METALCRAFT INC

CASE STUDY CGN SUPPLY CHAIN MANAGEMENT

TARAB SYED AHMED DIVYA CHADHA SHUBHANGA PRASAD SAMIRA VEMPARALA TARUN VIR SINGH BANGA KUNAL SINGH AESHA MARU 2010A36 2010A60 2010B19 2010B32 2010B41 2010C43 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 2 - Phillips
Convert raw materials into basic automotive components

Tier 1 - Metalcraft
Assemble component into modules

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 Metalcrafts cost quality problems, delay in parts delivery, warranty costs Metalcraft Quality control - Scorecard

CASE SITUATION
Autoparts Inc

Electroparts Inc

Mark Mueller Commodity Purchasing Agent

Caltek Inc

Ellie Smith Quality Supervisor

Mark Letcher Corporate Supplier Development Manager Darell Bonds Product Engineer

Who - Rubber Vent Hose Vendor?

METALCRAFTS 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, 6, JIT Customer Service Index

QUALITY CONTROL PROCESS

1 2 3 4 5 Determination of Physical & Performance Characteristics Determination of method to evaluate these characteristics Preparation of Control Plan Review & Approve Control Plan Quality Checks & Recording Results on Control Chart

QUALITY RATING SYSTEM

PPM Performance

QR Performance

Significant Quality Event

Quality System Status

QOS/BOS Status

PPAP Level

PPAP Slippage

METALCRAFTS SUPPLIER SCORECARD

WHY
To be successful Tier 1 automotive components supplier Zero Defect Rate Single, worldwide reference point on Supplier performance OPERATIONS OF SUPPLIER SCORECARD
INPUTS
Electronic Orders from EDI system Contact Information Quality System Information

HOW
Rating suppliers on three dimensions Quality Timing Delivery Continuous evaluation of supplier performance Not based on single audits

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

SUPPLIER SCORECARD
Quality
Overall Quality Rating
F (different aspects of quality & performance)

Timing
Meeting Timelines
For certification of new components

Delivery
Delay in Deliveries induces
Rescheduling Costs Overtime Production Costs Expidited delivery costs

Launch Quality Rejects

Problems reported in the production startup phase Separated launch problems from normal production

PPAP
Important to ensure Low volume and High volume products meet requirements
New parts meeting all specifications

Delivery Performance Rating

Supplier Communication system Up to Schedule Shipping Problem resolution and prevention Overshipment Record Maintenance Other Performance

Defect Rates
Measured in PPM Classified fit or function rejects

PSW
Components can be used on vehicles for sale

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?

Solution
[A] Standardize Scorecard:
1. Correct Metrics 2. Metrics accurately reflecting information [B] Use of Scorecard by all stakeholders (Product engineer)

PROPOSALS

1 2

Scorecard should have detailed data & query functions Data by product line Updation of performance rating should be done statistically Negotiation should have no role

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
5
Exhibit 5: Huge variation in PPM Keep standards constants for reasonable time

Metalcraft Supplier Scorecard - Summary

CALTEK INC
Dec 2000 Total PPM Parts Received (000) 640 Jan 2001 5165 Feb 2001 409 Mar 2001 1 Apr 2001 696 May 2001 3 Jun 2001 1100 Jul 2001 208 Aug 2001 77 Sep 2001 1 Oct 2001 1328 Nov 2001 355

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

QRS Points
6
Continuous Basis for QRS Points

Quality Performance Data PPM Performance 0 1 to 60 61 to 200 201 to 500 > 500

Points 25 20 to 15 15 to 10 10 to 0 0

Restructuring Scorecard
Cost Analysis Tooling Analysis Capacity Requirements Program Timing Constraints Quality Performance Delivery Performance Lowest Landed Cost Currency Impact Productivity History Long Term Agreement Hard Tooling cost Soft Tooling Cost

Buyer Sourcing Team Product Engineer

Supplier Development Engineer

Manufacturing Plant Representative

DECISION
CALTEK WHY?

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

Supplier Relationship Management Stages

Vendors as partners Check the Quality and try to improve the vendors

Contractual Relationship

THANK YOU
TARAB SYED AHMED 2010A36

DIVYA CHADHA
SHUBHANGA PRASAD SAMIRA VEMPARALA TARUN VIR SINGH BANGA KUNAL SINGH AESHA MARU

2010A60
2010B19 2010B32 2010B41 2010C43 2010C60