Hyundai's Supply Chain Management

1. 0 Introduction

Supply string management can be involved with the management of upstream and downstream relationships and activities between various entities/organizations to be able to maximize the value creation to the good thing about the customer (Christopher, 2005). Globalisation has led to resource chains crossing international borders thus resulting in greater exposure to disruptive dangers.

Hyundai Motors is an automaker with a solid global existence. Its supply string entities, from processing to retail, include exterior suppliers; plants processing intermediate and/or completed products; syndication centers; demand areas; and transportation belongings.

Between 20th June and 6th August 2003, there is a significant disruption in the company's ability to deliver passenger automobiles to its customers due to a labour affect at its biggest production flower. Although labour hits are highly probable, the duration of this punch (47days) was highly unforeseen. The timing was also critical as the labour union targeted the reach to a time when local sales were expected to rise due to newly put in place excise-tax slices for new car clients by the Korean Administration. The impact of the disruption was thus highly significant; an astounding $1. 1billion in lost sales together with other unquantifiable deficits, therefore of the shortcoming of the source network to stay completely resolute through the strike.

2. 0 Books Review

Supply chain disruptions are the benefits of the materialization of risks which results in a significant halt of the procedures of one or more production or distribution entities and consequently influences other entities/nodes within the resource. Handfield et al. (2008) suggest that the likelihood of disruption in

* Global sourcing resource networks; seen as a workforce instability, customs regulations, potential for terrorism, natural disasters, amount of transfer items etc.

* Supply systems with constrained dependencies; characterised by restrictions on amount of resources, uniqueness of sourced parts etc.

Kleindorfer & Saad (2005) categorized resources of disruption dangers into three categories

* Operational contingencies; such as equipment malfunction and systemic failure, loss of a distributor and human centred issues like labour reach and fraudulence.

* Natural disasters; such as hurricanes, earthquakes and storms.

* Terrorism and political instability.

Sheffi (2005) shows that in order to make resilience against disruption dangers into a supply chain, each kind of disruption should be anticipated and guarded against singularly. Handfield et al. (2008) suggest two types of resilience: proactive e. g. flexibility, where the supply string is re-routed away from the anticipated way to obtain the disruption; and reactive e. g. redundancy and responsiveness, where supply string resources are coordinated to react to a supply string disruption.

2. 1 Global Functions (Hyundai Motor Company)

As at 2003, Hyundai Motor Company (HMC) was the seventh greatest automobile manufacturer in the world in conditions of volume. HMC possessed 3 manufacturing crops and 8 CKD assemblage plants. Hyundai's goal markets were classified into 3 types: advanced; emerging; and developing marketplaces.

Table 1. 1- Hyundai's Global Operations

Plant Type

Location

Regions Supplied

Type of Markets Supplied

Manufacturing Plants

S. Korea

Domestic & North America

Advanced

China

Domestic & Australia

Emerging

India

Domestic

Emerging

Assembly Plants

Egypt

Africa

Developing

Pakistan

Middle East

Developing

Malaysia

Asia

Developing

Russia

Eastern Europe

Emerging

Taiwan

Asia

Developing

Indonesia

East Asia

Developing

Brazil

South America

Emerging

Turkey

Western Europe & Middle East

Advanced

The company located creation vegetation in the rising market segments such as China and India, in order to meet growing home demand as well as take good thing about relatively low labour costs in the countries.

HMC however didn't have any manufacturing plants in the advanced markets but relied on imports to meet demands in the areas. To be able to compete with established motor vehicle manufacturers in the advanced market segments, especially the United States of America, HMC focussed its strategy on increasing quality and keeping low costs using TQM and offer string strategies such as just with time and set up postponement.

HMC managed the largest built in automobile plant in the world, the Ulsan place positioned in South Korea, with an outcome of about 1. 6 million items on a yearly basis, in form of autos and Completely Knockdown (CKD) sets. The plant acquired a co-located privately had interface which made export convenient. To be able to act in response quickly to specific customer needs, at little costs, Hyundai practices JIT and supports limited finished goods inventory of not more than 7days, at its vegetation and distribution centre. Delivery lead time for export vehicles was 45days with shipping lead time of 30days (Hahn et al. , 2000).

2. 2 Hyundai's Western Supply Chain

Importing passenger autos into EU (European union) was relatively easy because as at 2003, the 15 people and 10 aspiring associates of the EU shared import and export regulations thus acquired no local content regulations on car imports.

Turkey was chosen as a location of the CKD seed to supply American Europe due to its low labour costs and surface transportation links to Western European countries.

The other CKD flower supplying European countries was situated in Russia, a non EU member which probably got its own peculiar automotive import regulations. However scheduled to home demand opportunities in Russia, its affect and available transport links to other landlocked Eastern European countries; it was a good choice to locate a CKD place.

