Navistar Supply Chain Management

Executive Summary

The core problem in Navistar’s case is the quality and delivery timing that undermine the company’s supply chain strategy. The issue results from the inability to assemble interior trims into different truck cabs since they occasionally run out of the parts necessary to complete a project. The primary consequences include the subsequent material handling and reordering of trim parts that often require employees to work overtime. Therefore, Navistar should conduct an independent audit on Trimco to ensure that the company adheres to the best industry practices and quality standards. It should also consider shifting from the JIT inventory system to the just-in-case strategies (JIS) to help Navistar hold sufficient amount of inventories and reduce the time taken between the orders made for trim parts and their delivery.

 

Navistar Supply Chain Management

Automotive trucks and agricultural equipment are often customized to meet the customers’ requirements since the period before the market introduction is significantly short. As such, the supply chain strategy and structure must guarantee rapid delivery times as well as an uninterrupted flow of quality production inputs. Navistar’s supply chain structure does not meet these requirements, which results in quality and delivery challenges that undermine the company’s ability to achieve the set quality and delivery objectives. This paper presents a comprehensive analysis of the challenges the focal company is facing to suggest actions that should be taken. The first section presents a statement of the core problems and issues in the case while the second one develops a critical analysis of the key challenges. The final section develops recommendations to mitigate the quality and delivery issues.

Statement of the Problem

The ongoing quality problem involves Navistar’s assemblers at Chatham who were not able to assemble interior trims into different truck cabs due to inappropriate or missing parts. The primary consequences include the post-assembly installation delays that have potential impacts on Navistar’s bottom lines. Andy Ramsz, the company’s assembly supervisor at the Chatham plant identifies seven primary reasons for the inappropriate and missing trim parts. They are defective parts, missing parts, incorrectly punched parts, damaged parts, incorrectly sent parts, wrong specifications, and parts for other interiors (Appendix A).

The quality and delivery issue is caused by three challenges at Trimco. Firstly, Trimco’s limited computer system capability and the lack of centralization makes it difficult for the company to monitor outgoing parts (Navistar Case Study n.d). Secondly, Trimco’s high employee turnover made it challenging to sustain quality training, especially in meeting customer requirements. Thirdly, Trimco found it difficult to respond to Navistar’s design changes due to the lack of coordination. The problem was further complicated by the Just in Time (JIT) system that has little time between the orders made and the ones delivered.

Analysis of Key Challenges

The three primary challenges resulting in the quality and delivery issue can be further discussed by exploring the QS 9000 certification, the JIT delivery system, the labor-related issue at Trimco, the incomplete kit delivery by Trimco to Navistar, the communication between the two companies, and Navistar’s supply chain strategy.

The QS 9000 Certification. Understanding the QS9000 certification will show the discrepancies in quality control procedures despite Trimco being QS 9000 certified. Moreover, critically reviewing the QS9000 certification helps in developing a plan for Navistar to audit the performance of Trimco. The QS9000 refers to the quality standard introduced into the automotive industry in the mid-1990s (Vaxevanidis et al. 123). The quality standard was jointly developed by Ford, Chrysler, and General Motors, which are considered the big three American automakers. Since its inception, the QS9000 has been widely adopted by numerous heavy truck assemblers and manufacturers within the U.S and across the world.

The primary advantage for adhering to the QS-9000 is to gain a competitive advantage by mitigating the quality issues that can result in delivery problems thereby undermining the overall productivity. Moreover, QS-9000 helps companies to eliminate unnecessary and redundant production practices (Vaxevanidis et al. 135). The QS-9000 standards provide information to the current and potential automotive customers that are necessary for helping them decide whether the product they are purchasing has been consistent in quality and has been developed under controlled conditions. As such, the QS-9000 standards are among the primary customer requirements and are globally accepted in the automotive industry as proof of quality.

Although the QS-9000 is often deemed identical to the ISO 9000, it is not. However, the individual elements in ISO 9000 are also present in QS-9000 but the latter adds new clauses. For example, the QS-9000 adds the requirements for manufacturers to develop a business plan that tracks customer satisfaction to the element of management responsibility in ISO 9000. For Navistar to audit the performance of Trimco by itself, it must first establish the company’s associate responsibilities. Vaxevanidis et al note that a company must prepare its staff to handle the unique challenges and responsibilities after becoming QS-9000 certified (195). As such, establishing Trimco’s associate responsibilities is the first step for Navistar when auditing the company’s quality performance.

