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Michelin Case Study OPMA 5368 September 2010 Group 10 Han-Chung Chu Mahmood Rafiq Mark Wilson Nathan Wood Outline Executive Summary Supply Chain Segment – Recommendations and Critical Success Factors Organizational Structure Forecasting Distribution Inventory Control and Production Appendix - Case Assumptions Michelin Case Study – OPMA 5368 - 09/10– Group 10 Michelin Case Review - Executive Summary To be added. <body> Organizational Structure Currently, there are no standards for information exchange or decision making throughout Europe. A restructure of the company in Europe will result in more organized and efficient operations. A central team of experts for each function and an integrated supply chain team will be created. This central team will handle the task of making decisions and applying changes for the supply chain for all of Europe. Flow of information The sales network must report any planned promotions to the forecasting team. Forecasts, updated weekly, integrate into the information systems and become the basis for production and distribution decisions. After production and distribution schedules are generated by the system, local managers make sure these schedules are followed. Michelin Case Study – OPMA 5368 - 09/10– Group 10 Changes must be approved by a regional manager and entered into the system, as they will affect scheduled delivery to distribution functions. Decision Making Major decisions and changes to operations made by a central team of experts Sales discounts outside normal threshold must be approved by central administration Critical Success Factors - Rewards In order to create a manageable operation, a set of rewards system is required. The following functions will be held accountable for their corresponding performance measures. Forecasting team o Distribution management o Forecast accuracy (Average of scores at location level) o o o schedules o % Improvement in forecasts Production management Adherence to distribution Order accuracy Sales Network Adherence to production o % to Sales Forecast schedule o Sales Contracts – Bonus Inventory Accuracy By restructuring into a central, organized system, Michelin will improve performance throughout Europe. Forecasting Michelin is operating in four geographical regions within Europe across seventeen countries with five manufacturing capabilities. This broad market necessitates accurate forecasting, which is lacking at Michelin. Current forecasting has certain issues; lack of integrated communication between departments, no detailed forecasts at the location level, combined with inaccurate aggregated forecasts at the group level. This incorrect forecast leads to functional and operation turbulences within the supply chain. Michelin Case Study – OPMA 5368 - 09/10– Group 10 Forecasting Improvements Team should be established to perform sales forecasts and should work cross functionally within sales, planning and logistics departments Create forecast at country level and aggregate at European level Implement statistical controls and risk management to minimize deviations. Improve Information Systems and Communication Processes Implement new company-wide information system solution to facilitate forecasting. Solution can provide real time information about in-flight orders to reduce delays, increase response time, and thus increase customer satisfaction Empower Sales Network Director to define company wide processes and create staff responsibilities for correct sales forecasts. Define informational flow procedures to insure IT systems work smoothly without bottlenecks. Critical Success Factors - Rewards Dedicated forecasting team should be created immediately from existing senior sales team and specialized forecasting engineers Insure latest forecasting methodologies are utilized for accuracy New forecasting methodologies, communication plan and information systems upgrade completed within 12 -18 months Designated sales, forecasting and IT teams compensated on completing project on-time Senior operations and sales management rewarded on improvement of actual sales to sales forecast improvements. Michelin Case Study – OPMA 5368 - 09/10– Group 10 Distribution Like other areas of the logistics chain, the distribution function is in need of a European-wide cohesive strategy, administered and controlled by a central office. Distribution options and locations are too varied leading to higher costs and inventory levels. Client service levels suffer due to lack of status on orders. Customer Service Improve customer service within the distribution function; o Provide status of order via real-time on-line queries accessible by clients o Establish Service Level Agreements (SLA) with clients for delivery time commitments, product quality and quantity for commercially reasonable best practices o Conduct immediate customer and industry surveys on best practice expectations. RT Distribution Distribution network for RT line-of-business should be a competitive advantage and RT Delivery times (or options) as a line-of-business-for-profit o (RT - Distribution) Through controlled growth, build an extensive tire distribution and maintenance services network for the RT line-of-business based upon target market proximity and available in-house expertise o (RT – Delivery Times) Fewer delivery times for standard orders and special or emergency orders at a premium service OE Distribution Reduce Inventory, distribution costs and delivery time for the OE market. o Fewer – or only one - interim site between production units and customers o Advance inventory locations (AV) for the OE market consolidated into fewer OE “Mega” DC’s where inventory is stored and prepped. Michelin Case Study – OPMA 5368 - 09/10– Group 10 Critical Success Factors - Rewards Customer Service After completion of all Distribution Action Items, conduct client surveys and compare metrics to SLAs to see if Michelin perception and distribution quality has risen. (Senior Operational and Project Management compensated on degree of positive results.) RT Distribution Market Share, Revenue and Profit should all increase over the fiscal year as a direct result of network expansion and for-profit delivery time options. (Sales and Group Management compensation based on business growth.) OE Distribution All AV sites eliminated within 18 months. Reduced distribution costs and inventory levels. (Senior management compensation based on reduced costs and faster delivery time.) Inventory Control and Production Inventory Control and Production suffer from inaccurate forecasts, multi-location distribution sites, and production runs (and sites) scheduled without an integrated plan. All of these factors result in high inventory levels and inefficiency in manufacturing. These two business areas are to be managed jointly – with incentives measured jointly – to insure production vales are not maximized at the expense of higher inventory and vice-versa. Integrated Inventory Control via Information Systems o Implement tracking of product quantities and type by transit stage or location o Utilize new technologies for inventory management (RFIDs) o Upgrade software via purchased vendor packages that utilize market proven Economic Order Quantity and Enterprise Resource Planning models Michelin Case Study – OPMA 5368 - 09/10– Group 10 o Set operational and financial goals in terms of reduced inventory levels Improved Production Strategies o Upgrade software via purchased vendor packages that utilize market proven Master Production Schedules and Material Resource Planning models o Reduce product variability at plant sites – reach for economies of scale o Implement flexible automation at plant sites to lower set-up times o Establish financial and production goals consist with industry best practices for Just-InTime or Lean Manufacturing Critical Success Factors – Rewards o All Inventory Control and Production system upgrades completed in 18 – 24 months o Inventory levels (and safety stock) should decrease at local, distribution center and aggregate European level to meet pre-determined goals o Reduced labor cost and handling expenses at inventory sites. o Production cost, on a per product basis, remains flat or lower through change process o Senior Operational Management compensated on degree of meeting both Inventory Control and Production goals. Michelin Case Study – OPMA 5368 - 09/10– Group 10 Appendix Case Assumptions This business case review is based on the following assumptions: Proposed changes in infrastructure for Michelin have adequate financial resources for completion Geographical expansion, relocation or condensing of business sites across European borders can be achieved without undue political or legal constraints. Michelin Case Study – OPMA 5368 - 09/10– Group 10
