BOSCH Supply Chain Management - SCM Project

by: Lukman Susanto & Pari Purna Somavarapu

 

Abstract / Executive Summary

 

This paper is analysing current BOSCH Australia logistic system, opening the possibility to improve the services by minimising lead-times. BOSCH Australia as most other BOSCH plants in the world are integrated with SAP system, which enable them to run the system seamlessly. The only possible improvement can be done is its distribution and delivery strategy as well as further coordination with its customers.

 

About BOSCH Australia

 

Robert Bosch Australia is a leading developer of technology for multinational automotive vehicle producers and a company committed to providing Australian customers with a wide range of premium quality, automotive and consumer products.

 

A wide range of manufacturing and distribution activities and a strong and growing export business make Robert Bosch Australia a regional cornerstone of the global Bosch Group and a major contributor to the Australian economy. The manufacture and supply of automotive products is the company’s core business, accounting for the major share of total turnover and driving the growing export business.

 

Robert Bosch Australia’s fastest moving manufactured products are automotive body electronics, diodes and automotive security systems. Robert Bosch Australia also distributes power tools, household appliances, gas hot water systems and Blaupunkt car audio equipment. Hydraulics from the Bosch Automation Technology division are assembled and marketed by Bosch Hydraulic Systems.

 

More than 1700 people are employed at the national headquarters in the Melbourne suburb of Clayton in Victoria. Professional engineers and technical personnel are involved in the development of new and exciting automotive products.

 

Robert Bosch’s supply chain involves major electronics and automotive companies such as Motorola, Siemens, Tyco Electronics, Hyundai, Ford Australia and General Motor (GM).

BOSCH Australia Logistic Functions

 

Analysed products: Automotive Body Electronics & Power Tools

 

Production Planning

Production Planning will be determined by customer orders and sales forecast from historical data. Based on this information and supported by current trend, production dept will determine their production planning and prepare the purchase requirement to purchasing department which will then create the purchase order.

 

As part of BOSCH worldwide PP strategies, BOSCH Australia has involved in DELMIA (digitalised PP) where the system simulated production planning to include the identification and elimination potential problem in a virtual environment, before they become real problems (Dassault Systemes). This system is originally prepared to meet one of BOSCH major customers, DaimlerChrysler. DELMIA engineering process provides different methods of PP through a transparent system using a single data model (Dassault Systemes).

 

MRP (SAP) and Purchase Order

Purchase Orders are automatically generated by MRP system depending on the production plan. These orders will be approved by the purchasing department teams and then sent to the suppliers through EDI (Electronic Data Interchange). After the materials have been shipped, supplier will then send ASN (Advanced Shipment Notice) for references.

 

Transportation Methods

Main inbound logistics are handled by Schenker AG Logistics to transport raw materials internationally from Motorola (USA), Siemens (Germany) and Tyco Electronics (USA). Method of transportation is determined by the volume and the urgency of the materials. Raw material is generally brought in by ocean freight whereas if the nature of the material required is urgent, airfreight is used for the transport. Custom clearance and local inbound transportation is also handled by Schenker as part of their services.

 

Inbound Warehouse

When the materials arrive in warehouse, warehouse staff will check for defects and quantity against both ASN and purchase order. Any discrepancies will be noted in the system and notified to the suppliers. Staff will then input the delivery details to goods receipt in the system (SAP).

 

Internal Goods Movement (SAP)

Raw materials are moved into manufacturing area as required by the internal ordering process. Internal Ordering is done in SAP by the manufacturing department. Manufacturing department puts in the order in the internal system (SAP) for the raw materials depending on the orders.

 

Outbound Warehouse

Once the product is finish, manufacturing department will forward the goods to warehouse. Warehouse staff will then record and update the stock in the system.

 

Order Processing

Orders are normally placed through EDI (body electronics) and fax (power tools). Sales department will then send the copy of the order to warehouse (automatically done in SAP). Warehouse staff will check the current stock level and possibility of ordering it from the production line or from overseas where the product is made. When the product is ready, TOLL logistic will deliver it locally or Schenker for the international delivery. Account department will be informed about the order and the delivery progress and customer will be invoiced.

