CHRYSLER GROUPCHRYSLER GROUP

Analysis of Super Module Initiative Analysis of Super Module Initiative

for DaimlerChryslerfor DaimlerChryslerISYE 6203

Dr. Vande VateApril 6, 2006

Team Members:Mike Harding Hao Junxian (Peter)Joongsup Lee Atul MalikPaitee Skooleiam (Tee) Paul Young

CHRYSLER GROUPCHRYSLER GROUPBriefing AgendaBriefing 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

CHRYSLER GROUPCHRYSLER GROUPBackground – Company Background – Company

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.

Front Suspension Front Suspension SupplierSupplier

Powertrain Powertrain SupplierSupplier

15 miles

13 Miles

St Louis Assembly Plant

33rdrd Party Logistics Party Logistics

9 miles

7 miles

4 miles18 miles

CHRYSLER GROUPCHRYSLER GROUPBackground - Super Module ContentBackground - Super Module Content

Front Suspension Module (FM)

Brake / Knuckles, Springs / Struts & Other Misc. Components

+

+

Powertrain Module (Engine, Transmission, Clutch)

CHRYSLER GROUPCHRYSLER GROUPProblem StatementProblem 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)

CHRYSLER GROUPCHRYSLER GROUP

– 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?

Problem Statement - Key Investigation ItemsProblem Statement - Key Investigation Items

PM(68 job/hr)

FM(136 job/hr)

3PL

AP

PM(68 job/hr)

FM(136 job/hr)

AP

FM(136 job/hr)

PM(68 job/hr)

AP

13 7

4

15

18

15

9

CHRYSLER GROUPCHRYSLER GROUPAnalysis – DCX Super Module Cost BreakdownAnalysis – 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

CHRYSLER GROUPCHRYSLER GROUPAnalysis – DCX Super Module Labor BreakdownAnalysis – 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

f. Pools (based on 18% absenteeism x (a+b)) = 2.5

Total = 19.8

Total Savings = $2,572,000

CHRYSLER GROUPCHRYSLER GROUPAnalysis - DCX Plant InformationAnalysis - 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

Auto Load / Unload of

Super Module

Shipping Docks

Loaded onto

AGVs Body / Chassis Marriage

CHRYSLER GROUPCHRYSLER GROUPAnalysis - FactsAnalysis - 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

DCX FM PM 3PL

DCX - 18 9 4

FM 18 - 15 7

PM 9 15 - 13

3PL 4 7 13 -

CHRYSLER GROUPCHRYSLER GROUPAnalysis - AssumptionsAnalysis - 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 5 key Super Module combinations

Super Module Usage Min MaxFM1 + PM1 18% 12% 26%FM1 + PM2 6% 3% 11%FM2 + PM1 20% 10% 25%FM2 + PM3 6% 4% 11%FM2 + PM4 50% 41% 65%

Code Front Suspension ModuleFM1 Sport SuspensionFM2 4-Wheel Independent Suspension

Code Power Train ModulePM1 5.7Liter, 8 Cylinder Hemi Engine w/ 5-Speed Auto TransmissionPM2 5.7Liter, 8 Cylinder Hemi Engine w/ 5-Speed Manual TransmissionPM3 3.0Liter, 6 Cylinder Diesel Engine w/ 5-Speed Auto W5J TransmissionPM4 4.0Liter, 6 Cylinder Engine w/ 5-Speed Auto Transmission

CHRYSLER GROUPCHRYSLER GROUPAnalysis - AssumptionsAnalysis - 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

CHRYSLER GROUPCHRYSLER GROUPAnalysis – Outsourcing OptionsAnalysis – 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

SM produced at

Number of Trucks

Dedicated docks used

Daily dist. (mi) (fuel cost ann.)

Total loading time (min)

PM Supplier 9 8 774 ($96750) 4608

FM Supplier 12 8 1188 ($148500) 5735

3PL 15 12 950 ($118750) 6862

Current (AP) 9 8 846 ($106000) 3580 (No AGV)

CHRYSLER GROUPCHRYSLER GROUPAnalysis – Lean System: PM Supplier producingAnalysis – Lean System: PM Supplier producing

Start Production

Front Module Supplier42.35 min for production and

loading of 96 units

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

Daimler Chrysler Assembly Plant

Information in 192 min Advance

Start Production

30 min in ShippingModules 15 Miles

30 min security/parking

18 min in Shipping48 Super Modules

9 Miles

1/2 hour buffer time Super Module Waiting at Parking of AP

Time (60 + 24) min PM Ready

42 min

SM Assembly

Basic IDEA of 192 Min Window Lean Supply Chain

CHRYSLER GROUPCHRYSLER GROUPAnalysis – Variance on Number of TrucksAnalysis – 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).

Truck Route: FM to PM 1 Truck required every 84.71 minsEvent Time Std DevLoading 42.35 0.00 99.9% of Route time: 220.17Travel 30.00 5.00Inspection 30.00 3.00 Trucks needed: 3Unloading 20.00 3.00Load Empty 20.00 3.00 Initial Std Dev. MaxTravel 30.00 5.00 Travel 5 13Unload Empty 20.00 3.00 Inspection 3 18Total 192.35 9.27 Load/unload 3 11

Truck Route: PM to AP 1 Truck required every 42.35 minsEvent Time Std DevLoading 42.35 0.00 99.9% of Route time: 243.06Travel 18.00 3.00Inspection 30.00 3.00 Trucks needed: 6Unloading 42.35 0.00Load Empty 42.35 0.00 Initial Std Dev. MaxTravel 30.00 3.00 Travel 3 6Unload Empty 20.00 3.00 Inspection 3 8Total 225.06 6.00 Load/unload 3 8

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.

