Coordinating sales and operations management in automobile industry under long procurement lead times

Abstract

The automobile industry is characterized by a very volatile demand and impatient customers. Furthermore, globalization has grown longer procurement lead times of vehicle assembly plants. Therefore a challenge for automotive manufacturers is to cleverly adjust production capacities with customer demands. To satisfy car buyers in a competitive market, sales dealers require short delivery lead time and the possibility to order customized vehicles as late as possible. However, plants need to order parts several weeks beforehand for distant suppliers, when the demand is not known yet. The issue is to find the best trade-off between these sales requirements and industrial constraints while limiting stock levels and emergency supplies due to parts shortages. This study is based on the actual situation of a global automotive manufacturer where a continuous negotiation process is done between sales and supply chain departments to manage this trade-off. During the sales and operations planning, flexibility levels are defined and represent the maximum number of a given vehicle type that sales dealers can order during a week. Since this process is new, supply chain managers lack insights about how this flexibility may impact inventories and delivery lead time. Our objective is to model the dynamics of this sales and operations planning and to study how to improve logistics performance without deteriorating customer satisfaction. We show how flexibility levels impact delivery time and logistic costs by using a simulation approach based on actual industrial data.