 

Distribution Centres

At Bosch Australia (Clayton) outbound warehouse acts as distribution centre. All the processed orders will be transported to the customer by TOLL Logistics Group locally and Schenker internationally.

BOSCH Australia Logistic Facts

	Automotive Body Electronics	Power Tools
Production Plant	Australia	Switzerland & China
Australia Market Share	Main vendor ( > 60% )	Up to 15%
Customer Satisfaction (Bosch survey)	Excellence in meeting customer production plan and requirements	N/A
Customer Satisfaction (Our survey)	N/A (expected sources unreachable)	Incomplete orders (less than requested amount) Bosch comment: short stock in Australia, items produced in Switzerland or China
Reliability of Delivery	Over 99%	Depending on stock level
Delivery Lead Time	On schedules – no lead times	Six (6) weeks (ordering, shipping, clearance, etc)
Quality	Top of the ranges	Above average
Response to variation in volume	Made-to-order (no variation expected except for accidental failures)	Australia stock 110% of total customer orders.
Price / Cost	Depending on customer specification	Highly competitive

Figure 1

 

Current Operation Strategy Analysis (PROBLEM)

 

BOSCH Australia is concentrating on their automotive and other electronics component such as ABS system, power steering sensor and EDR (Electronic Driving Recorder) some sort of Black Box for aircrafts in cars. BOSCH is running their production system throughout different plants worldwide. This allows different countries with different expertise to concentrate in different products. The drawback of having plants in various locations is obviously in their logistic system. Fortunately, BOSCH has got a collaborated international logistic system, which makes the distribution of its products worldwide can be seamlessly done. This cannot be said that the whole delivery and distribution system is trouble-free. There are limitations in their system caused mainly by variation of order and uncertain stock level.

 

BOSCH is able to handle virtually every planned order perfectly, thank to their amazing system and complete global sourcing solution. BOSCH business system, which is backed by SAP, has set a standard on how manufacturing enterprises should be. Their only main problems raised in transaction with small customers who have not got an organised future plan.

 

Here are the problems, which may occur during the transactions with customer:

• Worldwide plants have stretched their logistics to the limit and everything is expected to be perfect.
• Minimum stock level means limited order variation can be handled.
• Orders are only partly filled as result of shortage of stock
• As many other enterprises, BOSCH is only “exceptionally good” in dealing with other enterprises (with modern business-standard systems such as ERP).
• Such massive logistic system usually results in massive costs in delivery and massive lead-time, especially for small orders.

 

For products such as power tools that are produced mainly in Switzerland and China, lead-time in ordering from any other countries may take up to 2 months to complete. This often puts many customers off from BOSCH and goes with other vendors who are willing to keep high stock level in local countries.

Robert BOSCH Australia                      Product: Automotive Body Electronics

 

Figure 2 – See figure 4 diagram B

Suppliers	Warehouse	Manufacturing	Warehouse	Distribution Centre	Customers
Motorola Siemens Tyco Electronics	RBAU Logistics 1555 cnr Centre and McNaughton roads Clayton 3168 - Victoria	RBAU Logistics 1555 cnr Centre and McNaughton roads Clayton 3168 - Victoria	RBAU Logistics 1555 cnr Centre and McNaughton roads Clayton 3168 - Victoria	RBAU Logistics 1555 cnr Centre and McNaughton roads Clayton 3168 - Victoria	Ford Hyundai General Motor (GM)
Information System / Information Exchanges
Methods EDI		Methods Internal Goods Movement system in SAP		Methods EDI / Order Plans
	Methods Production Order system in SAP		Methods Internal Goods Movement system in SAP
Sourcing / Ordering / Transporting / Sales / Distribution
Sourcing Bosch Worldwide Sourcing database / Additional search		Transport Internal Trucks and forklifts		Sales/Marketing Customer Requirements (Internet & TV ads)
	Ordering Phone / Fax enquiries		Distribution Internal Truck and forklifts
Physical Storage / Equipments / Picking System
Storage/Tiers Up to 40 meters warehouses – 12 tiers		Equipment Forklifts, Cranes		Picking Cranes with RF communication system
	Storage/Tiers/Equipment Up to 40 meters warehouses – 12 tiers		Storage/Tiers/Equipment Up to 40 meters warehouses – 12 tiers
Transport / Export / Import
SCHENKER Logistic for international ocean/air freight TOLL Logistic for domestic surface		SCHENKER Logistic for international ocean/air freight TOLL Logistic for domestic surface		SCHENKER Logistic for international ocean/air freight TOLL Logistic for domestic surface
	SCHENKER Logistic for international ocean/air freight TOLL Logistic for domestic surface		SCHENKER Logistic for international ocean/air freight TOLL Logistic for domestic surface
Management / Manager / Strategy / Leadership : Lead by Geoff Muston in overall
Geoff Muston, Logistics Manager, Building: 102, RBAU Daryl Budgeon, Customs & Shipping Manager		Geoff Muston, Logistics Manager, Building: 102, RBAU Craig Dixon, Works Logistics Manager		Geoff Muston, Logistics Manager, Building: 102, RBAU Daryl Budgeon, Customs & Shipping Manager
	Chris Hallett, Ext Warehouse Manager Terence Juds, Warehouse Supervisor		Geoff Muston, Logistics Manager, Building: 102, RBAU Steve Kelcey, Distribution Centre Manager