The Korean crops produced CKD kits that have been exported to the Russian and Turkish assemblage plants. This resource strategy supposed freight charges and other logistics costs were reduced by: producing complete autos in form of parts and modules in Korea; shipping to CKD plant life located in European countries, assembling predicated on customer needs in European countries and distributing assembled vehicles, mainly via surface transfer, to the clients around European countries.

However, the reliance on the Ulsan place as the only plant capable of supplying traveler car CKD sets to the Turkish and Russian plant life, which were in charge of supplying the Western market, had a significant risk inherent, as would be shown eventually.

3. 0 RESILIENCE FRAMEWORK

3. 1 Theoretical Framework

The likelihood of disruption is possible to every modern global resource network. Supply chain resilience should therefore involve more than merely recovering from disruptions but must be a proactive, organized and integrated exploration of functions within the source chain to handle unforeseen incidents. The platform below uses this process.

The different parts of the resilience construction are regular with supply string resilience literature. For example

The construction proposes the use of surplus/ redundant resources as a reactive strategy to mitigate hazards. Another advice is to improve the ability to detect disruptions and subsequently improve responsiveness through investment in awareness systems. Supply chain planning and collaboration would help to help the robustness of the supply network. Finally, the framework proposes that the resource string should be redesigned if the result of the disruption is so gigantic that it cannot be effectively mitigated.

* Continuous cycle of monitoring and reassessing disruption hazards.

3. 2 Mapping the Resource String & Identifying Risks

The map shows the paths by which materials move in the supply network as well as major dangers at various critical nodes.

The identified hazards are grouped in Stand 3. 1. By far the most possible disruption risk is decided on at each node and its potential primary effect on the supply chain is set.

TABLE 3. 1- Hyundai's European Source Chain's Risk Assessment

NODES

RISK TYPES

DISRUPTION RISKS

MOST PROBABLE/ DISRUPTIVE EVENTS

PRIMARY EFFECTS

Korean Plants

Operational

Labour disputes; Pilferage; Quality issues; Parts destruction, Lack of critical suppliers;

Labour Strikes; Loss of critical supplier

Disruption of supply of cars to local and export market segments(mainly US)

Failure to provide CKD products to Western plants

Natural disasters

Typhoons;

Terrorism/ Political

Devaluation of the Korean currency (Won); Terrorist attacks

Ulsan Port

Operational

Labour disputes; Dispatch mistakes; Parts destruction; Pilferage;

Typhoons ; Dispatch errors

Port Closure: Disruption in potential to ship completed autos and CKD kits

Natural disasters

Typhoons

Terrorism/ Political

Terrorist attacks

Turkey CKD Plant

Operational

Labour dispute; Turkish dock closure

Earthquakes; Terrorist attacks

Disruption of plant's businesses.

Disruption of travelling links to EUROPEAN markets( a high demand area)

Natural disasters

Earthquakes

Terrorism/ Political

Changes in government's import & export regulations; Terrorist attacks

Russia CKD Plant

Operational

Labour dispute, Turkish dock closure;

Natural disaster; Political instability

Disruption plant's operations

Disruption of built vehicles exports to Eastern Western markets

Natural disasters

Earthquakes; Floods; Tornadoes

Terrorism/ Political

Changes in Russian government's transfer & export policies; Terrorist attacks; Eastern Europe's politics instability

European Union Countries

Operational

Fluctuating demand; Carry links disruptions

Fluctuating demand

Sales disruption

Natural disasters

Earthquakes; Floods; Tornadoes; Hurricanes;

Terrorism/ Political

Changes in European Union's import & export guidelines; Terrorist problems;

Grouping the disruptive situations in to the vulnerability matrix shown below would help to prioritize resilience ways of the high seriousness disruptions. However the low severity occurrences are not entirely ignored. For instance, dispatch problems at the Ulsan dock are operational hazards can be managed by actions such as introducing RFID while political instability can be monitored through maintenance of good romantic relationships with Federal government.

Steps to make supply networks resilient against high seriousness disruptions

* Identify nodes with high impact disruptive risks

* Identify probability of occurrence of the disruption

* Select degree of overall flexibility: Higher levels of flexibility would be needed for big probability hazards, while lower examples of flexibility would be needed for low likelihood risks.

4. 0 Hyundai's European Supply Network's Resilience

4. 1 Hyundai's Resilience of the Labour Hit Disruption

Redundancy: Excess resources were used reactively by Hyundai to keep operations as the disruption lasted and to subsequently retrieve.

Speed of recovery: As shown in number 4. 2, Hyundai's regular sales grew speedily within 1-3 months following the disruption ended. The following inferences/ assumptions are made about how this is achieved

* Hyundai's redundant development capacity at its plant life aided the rate of restoration. The plants must have used production ramp up strategies to increase productivity.

* Logistics of the CKD sets away from the plants was improved by the co-located transport port. The assumption is that some CKD kits were flown by air to the CKD plant life.

* Management at Ulsan seed had visibility and control over the whole resource network. This aided the co-ordination of expedited international logistics of the autos to the clients.

