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1 Tamer Ovutmen Bart MacCarthy The Effect of Introducing a Vehicle Holding Compound In an Automotive Order Fulfilment System. A case study using simulation.

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Presentation on theme: "1 Tamer Ovutmen Bart MacCarthy The Effect of Introducing a Vehicle Holding Compound In an Automotive Order Fulfilment System. A case study using simulation."— Presentation transcript:

1 1 Tamer Ovutmen Bart MacCarthy The Effect of Introducing a Vehicle Holding Compound In an Automotive Order Fulfilment System. A case study using simulation models for a specific national market

2 2 2 Passenger vehicle – a multi- featured product Interior Trim Body style Exterior colour Engine types Wheel type TransmissionEngine size Buildable combinations - potentially hundreds of thousands of buildable combinations Series User specified options++++

3 3 Order Fulfilment in the volume automotive sector High levels of potential variety and customization Mass Customization - challenging Diverse, heterogeneous customer base Trend has been to develop flexible order fulfilment systems - opening the pipeline and Virtual-Build-to-Order (VBTO) Alford et al. 2000; MacCarthy et al. 2003; Holweg and Pils, 2004; Meyr, 2004; Fredriksson and Gadde 2005;

4 4 4 Open pipeline approach Build to forecast Pipeline fulfilment Stock fulfilment Switch to-order (Floating decoupling point) Fulfil from anywhere in the system (multi-mode fulfilment) Combines Build-to-Forecast with allocation from the pipeline, stock and BTO Add reconfiguration and trading for more flexibility How beneficial is opening the pipeline? Limited research on this type of system – Brabazon and MacCarthy (2004; 2006) and forthcoming in JORS and POM BTO fulfilment

5 5 Case study of a specific national market Based on substantial theoretical work and earlier models Goals Capture a specific market in a model Evaluate impact of different operating policies Answer specific business questions and issues related to opening the pipeline Approach Develop a simulation model to study and evaluate alternative operating policies More faithful to a specific real system Scale and detail Operating characteristics

6 6 Order Fulfilment system Customer Virtual pipeline Gate Planning Process Status Feedback Order Process Vehicle movement Selling Process Dealer Influence Module Delivery Logistics Other Dealers stocks Dealer Lot Dealer stock Search + Promise process Dealer Pipeline scheduler Wholesale planning NSC policies and targets Unscheduled order bank

7 7 Operating policies / system configurations Pipeline control Open/closed Order amendment Pipeline trading (unconsented) System stock levels (forward coverage ) Dealer behaviour Wholesale volume commitment Physical stock trading (consented) Reservation of unsold pipeline orders Customer behaviour Willingness to compromise

8 8 Validation Data validity Sufficiency Appropriateness Accuracy Conceptual model validation Consultation with system experts Assumptions Model input Model structure Operational validation Is the model sufficiently accurate to use for experimental purposes Consider key system metrics

9 9 Experimental plan Approach Define two base case scenarios Base case 1 - Absolute Base case 2 - Relative Vary input parameters to simulate different system configurations Two levels of variety Entity Entity + Colour Base case 1Base case 2 Pipeline status open Initial stock volume 0 7 days coverage Dealer wholesale commitment 100%80% Pipeline trading no Stock trading no5% Pipeline amendment nofull Pipeline compromise 0 0 (entity variety) Stock compromise 020% (entity variety)

10 10 Experiment specification FactorNumber of trials Base case2 Amendment10 Pipe trading20 Stock trading20 Wholesale volume10 Initial stock level32 Customer compromise30 Total124 Variety levels2 Total experiments248 Observe relative changes in system performance based on key metrics Fulfilment mechanisms Stock Pipe BTO Stock Volume/level Coverage Age Customer waiting time

11 11 Q. What is the effect of pipeline trading on retail fulfilment?

12 12 Q. What is the effect of dealer wholesale behaviour on retail fulfilment

13 13 VHC Study What is VHC (Vehicle Holding Compound)? The objective of the VHC is to facilitate free trade of unsold physical vehicles throughout the dealer network by: Delivering the unsold dealer stock to a central compound. All dealers are able to search for and call off any vehicle in the compound. It essentially replicates free trading of physical vehicles throughout the dealer network by over- coming the physical logistics barriers.

14 14 VHC Study Objectives 1.How does the implementation of a VHC affect the overall system performance? 2.What is the optimal setup for operating the VHC in terms of: i. VHC/Local stock split ii. Auto-shipment duration iii. Selection of vehicles for Local Stock (in progress) iv. Logistics (in progress)

15 15 Experiments for VHC Factor Number of configurations VHC – Local Stock Split 8 Auto – Shipment Duration 14 Pipe Trading3 Stock Trading3 VHC Stock Selection3 Logistic Distributions4 Total90 Observe relative changes in system performance based on key metrics Fulfilment mechanisms VHC Stock Pipe BTO Stock Volume/level Age Customer lead time

16 16 Q.1.i. What is the effect of VHC on retail demand fulfilment? Retail Demand

17 17 Q.1.ii. What is the effect of VHC on Lead time? 40% decrease in Lead time

18 18 Q.2. What is the effect of Stock Split on Retail Fulfilment? Retail Demand Increasing VHC stock

19 19 Q.3 What is the effect of Auto Shipment duration on VHC performance? Current Practice All Demand

20 20 Key Observations Introducing a VHC reduces the BTO requirements from 26% to 3% in retail demand Introducing a VHC reduces lead time by 60% When more than 60% of stock is kept in VHC, no customer compromise required Auto-shipment duration can be reduced by 1/3 (30days) without changing performance and may reduce stock.

21 21 Future Work How to select vehicles, which are going to local stock? Options – random, maintain local FDC, most demanded, least demanded? Controlling the logistics time from VHC to Dealers?

22 22 Achievements Model realism - scale, functionality and configurability Managerial implications showing the magnitude of effects and when they occur showing the relative benefits obtainable from different operating policies and flexibilities + the impact of variety Enabling managers to support arguments and consider opportunities

23 23 Limitations and challenges Dynamic behaviour in the system Customer and dealer behaviour Data accuracy/integrity/interpretation Scale and level of detail Understanding and interpreting simulation outputs Validation large scale business systems where does knowledge of the system reside? parameter setting composite closeness measures

24 24 Any questions?


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