Supply

and Service Chain Management 2011/2012 Prof. R. Pinto

ANALYTICAL METHODOLOGY FOR THE IMPLEMENTATION OF JUST IN SEQUENCE

VAVASSORI Marco 1007332

1. 2. 3. 4. 5. 6.

Introduction Brief presentation of Just-in-Sequence Application and Implementation of Just-in-Sequence Opportunities and Risks of Just-in-Sequence Conclusions Bibliography and References

1. Introduction
The objective of this paper is to develop a research overview on the Just-in-Sequence Approach and to investigate the potential advantages and disadvantages of this methodology from a supply chain point of view. This paper aims to show how Just-in-Sequence may improve supply chain activities by providing parts in a predefined sequence so that exactly the required part is delivered to the manufacturers production plant when its needed and only if its needed. The present analysis is mainly focused on the automotive industry and, in particular, data and information come from different interviews conducted by Porsche Consulting with managers from the automotive industry and the automotive supplier industry (Porsche Consulting Report, 2009 et al.) [5], as well as from the studies presented by Wagner and Silvera (2010 and 2011) in their papers: Managing Risks in Just-in-Sequence Supply Networks [1] and Decision model for the application of Just-in-Sequence [3], in which they conducted a detailed analysis in collaboration with the logistics department of the German Association of the Automotive Industry. The paper is organized as follows: In a first step, an overview on the main features of Just-in-Sequence will be introduced. Based on this broad definition, in the following paragraph the key points for a correct implementation of Just-in-Sequence will be discussed, starting from the Identification of suitable parts, to the Identification of the right suppliers, the supply network definition and other crucial aspects that are involved in this approach. In a second step, the introduced method will be investigated to highlight advantages, disadvantages and possible risks. Finally, paragraph five concludes with a brief summary and some personal interpretation on future applications of this methodology in some industrial fields that have not yet developed a Just-in-Sequence supply approach. 1

2. Brief presentation of Just-in-Sequence

Since the innovative idea of lean production has been developed and introduced in the 1950s in some Japanese manufacturing industries, many firms all over the world adopted this methodology and improved their production system with Just-in-Time principles, at the point that nowadays lean production and Just-in-Time are considered for most of the industrial activities as standard tools for the management of production and supply issues. Especially in the automotive industry, Just-in-Time has evolved as an essential concept to implement the overall efficiency in the delivery process between manufacturers and their suppliers [2]. But today, manufacturers are faced with more demanding market requirements. In a competitive environment, satisfying individual customer demands is indispensable for gaining sustainable competitive advantage. In a context of global competition, automotive manufacturers as well as their suppliers are facing the challenge of lowering the production time and reducing costs, while constantly increasing the number of variant combinations in order to offer a great variety of products with a higher level of customization. To make an example in the automotive industry, Opel Vauxhall Astra may be customized in more than 55 million different combinations, while for a Mercedes S-type, the number of variants account up to 3.9 billion combinations! [1]. Obviously, the implementation of a high number of variants while reducing production time and cost has the inevitable consequence of increasing the product and process overall complexity that manufacturers have to deal with. It is at this point that Just-in-Time revealed its limits and the effective need of a new production and logistic concept developed to enable the production of highly customized products and to make the overall production system run more efficiently. Here, Just-inSequence operates as an innovative approach allowing firms to handle the increasing complexity of many variants by considering the right sequence of the actual variants to be produced by the manufacturer. In the automotive industry, aggregates like engines, axles, and gears as well as sub components like seats, bumpers, exhaust-gas systems, and doors are increasingly delivered on a Justin-Sequence basis and this demonstrates the great potential for the application of this concept. In fact, returning to the former example on the Mercedes S-type and its enormous number of different variant combinations, its not a case that up to 62% of parts of the car are delivered applying Just-in-Sequence methodology [1]. Just-in-Sequence, in a certain way, may be regarded as a refinement of the Just-in-Time principles that beside delivering parts at the right time, at the right place, in the right amount, and in the right quality also handles the right sequence of the parts to be delivered [4]. A reason for the increasing importance of Just-in-Sequence is also the general tendency of automotive manufacturers to concentrate on key processes based on their core business and to dislocate the other value-adding processes to strategic suppliers.

3. Application and Implementation of Just-in-Sequence

Fundamental requirements for the implementation of Just-in-Sequence are: the identification of relevant parts, the systematic selection of few suppliers with the creation of long-term partnership, the employees commitment for an accurate implementation and execution of Just-in-Sequence techniques, a reliable Information System for quick and detailed communication, and the guarantee of a high quality level on the production site, since quality control on incoming parts will not be performed.