Although excessive resources became a useful resilience strategy, it can be quite expensive. Furthermore, as seen, the degree of the disruption was difficult to anticipate and eventually resulted in complete depletion of some inventories.

On the other palm, appropriate levels of redundancy coupled with appropriate degrees of supply chain overall flexibility is believed to enable organizations never to only handle unanticipated situations but also increases normal businesses efficiency while providing oppourtunity to make use of disruptions to gain competitive edge ( Sheffi & Grain, 2005;Fawcett et al. , 1996; and Skipper & Hanna, 2009).

Hyundai's European source network however lacked the mandatory overall flexibility because of reliance on the Korean plants for CKD products. A major resource chain redesign (as advised by the framework), is thus necessary to mitigate impact and/ or ensure business continuity in case of occurrence of these types of high severeness disruptions.

4. 2 Avoidance/ Reactive Strategies - business continuity (for the high impact/high likelihood disruptions)

4. 2. 1 Labour punch in Korea

To cope with a future incident of the, Hyundai needs to reduce dependence of the Turkish and Russian CKD plants on the Ulsan vegetation by increasing the making overall flexibility of the CKD sets.

The India vegetable was the only seed not afflicted by the labour disruption. This was related to its minimal reliance on any supplies from Korea. It can thus be easily made an alternative manufacturer of Western european CKD packages.

Also, Hyundai may take up outsourcing complete components design and production to suppliers. This would eliminate the dependence on manufacturing plants to provide the

4. 2. 2 Loss of a critical dealer at Ulsan Plant

4. 2. 3 Natural Disasters or Terrorism at Assembly Vegetation' Regions

Two common risks across both CKD nodes of Hyundai's supply network are: natural disasters; and terrorism. They are low probability exterior hazards thus redesigning to prevent them may be costly and eventually unjustified. Somewhat, the supply chain needs to be produced reactively resilient against them. This can be achieved by designing a robust source network.

To deal with effect of any of these disruptions to the CKD crops redundant capabilities would be needed. For instance the Russian seed should have the capability of assembling passenger car models made in the Turkish flower. However for monetary reasons, this capability should rest redundant until actual incident of the disruption risk.

However Russia's exclusion from EU countries may make it difficult for it to provide the EUROPEAN marketplaces (all EU countries) because of trade rules. Thus another seed located in the European union may be required to supply Western European countries if there is a disruption at Turkey. However this place wouldn't normally use redundant ability but should constantly supply both Eastern and Western Europe.

As at June 2008, the EU country with the lowest VAT was Czech Republic. Supposing this was the situation in January, 2004, when it became a member of the EU, this might make Czech a good location for the alternative making or CKD plant.

DEMAND FLUCTUATION AT EU DISTRIBUTION CENTERS

The syndication of the traveler cars across Europe can be produced versatile across both Western european zones

Table 4. 1- Proposals Evaluations

Resilience Strategy

Requirements

Proposals

Implications

Manufacturing flexibility

Parts Standardisation

Capacity increases

Manufacture CKD in India

Relatively lower travel costs;

Increased creation costs

Manufacture CKD in a low wage European Union country

Much lower vehicles costs; Increased developing costs; Long run investment in new service.

Modularization

Capable suppliers

Outsource components design and manufacture

Significant cost lowering; Increased efficiency of JIT; technical difficulties

THE ROBUST Resource CHAIN

Combining the making, assembly and syndication nodes would supply the new supply chain design shown below.

Testing the New Supply Chain

Scenario

Manufacturing

Assembly [Result]

Distribution

Labour strike at Korean plant [closure of Korean flower]

Ramp up processing at Indian place [stress on Indian plant's resources to supply both Turkey and Russia CKDs]

Turkish and Russian plant life operate as standard [little or no impact]

EU distributions operate as regular [little or no impact]

Earthquake at Turkey [closure of Turkish CKD plant]

Indian and Korean plant life operate as usual, but source all CKD kits to Russian CKD plants

Ramp up assembly procedures at Russian CKD

[Stress on Russian plants resources to provide passenger vehicles to EUROPEAN countries]

EU distribution performs as normal [little or no impact]

Sudden demand progress in France with simultaneous drop in Portuguese demand

Indian and Korean plant life operate as usual

Turkish and Russian crops operate as common [little or no impact]

Portuguese distribution center re- routes supply to French vendors.

SOURCES OF COPETITIVE ADVANTAGE

The robustness of creation, assembly and circulation would help

* The source chain match demand more responsively. This would lead to decrease in inventory holdings

* Flexibility to customise to customer requirements is enhanced.

5. 0 Advice (Business Continuity)

Hyundai should develop contingency strategies for each and every of the recognized dangers. The major versatility and redundant resources available in the source network would have to be coordinated for the source chain to stay resilient in the event of a major disruption.

Also the supply chain proposed is good for short term implementation. To create resilience in the long-term Hyundai would have to build a facility in the EU and depending on demand

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