Each employee is required to have responsibilities under QS-9000. Navistar should appraise the industrial engineers’ responsibilities to ensure they have put in place the best machine and operator layout, time-studies, and production rates. Secondly, Navistar must establish whether Trimco’s associates are able and willing to execute their responsibilities in compliance with all documented work instructions and procedures that may apply as well as ensure they have an in-depth understanding of the company’s QS-9000 quality policy statement (Vaxevanidis et al. 123). The approach helps Navistar in determining whether Trimco’s associates can cooperate with the internal and external auditors and comply with corrective actions. Finally, Navistar must establish whether Trimco is able to complete all logs and other records that ensure consistent and timely delivery of quality trim parts.

The plan developed for Navistar to audit the performance of Trimco seeks to establish how the company does its job and whether it has put in place the proper work procedures. As such, Navistar will have to ask Trimco specific questions concerning its procedures, which include whether the company is familiar with the QS 9000 quality policy and whether the managers know what it means for the company by adhering with the standards. Navistar should also request for any logs and forms that Trimco fills out about its production and delivery systems. One of the primary objectives of QS-9000 system is to help manufacturers to consistently produce quality products. Therefore, conducting an independent audit on Trimco will help Navistar identify any procedures that undermine the timely delivery of quality parts to its assembly plants (Haoping 98). Rather than comparing the delivery and quality standards of Trimco’s products with other companies, the QS 9000 conducts a simple check to determine whether each of the company’s departments is honoring its promise in the quality assurance statement. As such, Trimco may not receive the certification if the company is unable to prove to Navistar that it has and can continue remaining consistent in the production of quality products.

Although Trimco is QS 9000 certified, the company’s quality control procedure often varies. The analysis of how QS9000 certification is conducted helps to propose a plan for Navistar to audit the performance of Trimco. It should focus on establishing whether the company’s production systems and departments are quality compliant. The QS-9000 helps Navistar to elicit Trimco to comply with the quality criteria by ensuring the company’s customer satisfaction starts with conformance to the fundamental quality requirements included in the standard.

The JIT Delivery System. Trimco and Navistar leverage the use of JIT systems. However, given the quality and delivery problem, the JIT is not appropriate. One of the primary challenges resulting in the quality and delivery problem is that Trimco finds it difficult to respond to Navistar’s design changes due to the lack of coordination and the Just in Time (JIT) system. As such, there is often very little time left between processing orders and delivering them to Navistar. The JIT system refers to the management strategy designed to align production schedules directly with the orders of raw material from suppliers (White and John 313). Most companies leverage the system to increase efficiency in their inventory management as well as mitigate wastage because production inputs are received only when needed in the production process. Therefore, the JIT system reduces high inventory costs.

The quality and delivery problem at Trimco makes the JIT highly inappropriate and ineffective because the company is unable to respond to Navistar’s design changes due to the lack of co-ordination that significantly undermines the delivery of appropriate parts for production. Moreover, it takes Trimco approximately five days to deliver the trim orders to the Chatham assembly plant. However, it only takes a few hours to assemble the parts into truck interiors since the process starts as soon as the trim parts arrive at Navistar (Navistar Case Study n.d). The JIT system is further made inappropriate because Trimco can run out of stock and it limits Navistar’s control over the production time frame (White and John 314). Moreover, it is completely reliant on the consistency of Navistar’s supply chain. For example, the local Trimco warehouse in Chatham is dedicated to Navistar’s supply chain. Thus, it may be faced with significant challenges when design changes occur since the warehouse would be forced to source additional production inputs from its other facilities thereby taking more time.

Secondly, the JIT system limits Navistar’s control over the production time frame because the company is forced to depend on Trimco’s timeliness for all trim parts. As such, every order puts Navistar at risk of delaying the delivery of the trucks to its customers, which could have a huge impact on the bottom lines in the long-run (White and John 316). The primary recommendation suggested to improve the JIT delivery involves re-designing the system to achieve an even flow of production inputs from Trimco. The recommendation can be implemented by having the two companies geographically close to each other as well as adjusting the cycle time of each plant to that of the truck under assembly (the main product). However, Bautista and Jordi caution that when the JIT system is unable to withstand the changes in demand, then the synchronicity necessary to increase efficiency between both plants is significantly undermined (292). This problem can be avoided by ensuring the re-designed JIT system works in batches to maintain the synchronicity between the two plants as well as ensure the inventories of trim parts does not pile up.

The Labour Related Issue at Trimco. One of Trimco’s primary challenges affecting the delivery and quality of trim parts is its employees. The company had a relatively high level of employee turnover that made it challenging to maintain high-level training. As such, most of the employees at Trimco lacked the training necessary to familiarize themselves with the details associated with individual customer requirements (Navistar Case Study n.d). Moreover, one of the main reasons identified for trim shortages was the missing parts, which is attributed to the lack of oversight by Trimco employees. The missing parts were a direct result of the actual part shortages experienced at Trimco due to human error. As such, some of the kits shipped to Navistar did not contain the specific parts required for each truck.