3.1. Identification of relevant parts

The first aspect that should be taken into account for the implementation of Just-in-Sequence is the identification of the right parts. As it is for Just-in-Time, also for Just-in-Sequence only few parts with certain characteristics are reasonable to be taken into consideration. To identify the suitable parts, (Wagner and Silvera 2011) recommend the following analysis [3]. Adopting the ABC-analysis the parts that have the highest value of purchasing are identified. According with the Pareto law (80/20 rule), a relatively small proportion of the total range of items contained in an inventory will account for a large proportion of the total usage value. Therefore, only a small proportion of all parts is responsible for a high proportion of the total purchasing volume on a value basis. These parts are commonly referred to as A-parts. Concerning these A-parts, the potential of Just-in-Sequence for reducing costs by decreasing inventory is very high. Additionally, the parts are classified concerning their kind of demand by an XYZ-analysis. The significant criteria is the forecast accuracy and the stability of demand. The demand can be regular (X), seasonal (Y), or of sporadic consumption (Z). For Just-in-Sequence (as well as for Just-in-Time) it is important that the demand is predominantly stable. Accordingly, a combination of these two analysis leads to the fact that parts suitable for JIT and JIS should be A-parts as well as X-parts. In terms of Just-in-Sequence however, the parts have another property to be taken into account: Just-in-Sequence should also enable the handling of a high number of variants. Therefore, a third dimension (V / S) has to be added for the identification of the suitable parts, where S stands for standard products and V stands for products with variants. Fig. 1 gives an overview of the described decision model [3].
Fig. 1 Identification of parts for Just-in-Sequence

3.2. Selection of suppliers

As the identification of suitable parts, also the selection of capable suppliers is another important condition for synchronized and sequenced delivery. According to (Wagner and Silvera 2011), the most relevant criteria are high quality standard, price, on-time delivery ratio, and geographical proximity [3]. Especially in terms of Just-in-Sequence, the aspect of quality plays a more important role than in terms of Just-in-Time. In fact, due to their heterogeneity, it would be almost impossible to substitute defective parts once they are in the production line. Therefore quality has to be seen as an important order qualifier, and only those suppliers showing excellent quality should be considered. Additionally, conjoint product development together with suppliers is an important issue for supplier selection. As the tendency of manufacturers to purchase complex modules and systems is increasing, the collaboration with suppliers becomes a critical aspect for supplier selection. Obviously, also the spatial proximity is an important criteria in the selection phase, although there are also some examples of suppliers delivering parts Just-in-Sequence even from foreign countries. For example Brembo brakes for Porsche models are delivered Just-in-Sequence from Italy to Germany. Finally, also the quality of the process is a critical issue for supplier selection. Additionally to a high quality level of the parts, also process and activities must run with an absolute precision in order to guarantee a perfectly on-time and correctly sequenced delivery to the manufacturer.

3.3. Information Technology

A fundamental aspect that must be considered is that the operative application of Just-in-Sequence is possible only with a reliable Information Technology system that allows fast and failure-resistant data exchange between the companies involved in the supply network [3]. Contrary to Just-in-Time, the data to be transferred are much more complex and detailed. Accordingly, the IT system must be able to handle this complexity and manage a high number of parts and relate them to the different variant combinations.

3.4. Employees
In terms of Just-in-Sequence implementation, also the employees commitment becomes another significant aspect. It is necessary to integrate employees into the principal processes both at the suppliers process and at the manufacturers assembly line. The employees are crucial for the implementation and execution of Just-in-Sequence. They are responsible for the process and they assure a high process capability. Hence, cross training and organization of workers are important aspects that should be implemented. Moreover, well trained employees may also give valuable suggestions for the improvement of the process because they deal with it on a daily basis.

3.5. Supply network definition and design

From a supply network point of view, three different ways to implement Just-in-Sequence have been identified [3]. The first option is that the supplier chooses the classical batch production and only in a subsequent moment operates the sequencing. The consequences for the supplier are relatively small, because he can produce the modules according to the given demand of the manufacturer. The main disadvantage for the supplier is the high inventory and the huge space required for the different variants. The sequencing can also be done by an external logistic service provider. The advantage is that the supplier as well as the logistic service provider can focus on their competences. A necessary requirement is that the third-party sequencer is highly integrated into the delivery process between the supplier and the manufacturer. A second possibility is the case in which the supplier already produces in the required sequence and delivers subsequently to the manufacturer. This approach is regarded as the ideal form of Just-inSequence, because the complexity of material handling is once more reduced. But it is also accompanied by substantial consequences for the supplier, because he has to reorganize his production according to the sequenced delivery. The advantages of such an approach are analogous to those of the manufacturer. The supplier can decrease his inventory of semi-finished products and raw material, because he produces exactly following the real demand. Sequenced production has the crucial disadvantage that production disruptions at the supplier, for example machine breakdowns, immediately have an impact on the manufacturer, because the sequenced delivery cannot be guaranteed any longer. The third variant considers the supplier producing in a sequenced way and that is also located nearby the manufacturer in a so-called supplier park. This is a special form of the second approach discussed above. Modules are assembled according to the sequence in a plant, which is directly connected with the assembly of the manufacturers plant by an integrated transportation system like an automated conveying system. Accordingly, additional material handling can be eliminated leading to a cost reduction for transportation and packaging. Also transportation risks are completely limited. This approach realizes the idea of an elongated workbench. Fig. 2 graphically illustrates the three variants of Just-in-Sequence.

