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Analysis of Super Module Initiative for DaimlerChrysler

ISYE 6203 Dr. Vande Vate April 6, 2006 Team Members: Mike Harding Hao Junxian (Peter) Joongsup Lee Atul Malik Paitee Skooleiam (Tee) Paul Young. Analysis of Super Module Initiative for DaimlerChrysler. Briefing Agenda. • Company – Problem Background

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Analysis of Super Module Initiative for DaimlerChrysler

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  1. ISYE 6203 Dr. Vande Vate April 6, 2006 Team Members: Mike Harding Hao Junxian (Peter) Joongsup Lee Atul Malik Paitee Skooleiam (Tee) Paul Young Analysis of Super Module Initiative for DaimlerChrysler

  2. Briefing Agenda • • Company – Problem Background • • Problem Statement and Key Items • • Analysis • • Company Costs and Projected Savings • • Facts about DCX and Suppliers • • Assumptions Used • • Outsourcing Options • • Variation in Shipping requirements • • Proposed Solution • • Cost Comparison • • Supply Consolidation • • Recommendation

  3. Background – Company Front Suspension Supplier 3rd Party Logistics Powertrain Supplier 15 miles 7 miles 13 Miles 9 miles 18 miles 4 miles St Louis Assembly Plant • Daimler Chrysler is investigating having an outside supplier produce a Super Module for its 2009 Model Vehicle Programs built at its St. Louis Assembly Plant (DCX). • Outsourcing manufacturing work to the supply base can significantly reduce labor costs. • However, if the supply chain is improperly designed it can increase costs in shipping, handling, inventory & supplier manufacturing that can easily outweigh any labor savings obtained.

  4. Background - Super Module Content Front Suspension Module (FM) Brake / Knuckles, Springs / Struts & Other Misc. Components + Powertrain Module (Engine, Transmission, Clutch) +

  5. Problem Statement • Based on the their preliminary analysis, DCX believes that an outsourced Super Module will be cost advantageous. • DCX would like to know the best way to manage the Super Module through its supply chain. By doing the following: • Examining three proposed options for outsourcing to determine which option is the best to minimize inventory and transportation costs and while maximizing responsiveness and flexibility. • After determining the best option, analyze it for the most effective use of shipping docks and the number of modified trucks to incorporate pre-existing Modular Rack System (MRS, seen below)

  6. Problem Statement - Key Investigation Items • Which supplier should produce the Super Module? • What is the optimal production / shipping process? • What operating patterns should be followed by each Supplier? • How much inventory does each Supplier need to hold? • How many dedicated shipping docks at the Assembly Plant and each Supplier will be required to manage the Super Module? • How many trucks will be needed to ship the Super Module? PM (68 job/hr) FM (136 job/hr) PM (68 job/hr) FM (136 job/hr) 15 13 7 15 3PL FM (136 job/hr) PM (68 job/hr) 4 18 9 AP AP AP

  7. Analysis – DCX Super Module Cost Breakdown • Savings / Cost Avoidances: • Material Handling dunnage not required to transport Powertrain Module to the assembly plant = ($200K) • Material Handling dunnage not required to transport Front Suspension Module to the plant = ($100K) • Floor Space not required to display Powertrain Module and Front Suspension Module at the Assembly Plant = ($400,000) • No backup storage area required = ($500K) • Less Shipping Docks needed = ($200K) • Eliminate need for interchangeable tooling and storage on AGVs = ($400k) • Eliminate need for lifting device to load Front Suspension Module from dunnage to AGV = ($50k) • Eliminate need for lifting device to load Powertrain Module from dunnage to AGV = ($50k) • Eliminate need for material display devices for Powertrain, Front Suspension Modules & other components = ($500K) • Costs: • Simple strip system to auto load / unload Super Module from shipping trailers and stage to AGVs = ($500K) • Hoist to load Super Module to AGV = ($50K) • Unknown Costs: • Supplier’s per unit cost for assembling Super Module • Estimate = $9 to $12 per vehicle, not including shipping

  8. Analysis – DCX Super Module Labor Breakdown • DCX Plant Manpower Impact: • Receiving Super Module vs. separate Powertrain Module, Front Suspension Module & Other Loose Components • Total for 2 shifts • a. Direct Labor Operators = 10 • b. Material Handling Operators = 4 • c. Other Operators (Skilled, Union, etc.) = 1 • d. Salary Supervisors (1 to 25 ratio of a+b+c) = 0.6 • e. Team Leaders (1 to 6 direct labor operators of a) = 1.7 • Pools (based on 18% absenteeism x (a+b)) = 2.5 • Total = 19.8 • Total Savings = $2,572,000

  9. Analysis - DCX Plant Information • Operating Pattern: • 8 Hours per Shift x 2 Shifts • 1088 Net Vehicles per Day • 68 Net Vehicles per Hour Manufacturing Objectives: • Flexible manufacturing capabilities: • Build multiple vehicle platforms on the same assembly line • Mix models, options and vehicle content based on customer demand • Reduce un-needed on-hand inventory Loaded onto AGVs Body / Chassis Marriage Auto Load / Unload of Super Module Shipping Docks

  10. Analysis - Facts • Distances between the suppliers, 3PL, and Assembly plant are known • The size and weight for each module type is known. Furthermore, by using the Modular Rack System, the cube limits hauling capacity. • Production rates of the Front Suspension Module and Powertrain Module are fixed and total production for each module is 1088 units per day • FM is produced at rate of 136 units per hour for one 8 hour shift • PM is produced at rate of 68 units per hour for two 8 hours shifts (16 hours) • Both suppliers currently maintain about 3-5 weeks of raw materials for their production processes