Most of these issues are related to the Trimco’s high employee turnover rate, which refers to the overall percentage of employees leaving a company over a specific period of time. The recommendation suggested to help Navistar address the problems caused by Trimco’s high employee turnover rate involves providing the latter with flexible work schedules. The strategy allows employees to create a work-life balance that is essential in boosting their morale (Avey, Fred, and Susan 678). The recommendation will be effective because it helps Trimco’s workers to pursue other things beyond work, especially taking care of their families. The approach can mitigate the problem of high employee turnover rates, which can increase productivity. Moreover, Navistar should work towards increasing the level of coordination with Trimco to mitigate the issues related to the high employee turnover rate. The approach ensures that all activities along the supply chain are aligned to increase overall efficiency and productivity.

The Incomplete Kit Delivery by Trimco to Navistar. This section seeks to explore novel ways that can be employed to help the two companies improve the delivery procedures on either side to handle missing and defective parts to reduce potential delays. Three approaches can help to reduce the supply chain lead times which include providing sales forecasts, converting to standard trim parts, and shifting to a domestic supplier. Firstly, letting Trimco know when to expect new orders for parts based on actual production and sales data can help the company anticipate Navistar’s needs to speed up the order fulfillment process (Whipple, Judith, and Dawn 175). For example, Trimco can set Navistar’s usual orders aside and have them ready to ship as soon as they give the go ahead. The forecasting approach can work along with the current electronic data interchange (EDI) platform to help specify the delivery schedules and quantities.

Secondly, Navistar can convert to standard trim parts to save time in engineering and production. The approach can also reduce the overall production costs incurred by Navistar. For the approach to work, Trimco must work closely with Navistar’s designers to determine any tweaks and changes that can be implemented to accommodate standard trim parts without necessarily compromising the performance, quality, or customization appeal of the finished truck. The final recommendation involves shifting to a domestic supplier to reduce the overall lead time. Unlike the other alternatives, this is the most expensive but can result in significant cost and time savings for Navistar in the long term. However, rather than shifting to a new and local supplier, Trimco can move or open a new manufacturing plant in Chatham to reduce the lead time it takes for trim parts to be shipped to Navistar.

Improving Communication between Trimco and Navistar. This section presents a plan for Trimco and Navistar to improve their communication. The strategic plan leverages five main strategies in supplier relationship Management (SRM) to improve communication between the two companies, which include meeting constantly, inquiring about development plans, opening up the business model to Trimco’s key persons, opening a development roadmap, and defining Navistar’s needs clearly. Firstly, the specific information that should be exchanged when both parties meet include any new trends and technologies that can be employed to increase efficiencies. Moreover, the companies should discuss any challenges being experienced and provide recommendations on how they can be mitigated (Prajogo and Jan 514). Secondly, Trimco should inquire about Navistar’s development plans to identify novel ways that can be employed to increase its capacity to mitigate the sustainability risks associated with increasing orders or growth.

Thirdly, Navistar should open up its entire business model to Trimco’s key persons to help them understand the production priorities and what is important for the company. The approach ensures Trico appreciates the small things that are essential in achieving the delivery and quality objectives set for each project (Prajogo and Jan 515). Fourthly, both companies should design and implement a development roadmap, which is important in helping the supplier know what Navistar is planning to develop in the near future and how. As such, Trimco will be better positioned to offer and develop technologies and services that help Navistar achieve its production objectives. Finally, Navistar must clearly communicate its need to Trimco. The approach is effective in eliminating the risks of production failures caused by unclear or incorrect information.

Improving Navistar’s Supply Chain Strategy. The two primary ways that Navistar can improve its supply chain strategy include enhancing its inventory management and improving its distribution network. Firstly, the main delivery and quality issue experienced at Navistar is caused by the long lead times taken in delivering trim parts. The tight production times may lead to production stalls, which makes inventory management an essential function in improving the company’s supply chain strategy. However, focusing solely on stocking trim parts or reducing Navistar’s inventory is a narrow-minded strategy because it can hurt the company’s bottom lines because of the possible more expenditure compared to the revenues brought in (Cachon and Marshall 1032). While increasing the inventory can help reduce the response times in the supply chain, it can be costly. Similarly, having too little inventory augments the challenges associated with the JIT system. As such, Navistar should strike the correct balance to meet its customer demands and managing its inventory.