CHRYSLER GROUPCHRYSLER GROUPProposed Solution – PM Supplier Produces SMProposed Solution – PM Supplier Produces SM

Front Suspension Front Suspension SupplierSupplier

Powertrain Powertrain SupplierSupplier

Assembly Plant

Production & Loading

Shipping & Unloading

Powertrain Module Processing

Super Module Processing

= Specialized Truck for shipping Super Module

15 miles

9 Miles

Build Broadcast

Shipping & Unloading

CHRYSLER GROUPCHRYSLER GROUPCost Comparison – PM Supplier vs DCXCost 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

DCX does work in-house

Work outsourced to PM supplier

Investment $2,400,000 $2,350,000

Variable Cost $9.55 per unit $8.02 per unit

Project Length = 3 years at 272,000 units per year

816,000 units 816,000 units

Total Cost Per Unit* $12.40 $10.90

CHRYSLER GROUPCHRYSLER GROUP

Module Usage

FM1 24%

FM2 76%

PM : 125 components, 50 suppliers

FM : 31 components, 11 suppliers

SM : 57 components, 10 suppliers

What are the complexities?- Variability in modules

Managing supply

Module Usage

PM1 38%

PM2 6%

PM3 6%

PM4 50%

- Variability in components, from various suppliers

Supply Consolidation – Existing InventorySupply Consolidation – Existing Inventory

CHRYSLER GROUPCHRYSLER GROUP

The replenishment is scheduled to share the transportation cost among products from the same supplier.

- Find the right demandDaily 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

Supply Consolidation Supply Consolidation

CHRYSLER GROUPCHRYSLER GROUP

Summary of cost saving

TP cost Inv cost Total costFM 115,666 115,666 231,332 PM 411,833 411,833 823,667 SM 90,782 90,782 181,563 Grand total 618,281 618,281 1,236,562

EOQ

[Step 1] result

TP cost Inv cost Total cost Total cost % savingFM 67,122 86,205 153,327 78,005 33.72%PM 252,750 444,627 697,377 126,290 15.33%SM 88,261 88,862 177,123 4,440 2.45%Grand total 408,132 619,694 1,027,827 208,735 16.88%

[Step 2] result

TP cost Inv cost Total cost Total cost % savingFM 67,122 106,491 173,612 57,719 24.95%PM 254,215 479,538 733,753 89,913 10.92%SM 88,261 88,862 177,123 4,440 2.45%Grand total 409,598 674,891 1,084,489 152,073 12.30%

Supply Consolidation – For each ModuleSupply Consolidation – For each Module

CHRYSLER GROUPCHRYSLER GROUP Supply Consolidation – ComparisonSupply Consolidation – Comparison

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

Cos

t ($)

EOQ Step 1 Step 2

Method

TP cost

Inventory cost

12.30% saving

16.80% saving

Summary of cost saving

CHRYSLER GROUPCHRYSLER GROUPRecommendationsRecommendations

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.

CHRYSLER GROUPCHRYSLER GROUP

Questions?

CHRYSLER GROUPCHRYSLER GROUPCost Comparison Back-up DataCost Comparison Back-up Data

DCX does work in-houseInvestmentMaterial handling dunnage required for Powertrain Module at Assembly Plant 200,000$ Material handling dunnage required for Front Suspension Module at Assembly Plant 100,000$ Floor Space required to display Powertrain and Front Suspension at the Assembly Plant 400,000$ Less Shipping Docks 200,000$ Backup Storage 500,000$ Interchangeable Tooling and Storage on AGVs 400,000$ Lifting Device to Load Front Suspension from dunnage to AGV 50,000$ Lifting Device to Load Powertrain from dunnage to AGV 50,000$ Material Display devices for Powertrain, Front Suspension & Other Components 500,000$

Investment 2,400,000$

Cost Per Unit 2.94$ VariableDirect Labor Operators 10.0Material Handling Operators 4.0Other Operators (Skilled, Union, etc.) 1.0Salary 0.6Team Leaders 1.7Pools 2.5

Total Labor 19.8Total Labor Cost over 3 Years 7,716,800$

Cost Per Unit 9.5$

Total Cost Per Unit 12.40$

CHRYSLER GROUPCHRYSLER GROUPCost Comparison Back-up DataCost Comparison Back-up Data

InvestmentMaterial handling dunnage required for Powertrain Module at Assembly Plant 200,000$ Strip System at Assembly Plant to Load/Unload Super Module 500,000$ Strip System at the Supplier to Load/Unload Super Module 500,000$ Hoist to Load Super Module to AGV 50,000$ Specialized Shipping Trucks for Super Module 900,000$ Material handling dunnage required for Front Suspension Module to the Super Module Supplier200,000$

Investment 2,350,000$

Cost Per Unit 2.88$ VariableSupplier Labor Cost ($90,000 per year x 6.5 per shift x 2 shifts) 4.30$ Dedicated truck drivers ($60,000 per year x 6 per shift x 2 shifts) 2.87$ Fuel & Vehicle Maintenance ($50,000 per year) 0.18$ Supplier G&A costs at 35% of variable 2.57$ Supplier Profit at 5% of variable cost 0.50$

Sub Total 10.42$ DCX no longer paying shipping costs for delivery of Powertrain & Front Suspension (2.40)$

Total Cost 10.90$

DCX outsources work