Fig. 2 Variants of Just-in-Sequence

Tab. 1, instead, shows the data collected by (Wagner and Silvera 2010) and discussed in a broad research on Just-in-Sequence application in the German automotive industry [1]. Tab. 1 report the distribution across delivery types and the average distance between supplier and automaker.

Tab. 1 Distribution of Just-in-Sequence delivery types

By analyzing these data the Authors notice that the decision on which is the most suitable type of Justin-Sequence to apply is strictly related on the automakers philosophy and on the plants production control systems (PCS). Based on these data, they also draw two propositions [1]: Proposition A: JIS is not restricted to short-distance deliveries. Proposition B: Most commonly, automakers use external JIS deliveries from supplier parks and long distance supplier plants, followed by deliveries from nearby suppliers. In the next paragraph follows an overview on possible opportunity and risks of Just-in-Sequence.

4. Opportunities and Risks of Just-in-Sequence

4.1. Advantages of Just-in-Sequence
With a Just-in-Sequence approach many advantages can be achieved. First of all, the cost for capital lockup can be decreased significantly. This is possible by lowering inventories at the manufacturers as well as at the suppliers. Furthermore, the negative effects of higher complexity resulting from the high variants can be lowered. Moreover, also less space is required: in fact required parts are delivered directly in the exact sequence to the place of final assembly and are taken directly from the loading carrier by the assembler. This reduces the place required for final assembly and avoids additional storage of different variants decreasing inventory [2]. Concerning the demand site, companies, especially automotive manufacturers, try to increase the degree of customization by raising the proportion of customer specific orders. In the automotive industry context, manufacturers strive for a higher flexibility and a shorter cycle time, which can be achieved by a sequenced delivery. By offering a great variety of different products and variants it is possible to be more responsive to customers wishes. Even in a competitive environment characterized by time-based competition this is an important approach for sustainable competitive advantage. In general, Just-in-Sequence can be regarded as a promising approach for rising competitiveness in customer-oriented markets.

4.2. Disadvantages of Just-in-Sequence

On the other hand, Just-in-Sequence is also accompanied by some risks that have to be mentioned. They will be discussed briefly in the following. The increased sensitivity in terms of disruptions of the production process by missing, wrong or defective parts, delivery delays, or quality problems is a key aspect concerning the risks of just-in- sequence. Disruptions often lead to a complete shutdown of the assembly line. The main reason for such a shutdown is that disruptions cannot be compensated by replacement parts, because the parts that should be delivered are specially produced parts according to the predefined sequence [2]. In this regard, employees are a crucial aspect as well. Due to the fact that they play an important role for Just-in-Sequence, the qualification of employees is important and, although employees have high potential for improvements, they should also be considered as source for potential failures. Also the process capability is an important issue for Just-in-Sequence. Furthermore, Just-in-Sequence supply is quite complex, because the precise sequence of the parts to be delivered will be transmitted just right before the actual assembly of these specific parts. The dependence of the automotive manufacturer on the supplier in terms of delivery dependability increases. From a strategic perspective, dependency is a serious concern for firms approaching Just-in-Sequence.

 On the one hand, the supplier has to make high investments in order to fulfill the requirements of the manufacturer. Accordingly, he is dependent on the manufacturer. On the other hand, the manufacturer must count on the suppliers reliability [1]. As already mentioned, another requirement of Just-in-Sequence is a highly elaborated Information Technology system to guarantee the transformation of accurate data on time. The direct transfer of the delivery schedules is important for frictionless supply and production. A loss of data would immediately lead to troubles at the manufacturers assembly line. Problems of the IT system can result in wrong or late deliveries leading to a breakdown of the manufacturers assembly line. In conclusion it is important to notice that, although some of these risks are also valid for Just-inTime, in terms of Just-in-Sequence their negative consequences are much higher due to the fact that for most of these risks compensation will not be possible. To complete the discussion with some real data, two Tables extracted from (Wagner and Silvera 2010) research follow, illustrating the frequency and type of disruptions in a Just-in-Sequence System (Tab. 2), and the frequency and tools employed to improve Just-in-Sequence process (Tab. 3) [1]. Considering Tab. 2, according to the Authors, it is noticeable that values on the Likert scale are not above the average, and Risks of Just-in-Sequence deliveries are not perceived to be higher compared to other delivery concepts such as Just-in-Time or on-stock management, and from the Authors point of view this is attributed to meticulous planning of the sequenced delivery process, which is considered as the supreme discipline in automotive logistics [1].