Robert BOSCH Australia                      Product: Power Tools

 

Figure 3 – See figure 4 diagram C

Suppliers	Warehouse	Distribution Centre	Customers
BOSCH Switzerland Skil Dremel Vermont America	RBAU Logistics 1555 cnr Centre and McNaughton roads Clayton 3168 - Victoria	RBAU Logistics 1555 cnr Centre and McNaughton roads Clayton 3168 - Victoria	Bunnings Mitre 10 True Value Hardware
Information System / Information Exchanges
Methods EDI		Paper (Fax Ordering & Invoices)
	Methods Internal Goods Movement system in SAP
Sourcing / Ordering / Transporting / Sales / Distribution
Sourcing Bosch Worldwide Sourcing database / Additional search		Sales/Marketing Customer Requirements (Internet & TV ads)
	Ordering Phone / Fax enquiries
Physical Storage / Equipments / Picking System
Storage/Tiers Up to 40 meters warehouses – 12 tiers		Transport Delivery through local TOLL logistics
	Storage/Tiers/Equipment Up to 40 meters warehouses – 12 tiers
Transport / Export / Import
SCHENKER Logistic (international)		TOLL Logistic (domestic)
	Internal Bosch trucks
Management / Manager / Strategy / Leadership : Lead by Geoff Muston in overall
Geoff Muston, Logistics Manager, Building: 102, RBAU Daryl Budgeon, Customs & Shipping Manager		Geoff Muston, Logistics Manager, Building: 102, RBAU Daryl Budgeon, Customs & Shipping Manager
	Chris Hallett, Ext Warehouse Manager Terence Juds, Warehouse Supervisor

BOSCH Australia – Logistic Department – Supply Chain Diagram

 

Figure 4

designed by Lukman Susanto & Pari Purna Somavarapu

 

Figure 4 shows four kinds of supply chain in BOSCH Australia depending on their product category, type of order and production plan.

Diagram A:  This diagram is representing products such as spark-plugs which are manufactured and marketed in Australia. Supplier supplies raw material required which will be kept in inbound warehouse. Finished products are sent to distribution centres (DCs) to meet general retailer (customer) demand.

Diagram B:  This diagram is representing products such as made-to-order package of engine care or automotive body electronics for special order which should be made in a special batch lot. Finished products are directly delivered to the retailer (customer) who placed this special order.

Diagram C:  This diagram is representing products such as power tools, white-goods and car stereo. These items are imported from other BOSCH plant (mainly Germany), kept in BOSCH Australia’s warehouses and then distributed to major retailers based on their order.

Diagram D:  This diagram is representing complete built-up made-to-order customised products which require no further processing and the only action takes place in redirecting the items to the customer. Supplier in this diagram would also normally be other BOSCH plants (i.e. Germany).