  11. Analysis - Assumptions • Potential of many unique Super Modules being required due to a wide variety of available components • Left hand drive vs. Right hand drive • Suspension stiffness • Engine Sizes (Diesel, Hemi, etc.) • Transmissions (Auto, Manual) • Varying electronics, emission requirements, export requirements • Data complexity narrowed down to 5key Super Module combinations

  12. Analysis - Assumptions • Average value per unit of inventory: • Front Suspension Module = $3,500 • Powertrain Module = $6,000 • Super Module = $11,000 • Supplier assembly costs for producing the Super Module are equal (including initial set-up, holding costs, labor, etc.) • Each truck can transport either 48 Super Modules, 48 Powertrain Modules, or 96 Front Suspension Modules via the Modular Rack System • Assumed production rate of the new Super Module would be 68 units per hour • Initially rate of travel will be assumed constant: • 30 minutes for legs between the FM, PM, and DCX • 15 minutes for legs between the 3PL and any other node • Other time consideration is 30 mph • Loading time for non-AGV system is 20 minutes per truck (loading or unloading) • Inspection time at each location is 30 minutes per truck

  13. Analysis – Outsourcing Options • Based on the requirement from the Assembly Plant, we determined that the system was a pull system • Analyzing the components of the system, it is mainly deterministic with its main variability coming from transportation times, loading and unloading times, inspection times, and assembly line reliability rates (maintenance failures). • Looking at the three proposed solutions, we decided on a completely lean, deterministic system with the assumed travel times for each leg for initial comparison • Shift times were staggered • Inventory was the same (272 Front Suspension Modules) • Main difference was travel times/distances, number of trucks, and loading times (not including vehicle inspection) • Truck cycle is load, travel, inspection, unload, load empty MRS, travel, then unload empty MRS. Fuel cost was calculated with 5mpg and $2.50 per gallon for 250 days

  14. Analysis – Lean System: PM Supplier producing Start Production Front Module Supplier 42.35 min for production and loading of 96 units 30 min in Shipping Modules 15 Miles 30 min security/parking When FM arrives 96 PM are already ready Now next 42 min will go for assembly of PM and FM Power Module Supplier And Super Module Assembly The assembly will directly load onto specialized truck by automated stripper system and conveyer at PM supplier Time (60 + 24) min PM Ready Start Production 42 min SM Assembly 18 min in Shipping 48 Super Modules 9 Miles 1/2 hour buffer time Super Module Waiting at Parking of AP Information in 192 min Advance Daimler Chrysler Assembly Plant Basic IDEA of 192 Min Window Lean Supply Chain

  15. Analysis – Variance on Number of Trucks • After the initially comparison pointed entirely to the Powertrain supplier as the best option. We took this option and introduced some variability into the system to account for travel time, inspection times, and loading times. We will assume that each element of the truck cycle is independent of each other. Also that the variability for loading and travel remain constant for the entire trip. Also since, distance was important during the cost evaluation, we assumed a mean of 30 mph or 2 minutes per mile. Loading times for AGV systems are assumed to be deterministic (maintenance). The following were standard deviations we picked initially: σt = 20 seconds per mile σi = 3 minutes per inspection (10% of mean and mainly human interactions σl = 3 minutes per event (15% of mean because requires MHE) Holding any one of these fixed we could vary the other up to the max value and still maintain the same number of trucks.

  16. Proposed Solution – PM Supplier Produces SM Front Suspension Supplier Powertrain Supplier Shipping & Unloading 15 miles Production & Loading Powertrain Module Processing Super Module Processing 9 Miles Shipping & Unloading Build Broadcast Assembly Plant = Specialized Truck for shipping Super Module

  17. Cost Comparison – PM Supplier vs DCX • After looking at the different aspects of the system and how the Powertrain Supplier is the best alternative to minimize the costs in the supply chain. • Total Estimated Savings over Program Life = $1,224,000 • *Note - Cost per unit does not include: • 1. cost of capital for up front investment costs • 2. inventory holding costs other than floor space to store it

  18. Supply Consolidation – Existing Inventory Managing supply What are the complexities? • Variability in modules - Variability in components, from various suppliers PM : 125 components, 50 suppliers FM : 31 components, 11 suppliers SM : 57 components, 10 suppliers

  19. Supply Consolidation • The replenishment is scheduled to share the transportation cost among products from the same supplier. • -Find the right demand Daily production x % Usage x Usage by BOM • Compute EOQ and T respectively for different parts • [step 1]:Round T to nearest power of two, minimal T* Re-compute order quantity (Q=DT) and thus holding cost with reduced transportation cost (A) • - [step 2]: Decrease T for all parts towards T* Re-compute order quantity (Q=DT) and thus holding cost with A unchanged

  20. Supply Consolidation – For each Module • Summary of cost saving EOQ [Step 1] result [Step 2] result

  21. Supply Consolidation – Comparison Summary of cost saving 12.30% saving 16.80% saving

  22. Recommendations • Our recommendation is to proceed with the outsourcing of the Super Module production to the Powertrain Module Supplier. • • PM Supplier does not ask for more than $12.40 a unit • • Reduces liability involved with in-house labor • • Potential savings or cost avoidance $1.2 million • • Allows PM Supplier to increase inventory shipments from, thus reducing their cyclic inventory cost • In addition, we recommend some raw material consolidation in shipments for both the FM and PM suppliers to reduce inventory costs.

  23. Questions • ?

  24. Cost Comparison Back-up Data DCX does work in-house

  25. Cost Comparison Back-up Data DCX outsources work

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