Secondly, improving Navistar’s distribution network helps promote its supply chain strategy. The company’s distribution network provides the operational support around which its supply chain management system functions. As such, building a robust and flexible distribution network has a far-reaching impact on everything the company does ranging from its delivery tracking to the sales strategy. As such, improving the distribution network should be Navistar’s primary objective when seeking to reinforce the supply chain strategy. Improving the distribution network can be done with a holistic or a cluster view approach. In the former, the company will be required to review the essential players in the distribution network and determine how they work in tandem. For example, Navistar can appraise the electronic data interchange system to determine whether it works coherently with the trim parts delivery system. Some of the key questions that should be asked in the holistic approach include whether the data interchange system communicates well with the production foreman and inventory manager. Navistar should identify the main areas in which changes can be incorporated. Finally, the cluster view, groups’ charts, and graphs among other statistical data should help the management monitor the supply chain processes and identify the areas that need improvement.

Conclusion and Recommendation

The following two recommendations have been suggested to address Navistar’s inability to assemble interior trims into different truck cabs due to inappropriate or missing trim parts. Firstly, Navistar should conduct an independent audit on Trimco to ensure the company adheres to the best industry practices and quality standards. The implementation plan for the independent audit focuses on establishing whether Trimco’s production systems and departments are quality compliant. As such, the QS-9000 can be used to provide a checklist of the tasks and responsibilities that Trimco is required to fulfill to ensure the timely delivery of quality trim parts. The primary implication of the recommendation is that it helps Navistar to make Trimco quality complaint by ensuring the company’s customer satisfaction strategies take into consideration the fundamental quality requirements included in the QS-9000 standard. Secondly, Navistar should consider changing from the JIT inventory system to the just-in-case strategies in which the company holds sufficient inventories to ensure the time between orders and the delivery of trim parts is not as limited as it is with the current system. The JIC inventory system focuses on ensuring Navistar has the trim parts within the premises at all times to minimize the probability that the production team will have to wait for new ones or replacements to arrive.

The analysis conducted shows that the primary problem in Navistar’s case involves the quality and delivery issue undermining the company’s supply chain strategy. Most of the products are highly customized to ensure they meet the customers’ requirements. As such, the period before the market introduction is significantly short. Therefore, Navistar must focus on ensuring the supply chain strategy and structure are designed to promote rapid delivery times to ensure the uninterrupted flow of quality trim parts. However, the company has been unable to design a supply chain structure that meets these requirements, which results in quality and delivery challenges. The comprehensive analysis developed on the company’s key challenges shows that conducting an independent audit on Trimco helps ensure the company adheres to the best industry practices and quality standards. In addition, shifting from the JIT inventory system to the just-in-case strategies helps Navistar to hold sufficient inventories and reduce the time taken between orders and the delivery of trim parts.

 

Works Cited

Avey, James B., Fred Luthans, and Susan M. Jensen. “Psychological capital: A positive resource for combating employee stress and turnover.” Human resource management. Vol. 48, no. 5, 2009, pp. 677-693.

Bautista, Joaquín, and Jordi Fortuny-Santos. “Improving “just-in-time, just-in-sequence” delivery in first-tier suppliers.” Brazilian journal of operations & production management. vol. 13, no. 3, 2016, pp. 286-298.

Cachon, Gérard P., and Marshall Fisher. “Supply chain inventory management and the value of shared information.” Management science vol. 46, no. 8, 2000, pp. 1032-1048.

Haoping, Xu. “Earnings Management and Quality of Independent Audit [J].” Accounting Research 1 (2004).

Navistar Case Study. “Navistar supply management. Richard Ivey School of Business. (n.d).

Prajogo, Daniel, and Jan Olhager. “Supply chain integration and performance: The effects of long-term relationships, information technology and sharing, and logistics integration.” International Journal of Production Economics vol. 135 no. 1, 2012, pp. 514-522.

Vaxevanidis, N. M., et al. “An overview and a comparison of ISO 9000: 2000 Quality system standards with related automotive ones (QS9000, ISO/Ts 16949) and TQM models (MBNQA and EFQM).” organization vol. 4 no. 5, 2006.

Whipple, Judith M., and Dawn Russell. “Building supply chain collaboration: a typology of collaborative approaches.” The International Journal of Logistics Management 18.2 (2007): 174-196.

White, Richard E., and John N. Pearson. “JIT, system integration and customer service.” International Journal of Physical Distribution & Logistics Management vol. 31, no. 5, 2001, pp. 313-333.

 

Appendix

Appendix A: Summary of the seven reasons for the inappropriate or missing trim parts

Source: (Navistar Case Study n.d)

 

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