The Effect of Introducing a Vehicle Holding Compound In an Automotive Order Fulfilment System.

1. 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 Tamer Ovutmen Bart MacCarthy

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

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. Switch ‘to-order’ (Floating decoupling point) Stock fulfilment Pipeline fulfilment Build to forecast Open pipeline approach BTO fulfilment • 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

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

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. 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. Experimental plan • Approach • Define twobase case scenarios • Base case 1 - Absolute • Base case 2 - Relative • Vary input parameters to simulate different system configurations • Two levels of variety • Entity - 370 • Entity + Colour - 3724

10. Experiment specification • Observe relative changes in system performance based on key metrics • Fulfilment mechanisms • Stock • Pipe • BTO • Stock • Volume/level • Coverage • Age • Customer waiting time

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

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

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

15. Experiments for VHC • Observe relative changes in system performance based on key metrics • Fulfilment mechanisms • VHC • Stock • Pipe • BTO • Stock • Volume/level • Age • Customer lead time

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

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

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

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

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

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. Any questions?