Current example of flow diagram in Power Tools ordering in Australia from China

 

Figure 5

DEPEND ON   METHOD

INSTANT

INSTANT

INSTANT

INSTANT

INSTANT

1 DAY

5 DAYS

1 DAY

INSTANT

INSTANT

START HERE

CUSTOMER RECEIVE INVOICE

CUSTOMER RECEIVE ORDER

BOSCH AUSTRALIA SEND INVOICE

BOSCH AUSTRALIA ACCOUNT DEPT

BOSCH CHINA ACCOUNT DEPT

BOSCH AUSTRALIA INBOUND WHOUSE

BOSCH CHINA WAREOUSE

BOSCH AUSTRALIA DISTRIBUTION CTR

CUSTOMER PLACED ORDER

BOSCH AUSTRALIA OUTBOUND WH

BOSCH CHINA SALES DEPT

BOSCH AUST WH STOCK CHECK

BOSCH AUSTRALIA SALES DEPT

6 WEEKS

INSTANT

DEPEND ON METHOD

INSTANT

PROBLEM!!!

The most significant lead-time is happened in the international inbound logistic (shipping and clearance) and the needs of transporting goods from warehouse in China to go through BOSCH Australia warehouse. Over 7 weeks in total of lead-time!!!

 

                  Path of GOODS MOVEMENT ordering power tools into Australia from China

                  Path of INVOICING ordering power tools into Australia from China

                  Other paths
BOSCH Australia – Logistic Department – Organisation Structure

 

 

Figure 6

Depth analysis on BOSCH Australia Logistic Systems (Logistic, EDI and DCs)

 

BOSCH Australia Logistic Team / Leadership

 

Geoff Muston, Logistics Manager

 Trade Sales Logistics

LOGISTIC 1

Geoff Muston (acting), Trade Sales Logistics Manager

Steve Kelcey, Distribution Centre Manager

Chris Hallett, External Warehouse Manager

Works Logistics

LOGISTIC 2

Craig Dixon, Works Logistics Manager

Allen Crowley, Works Store Supervisor

Ajaib Singh, Electronics Store Supervisor

Trade Sales Planning

LOGISTIC TEAM 3

Daryl Budgeon, Trade Sales Planning Manager

Customs & Shipping

LOGISTIC TEAM 4

Gunther Reissig, Customs and Shipping Manager

Systems

LOGISTIC TEAM 5

Five (5) team members of system analysts.

Special Projects

Ashok Krishnamurthy, Project Manager

 

 

BOSCH Australia Warehouses

 

Victoria – BOSCH Australia Headquarter

RBAU Logistics Warehouse

Holding stock for various electronics and automotive components

1555 cnr Centre and McNaughton roads, Clayton 3168

New South Wales

Schenker Logistics – Branch warehouse

Unit 3, Parklands Industrial Estate

13-23 South Street, Rydalmere, NSW. 2116

Area 1800 sqm, holding stock for household appliances and gas appliances.

Western Australia

Warehouse New Wave Logistics Pty Ltd

5 Harrison Rd, Forrestfield 6058

South Australia

Warehouse Contracted to Robert Middleton's Distribution

70-72 Pym St Dudley Park

Area 780sqm, holding stock for household appliances, gas appliances, power tools and automotive.

Queensland

Branch warehouse 1/44 Murdock Circuit Acacia Ridge

Area 1028sqm, holding stock for household appliances and gas appliances.

 

 

EDI – Supply Chain Information System & Theory

 

Robert BOSCH Australia has been using EDI intensively especially in relation to its supplier to improve, reduce rework and streamline business processes.

 

BOSCH Australia describes EDI vision for supplier and freight provider as for quick respond to its customers’ requirements with its suppliers.

 

The business (ordering) process using EDI:

1.                  Bosch Australia sends DELFOR (Delivery forecast with embedded release) using cumulative quantities.  This schedule contains both customer orders and forecast.

2.                  Supplier sends CNTRL (message acknowledging or rejecting, with error indication, a received interchange, functional group or message) message acknowledging receipt of DELFOR.

3.                  Supplier system processes data and prepare cumulative delivered

4.                  Supplier dispatches goods and generates “Delivery advice” when the goods are dispatched from supplier.

5.                  For overseas suppliers, second copy of the dispatch advice to be sent the Bosch Australia freight forwarder shipments.

