales, production, and pur-chasing areas. Also, although suppliers arenot directly involved in the production-planning meetings, they are kept informedat various stages of the planning processthrough the value-added-network EDIsystem.

The P/SC department encounteredstructural, environmental, and behavioralproblems. When first formed, the P/SCdepartment encountered several structuralproblems. First, although the P/SC depart-ment was to coordinate production plan-ning, authority and responsibility for theplanning process were not well defined.Also, the newly formed department hadno well-established policies and proce-dures or historical precedents to guide itsactions. Moreover, although the P/SC staffmembers were expected to encourage co-operation, mediate conflicts, and solveproblems, they had no formal training inthese areas. These initial problems sub-sided as the department gained experienceand developed formal policies andprocedures.

Managing information flows, critical tosupply-chain management, was anotherproblem for the P/SC department. As isthe case in many companies, Hyundai didnot have a common database linking thedifferent functional groups. Thus, initiallythe department had to manually gather

data from various sources and manuallydevelop the production plans. The P/SCdepartment also had to reconcile datafrom the different functional groups. Con-sequently, it allocated most of its staff re-sources to preparing the master produc-tion schedules, leaving very little time tofocus on other issues.

Rapidly changing internal and externalconditions also created coordination prob-lems. For example, Hyundai’s success inthe North American market during thelate 1980s was far beyond its initial expec-tation and put a heavy burden on produc-tion in terms of volume requirements andthe frequency of schedule changes. An-other example was an unexpected explo-sive growth of demand in Korea for a newmodel called Sonata during the early1990s. The demand for the new model wasso great that the delivery lead time to cus-tomers had to be extended to three to fivemonths, a major concern for the sales de-partment. These situations amplified theconflicts among different functional areasin the supply chain and forced the com-pany to emphasize coordinating the entirechain.

The P/SC department also had to copewith several behavioral problems that af-fected the planning process. First, seniormanagers frequently changed the produc-tion plan that had been developedthrough the coordinated efforts of all in-volved parties during the preliminarymeeting. These changes caused confusionand frustrated and demoralized the manyparticipants in the process. In many cases,the changes were necessary because ofrapidly changing environmental condi-tions or because of corporate-level policy



changes. However, the senior managersfailed to communicate the reasons for thechanges to the planning group in a timelymanner.

Second, various area representatives of-ten differed because of perceived perfor-mance expectations for their own areas. Asthe operating units translated the annualbusiness plan into their own operatingplans, they often emphasized different as-pects to achieve the annual plan. Fre-quently, the difference in emphasis re-sulted in perceived differences in

The final decision wassometimes determined byforce of personality.

performance expectations and affectedoperating-unit behavior. This was a classi-cal example of the sub-optimization prob-lem, and top management needed to ad-dress this issue since the P/SC departmentcannot change the operating plans or per-formance criteria of the operating units.

A third behavioral problem concernedtask responsibility. To be effective, finalproduction plans must be based on accu-rate planning data, such as sales forecasts,available capacity, and materials plans.The responsibility for developing and pro-viding these data rests with the involveddepartments. However, as the representa-tives of the various areas developed the fi-nal plan through the process of compro-mise, some participants tried to make theP/SC meeting or department responsiblefor developing and providing the bestdata. This problem probably arose out ofthe participants’ frustration when theirbest estimates were revised as part of the

compromising process. Closely related tothis problem was that of departmentalrepresentatives concentrating on support-ing their departmental positions. Thismeant that the final decision was some-times determined by force of personalityinstead of logic.

As the number of automobile models of-fered and the number of plant facilities in-crease, coordinating many different inter-ests becomes increasingly difficult andtime consuming. For example, with 25 to30 people attending a typical monthlyP/SC meeting, coordinating such a largegroup is difficult. On one hand, broad par-ticipation is essential for the success of theplanning process. On the other hand, thepotential problems of managing a largegroup with a variety of interests need tobe recognized. Thus, the synchronizationof various links in the supply chain con-tinues to evolve at Hyundai MotorCompany.Conclusion

Although Hyundai’s decision to create acentralized P/SC department was basedpartially on the fact that most of its manu-facturing facilities were located at the Ul-san complex, a centralized coordinatingapproach does not require geographicalcloseness of supply-chain members. Forexample, Magretta [1998] reported on thecentralized approach used by Li and Fung,Hong Kong’s largest export trading com-pany, to synchronize activities within itsgeographically diverse supply chain.

The collaborative relationship betweenpurchasing, manufacturing, and sales atHyundai has evolved and continues toevolve over time. As it gained experiencein working with a cross-functional team


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effort through the P/SC department, it hasrefined and improved policies and proce-dures continuously. In general, Hyundaimanagement has been pleased with theP/SC group’s progress. As pointed out byone executive, “This arrangement has notbeen a perfect solution to the situation.However, the process was able to success-fully resolve many of the conflicts amongthe areas.” Moreover, through the plan-ning process, participants have developedmany new ideas and future strategies forcoping with difficult problems. Thus,Hyundai continues to improve its abilityto synchronize supply-chain activities.

Hyundai’s experience can provide somegeneral lessons for other organizations.The difficulties that the P/SC group en-countered can help other companies toidentify potential problems that they mayface in managing their supply chains.Likewise, the successes the P/SC depart-ment achieved indicate the potential bene-fits that other companies may reasonablyexpect to gain. Through better communi-cation and a cross-functional team effort,the P/SC group has successfully promotedmutual understanding and respect amongfunctional areas. The primary benefit, ulti-mately, is improved customer satisfactionthrough better integration of functional ac-tivities. Thus, although the approach takento achieve synchronization and the specificbenefits and difficulties encountered maydiffer from situation to situation, Hyun-dai’s experience illustrates how one orga-nization is successfully integrating activi-ties within the supply chain.

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Kwan Ho Ro, President, Hyundai, 140–2, Kye-Dong, Jongro-Ku, Seoul, Korea,writes: “The Hyundai Motor Companyinitiated the Production/Sales ControlMeeting to resolve potential conflicts be-tween Sales and Production functions andto better coordinate efforts to serve cus-tomers several years ago. Later, the pro-gram included Purchasing, Materials Con-trol, and other impacted groups tosynchronize the production planning, pur-chasing, and sales and distribution deci-sions. We have been generally happy withthe results, and the program is still beingused throughout the Hyundai Motorplants in order to come up with produc-tion and distribution plans. We have beencooperating with Dr. Hahn’s group interms of data collection and plant visits.”

Study Questions

1. Why did Hyundai Motor Company create the Production & Sales Control

(P&SC) department? 2. Explain the process of Hyundai’s sales-and-production coordination. What

are major issues resolved at the P&SC meeting?

3. What are challenges Hyundai Motor was facing to implement P&SC meeting? 4. Would it be possible to develop operation plans without coordination of

sales/marketing plan? If so, under what situations/conditions and what level of planning? If not, explain why.

Documents

Supply Chain Synchronization Lessons From Hyundai Motor_2