1.11 End-of-Topic Case: Hong-Gnam Motors: Leaning Out the Delivery of Seat Covers
Jessica Smith was just beginning her job as a logistics intern at Hong-Gnam Auto Company’s (HG) US headquarters in Indiana. HG was a Korean auto company that had opened facilities in the US several years ago. HG’s goal was to compete as a high-quality-but-lower-price alternative to favored luxury brands Mercedes, BMW, Audi, and Lexus. HG had been successful with this strategy in South Korea. HG began its quest by importing, but now had a production facility in South Carolina near other major automotive companies and suppliers. (Hint: do a google search on South Carolina Automotive manufacturing to get an idea of what the auto industry infrastructure in South Carolina looks like).
When Jessica joined the HG team, things were going well. HG was using just-in-time inventory processes with suppliers located in the area. However, because of the way HG received inventory, it had leased some warehouse space near its facilities to store the seat covers. Senior managers now questioned this storage decision. Jessica was given the task of assessing whether this warehousing was really needed. She needed to develop a plan to lean out this part of HG’s supply chain.
Jessica’s first step was to talk with people in the organization and understand the flow of the process, from the time an order was initiated until the seat cover was assembled and installed in a car. She talked to many people before developing the value stream map shown below. After sharing the map with several knowledgeable people, she was comfortable that it was pretty representative of what was really happening in the supply chain. To emphasize the distances and back and forth flow of incoming parts, Jessica also drew the routing on a map of the US.
Jessica’s first reaction was that HG should consider buying the fabric locally in smaller batches. She discussed this idea with one of the product designers at US headquarters. He smiled and shook his head, explaining, “The fabric is sacred. We own 15% of the company that makes the fabric, and this is something that South Korea takes great pride in. The fabric for the seats is part of the unique customer value experience. I would not bring it up. If you do, be very careful about how you position it. You will get shot down, and people may think you really don’t understand anything about our company.” The designer went on to explain the lamination process, “Because the supplier is located in South Korea, we tend to get full container shipments of the fabric, sent in bolts. Laminating fabrics for car seats is the process of creating a permanent bond between the car seat material and a very strong but durable layer of foam. This forms the seat cover, which goes over the seat form, which includes the springs, padding and other foam. The resulting seat cover combines the best features of the fabric and the foam, reinforcing the seat cover so it is more durable, wears better, is puncture resistance, and doesn’t slip and bunch up. It is an essential process.”
Jessica thinks back to what she learned about lean processes in her logistics class. Clearly, this process is not lean, but Jessica worries about the politics of the situation. They seem to constrain any meaningful effort to make the process leaner. She is thinking about holding a Kaizen event to analyze the situation. Please answer the following questions.
Questions:
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Do you think the Kaizen event is a good idea? Why or why not? Who would she invite to participate in this event?
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What is the value proposition for the seat covers?
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Using the ideas from the eight wastes, analyze the supply chain and logistics activities that create waste. How would you reduce waste while still achieving the value proposition? Please make some specific suggestions, and redraw the supply chain map with estimated times and total times.
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Some of your suggestions will cost money. Assuming you can achieve the value proposition, how would you determine how much more you would be willing to pay to implement your waste-reduction ideas?