Tab. 2 Frequency and type of disruptions in a Just-in-Sequence System

 From a Risks mitigation point of view, (Tab. 3), research offers interesting data and highlights that the most established tools are supplier JIS audits and coaching, process optimization with suppliers, and training of the shop-floor team. Also of central importance for most automakers is the application of failure mode and effects analysis (FMEA) techniques and setting up emergency plans. It is also important to notice that the top tools of major activity are all related to the supply side, which is confirmed to be the most critical [1].

Tab. 3 Frequency and tools employed to improve Just-in-Sequence process

5. Conclusions
In this paper, two main aspects have been developed. On one side, we illustrated a concept for the correct implementation of Just-in-Sequence, with particular focus on the identification of suitable parts, on supplier selection and on the supply network design. On the other side, we discussed the main features that may give benefits if well developed, or become a source of risk if non correctly implemented and mitigated. In this context, the following conclusions can be drawn: the main advantages that may be achieved by a company are reduction of lead time, flexibility, space requirements, quality cost, inventory, and logistic cost; while the main concerns are generated by the risk of production disruption due to problems at the supplier plant, quality problems, delivery delay and unqualified employees. Some of these aspects are also supported and confirmed from a real point of view thanks to the data collected by (Wagner and Silvera 2010) based on a study on the German automotive industry [1]. This study leads to the conclusion that Just-in-Sequence may give a significant support when a company is asked to deal with the increasing global competition and is required to offer a great variety of products with a higher level of customization and, therefore, must be able to manage efficiently and effectively the complex supply network derived from the high number of variant combinations. As already reported, expected production disruptions, quality problems, and strategic dependencies should be identified as the main critical issues for suppliers and manufacturers.

 Just-in-Sequence is already a reality for the automotive industry but, even though this industry is often considered a best practice in terms of logistics, purchasing, and supplier management, a similar developed will be followed shortly also by other industries like electronics and machinery. It can be concluded that, thanks to its potential, the importance of Just-in-Sequence will certainly increase in the future.

6. Bibliography and References

[1] Wagner, S. M., Silvera, V. (2010). Managing Risks in Just-in-Sequence Supply Networks: Exploratory Evidence From Automakers. IEEE Transaction on Engineering Management, Sept 2010. [2] Kafer, R., (2007). Advantages and disadvantages of a Just in time/Just in sequence production. 10th Doctorate Conference on 20 november 2007 Herlay. [3] Wagner, S. M., Silvera, V. (2011). Decision model for the application of Just-in-Sequence. International Journal of Production Research. Vol. 49, No. 19, 1 Oct 2011, 57135736. [4] Werner, S, Kellner, M., et. al. (2003). Just-in-Sequence material supply chain, Robotics & Computer- Integrated Manufacturing 19 (1/2), 107111. [5] Porsche Consulting Report, 2009. Schloz, R., (2009) The Luxury Line Christophorus - the Porsche Magazine. no. 340, October/November 2009 pp. 46-51. Zeyer, Y., (2009). Lean by Conviction Caracho 09 Magazine 15 years of Porsche Consulting edition. 2009 pp. 84-89. Von Der Laden, H., (2010) Typical Porsche: No Superfluous Parts Porsche Consulting THE MAGAZINE 55. pp. 30-37. Unger, K., Tehich, T., Process Stability with the Pearl Chain Concept. Faculty of Business Science University of Applied Sciences Zwickau, Germany. Battini, D., Boysen, N., Emde, S., (2012). Just-in-Time supermarkets for part supply in the automobile industry. W.Papers in Supply Chain Management Friedrich-Schiller-University of Jena. Klug, F., SYNCHRONISED AUTOMOTIVE LOGISTICS: An optimal mix of pull and push principles in automotive supply networks. Munich University of Applied Sciences, Germany. Diez, W., (2007). The Success of the German Car Manufacturing System Driving the external and internal Change A regional Perspective. Institute for Automotive Research (IFA) at the University Nuertingen-Geislingen. Presentation at the South-East University Nanjing, China 24October 2007. 10