6.                  When BOSCH Australia physically receives goods system updates the last delivered quantity and cumulative for the next DELFOR.

 

EDI Strategies

Improve logistics, planning and accounts payable for BOSCH Australia

Improve cross departmental processes

 

EDI Results

Cheaper customs clearance, faster goods receipting, more efficient accounts payable, reduced lead times and connection to BOSCH Australia Web EDI system.

 

Success Factors

58% of schedule lines on EDI - Error rate of ASNs < 6%

Distribution Strategies & Theory

RE: BOSCH Australia Stock Policy

 

Bosch Australia needs to forecast customer demands and carry inventory when there is a lead-time gap between the customer/demand lead-time and the supply lead-time. Bosch Trade Sales Division has a negative lead-time gap for most products because customers expect deliveries within hours or days, but it normally takes weeks or months to manufacture and/or import products. Therefore, Bosch needs to be proactive in meeting customer demands by forecasting over the lead-time gap and carrying stock.

 

If stock needs to be carried, the organisation needs to determine whether it will be held in a centralised, decentralised or flexible distribution network. The importance of selecting the best possible strategy cannot be overestimated as it may result in a substantial competitive advantage. Logistical efficiency is directly related to and limited by the facility network structure. The number, size and geographical arrangements of facilities have a direct relationship to customer service capability and cost.

 

The factors that will determine which stocking strategy should be adopted are:

 

1.                  Distribution Lead-Time Gap

The distribution lead-time gap is the difference between the customer lead-time and the BOSCH Australia / supplier lead-time to deliver the product from the distribution centre. The distribution lead-time (i.e. the BOSCH Australia supplier lead-time) includes the time taken for order placement, planning, dispatch and transport to the customer. The distribution lead-time will be greater for the centralised rather than the decentralised distribution network due to longer transport times. A decentralised distribution network strategy must be adopted if the centralised distribution lead-time is greater than the customer lead-time.

 

2.                  Cost

The table below explains how costs compare for centralised and decentralised distribution networks:

 

	Centralised	Decentralised	Comments
Inventory Costs	¯	­	Requires higher stock levels as safety stock is needed in each location to compensate forecast error.
Transport Costs	­	¯	Transport costs are normally higher for centralised networks. Although delivery of larger orders from suppliers is normally cheaper, these costs are often eaten-up by the premium transport costs that may be incurred to provide speedy delivery of stock to customers.
Infrastructure Costs	¯	­	The greater the number of warehouses, the higher the infrastructure costs.
Planning Workload and Complexity	¯	­	Production planners need to determine replenishment actions for each product at each location in a decentralised network and distribution of excess inventory.
Lead-Time	­	¯	The lead-time from warehouse to customer is greater from a centralised warehouse location.

 

 

Organisations must determine the distribution strategy that will satisfy customer service requirements at the lowest total cost. Typically, a centralised distribution strategy provides a lower inventory investment at lower total cost; however customer service level can be sacrificed. Similarly, a decentralised distribution strategy will usually provide superior service levels to customers, however this is usually at a higher inventory investment and total cost. A flexible distribution strategy, where some products are held in a central stocking location and others are held in a decentralised distribution network, may offer the best balance between service level performance and cost.

 

For cost reasons, most companies are centralising inventory unless dictated by customer service expectations (i.e. the lead-time gap). Inventory planning is also being centralised and supported by integrated inventory management software.

Strategy Derivation to refine BOSCH Logistic Systems (SOLUTION)

 

There are two major problems with existing BOSCH logistic systems, they are:

• Lead-time in international orders is too long and this can be minimised by reorganising their logistic strategies.
• Small customers are normally unorganised in their ordering plan, which makes BOSCH reluctant in keeping high stock level. This problem can be minimised by approaching them to carefully plan their future orders by giving BOSCH an upfront notice.

 

Strategy 1 Solution

Current BOSCH Worldwide Distribution Strategy

 

 

 

 

 

 

 

 

 

 

Suggested BOSCH Worldwide Distribution Strategy

 

 

 

 

 

            represent distribution centres in different countries / plants

This first strategy is designed to keep all international stock of each plant in a centralised distribution centre/warehouse in the middle of each region. For example, China who produced power tools will only keep the number required for local market and send the rest of the stocks to Singapore as the main distribution centre for Asia Pacific region. This system will reduce the amount required for goods to be transported within region.

 

Strategy 2 Solution

Approaching customers (especially small-medium size) to organise their sales / production plans so that early preparation can be done. This requires careful analysis on market trend as well as historical data. By allowing tolerance time, the lead-time can be minimised to approximately half.

 

Current purchasing system by small to medium size of businesses

 

                                                                            LEAD-TIME

 

ORDER                                                  ACTUAL TIME                   DELIVERY

                                                                                WHEN PRODUCT

IS NEEDED

 

With a careful plan, customers are expected to provide information on their order earlier than what used to be happened. By letting BOSCH know earlier, they can prepare the order sooner which in turn will bring the delivery time closer to the actual time when the product is needed.

 

Suggested purchasing system by small to medium size of businesses

 

                                  LEAD-TIME                                     DELIVERY

 

ORDER                                                                                                  ACTUAL TIME

                                                                                WHEN PRODUCT

IS NEEDED

 

 

Suggested example of flow diagram in Power Tools ordering in Australia

 

Figure 7

MAXIMUM OF   3 WEEKS!!!

INSTANT   DELIVERY CONFIMATION

DEPEND ON    METHOD

INSTANT

INSTANT

INSTANT

INSTANT

INSTANT

5 DAYS

1 DAY

INSTANT

INSTANT

START HERE

CUSTOMER RECEIVE INVOICE

CUSTOMER RECEIVE ORDER

BOSCH AUSTRALIA SEND INVOICE

BOSCH AUSTRALIA ACCOUNT DEPT

BOSCH CHINA ACCOUNT DEPT

ASIA-PACIFIC SING WAREHOUSE

BOSCH AUSTRALIA DISTRIBUTION CTR

CUSTOMER PLACED ORDER

BOSCH AUSTRALIA OUTBOUND WH

BOSCH CHINA SALES DEPT

BOSCH AUST WH STOCK CHECK

BOSCH AUSTRALIA SALES DEPT

INSTANT

DEPEND ON METHOD

INSTANT

SOLUTION!!!

The most significant reduce lead-time is happened after moving the stock from any BOSCH in Asia Pacific region to a centralised warehouse located in the middle of the region (i.e. Singapore) and possibilities to deliver goods directly from warehouse in China straight to the customers.

 

                  Path of GOODS MOVEMENT ordering power tools into Australia from China

                  Path of INVOICING ordering power tools into Australia from China

                  Other paths

Customer Responses on Proposal

 

Most of BOSCH customers are happy with the suggestion and they will try to prepare their production / sales planning earlier giving BOSCH a little bit more extra time to prepare the orders. They are however still expecting BOSCH being more flexible towards order variation which may happen every now and then when they receive big projects. BOSCH Australia in the other hand is tied-up with the production schedules from other countries / other BOSCH plants and unable to change their production pattern for minor uncertain things.

 

Conclusion

 

Since the recent improvement of its logistic information system, BOSCH Australia has developed high standards throughout its supply chain. BOSCH Australia learnt from its parent company BOSCH Germany in developing and improving its production efficiency. This efficiency is demanded as one of the most important business competitiveness requirements.

 

Most of the transactions and information exchanges are done electronically and the only possible improvement in their overall logistic system is through organising their delivery and distribution strategies.

 

The quickest solutions that we can offer are establishing regional distribution centres to shorten each region delivery time and organise the distribution strategies. This method is expected to reduce most of delivery times however this increases the management complexity in every production plants and the cost involve in delivering products from plants to its regional distribution centres.

 

Another improvement required is further cooperation with small to medium size of customers to plan their sales / production earlier to allow more tolerance for BOSCH to prepare / produce the orders.

 

 

References

 

Robert Bosch Australia / Germany

Undisclosable internal sources

 

Sharifi, H., Zhang, Z., 1999, "A methodology for achieving agility in manufacturing organizations: an introduction", International Journal of Production Economics.

http://0-www.emeraldinsight.com.library.vu.edu.au/rpsv/cgi-bin/linker?ext=i&ref=1770070402-21