91972882 kammy-case-study
TRANSCRIPT
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Contents1.0 INTRODUCTION.........................................................................................................................3
1.1 AIMS AND OBJECTIVES..........................................................................................................4
2.0 LOGISTICS & SUPPLY CHAIN CONCEPT.......................................................................................5
2.1 INFORMATION REQUIREMENTS WITHIN THE SUPPLY CHAIN................................................5
2.2 PUSH – PULL STRATEGY.........................................................................................................6
2.3 QUALITY MANGEMENT TECHNIQUES....................................................................................6
3.0 WHAT IS THE SINGLE EUROPEAN MARET?................................................................................8
3.1 THE GOAL OF THE UNITED EUROPE.......................................................................................8
3.2 BENEFITS OF THE SINGLE MARKET.........................................................................................9
3.3 DISADVANATAGES OF THE SINGLE MARKET........................................................................10
3.4 THE EFFECTS OF THE SINGLE EUROPEAN MARKET ON A COMPANY’S SUPPLY CHAIN........11
3.4.1 SUPPLIERS AND SUPPLY CHAIN....................................................................................12
3.4.2 ENVIRONMENTAL FACTORS AFFECTING SUPPLY CHAIN..............................................13
3.5 SUMMARY OF THE SINGLE EUROPEAN MARKET (SEM).......................................................14
4.0 CASE STUDY OF FIAT SPA.........................................................................................................15
4.1 HISTORY AND BACKGROUND...............................................................................................15
4.2 FIAT SUPPLY CHAIN SYSTEM BEFORE 1993..........................................................................16
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4.2.1 SERVICE LEVELS............................................................................................................16
4.2.2 SALES AND DISTRIBUTION............................................................................................17
4.2.3 LOGISTICS PROCESS/STRATEGY...................................................................................17
4.3 FIAT SUPPLY CHAIN SYSTEM AFTER 1993............................................................................18
4.3.1 SERVICE LEVELS............................................................................................................19
4.3.2 SUPPLIER DEVELOPMENT............................................................................................19
4.3.3 PRODUCTION AND DISTRIBUTION...............................................................................19
4.3.4 LEAN PRODUCTION DEVELOPMENT WITH DEALERSHIPS............................................20
4.4 SWOT ANALYSIS OF FIAT......................................................................................................21
4.4.1 STRENGTHS..................................................................................................................21
4.4.2 WEAKNESSES...............................................................................................................21
4.4.3 OPPURTUNITIES...........................................................................................................22
4.4.4 THREATS.......................................................................................................................22
4.5 PORTERS VALUE CHAIN........................................................................................................24
4.5.1 PRIMARY ACTIVITIES....................................................................................................24
4.5.2 SUPPORT ACTIVITIES:...................................................................................................25
4.6 PORTERS FIVE FORCES.........................................................................................................26
4.6.1 ENTRY BARRIERS – HIGH..............................................................................................26
4.6.2 POWER OF BUYERS – HIGH..........................................................................................26
4.6.3 POWER OF SUPPLIERS – MEDIUM...............................................................................27
4.6.4 THREAT OF SUBSTITUTES - HIGH..................................................................................27
4.6.5 DEGREE OF RIVALRY - HIGH.........................................................................................27
5.0 CONCLUSION.................................................................................................................................28
6.0 RECOMMENDATIONS..............................................................................................................29
7.0 APPENDICES...................................................................................................................................30
8.0 REFERENCES..................................................................................................................................31
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WORD COUNT: EXCLUDING TABLES, DIAGRAMS, TITLES, HEADINGS, CONTENTS PAGE, COVER PAGE AND EXECUTIVE SUMMARY
7,381
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1.0 INTRODUCTION
The ever increasing importance of logistics is evident in today’s world of commerce, however how
much of this is due to the changes brought about at the end of 1992 when the EC became a single
market ad what did this mean to organisations?
So what is Logistics and supply chain management? What role does it play within the organisation?
The Council of Supply Chain Management Professionals (CSCMP), one of the leading professional
organisations for logistics personnel define logistics management as:
‘Logistics management is a process of supply chain management that plans, implements, and
controls the efficient, effective forward and reverse flow of storage of goods, services and related
information between the point of origin and the point of consumption in order to meet consumer
requirements. ‘ Grant et al. (2006)
In the period just before the Single European Act was to be put in place, organisations were moving
inexorably towards capturing the advantages of the single European market, which was scheduled to
be in place by the end of 1992. Forward looking chief executive officers were already taking steps to
implement the strategic, organisational and operational adjustments necessary to improve
corporate economic performance, add value to customers and, thus, to capitalise on the
opportunities presented by 1992 driven changes.
The Single European Market was created to reduce barriers of trade within Europe. It was designed
to allow for a vast legislative programme involving the adoption of hundreds of directives and
regulations with regards to controlling companies operations within Europe. The Single European
Market (SEM) was seen to most companies as a great opportunity as well as potential threat which
could require companies to source new methods of operations. These regulations however were
put into place in order for countries to recognise each other’s transportation requirements thus
bypassing non-tariff barriers.
Organisations were facing increasing competition in 80s and 90s; they were in a position where they
were forced to cut costs internally. The SEM allowed them to do this through the use of supply chain
and logistics. Not only were costs cut through decreased trade barriers but it also allowed them to
reach more consumers and enter new markets to trade within. It allowed freedom of movement of
all factors of production, land, enterprise, capital and labour, which was managed by the
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standardised laws and regulations. The creation of the single market allows for intense competition
amongst firms within their industry, thus inevitably forcing out the inefficient companies and
allowing efficient companies to capture economies of scale and other benefits such as meeting
consumer demands etc.
This report looks at Logistics Supply Chain Management within the EU, how the single EU
market has advanced or worsened its processes by looking at a case study of Fiat S.p.A. The
research proposal will use several theories to identify and analyse the logistics and supply chain
process organisation (Fiat).
This report looks at the SWOT analysis of Fiat to identify relevant strengths, weaknesses,
opportunities and strengths of the firm. It would also contain theories such as Porters Value chain
model (1985) to analyse specific activities through which the firm has added/created value and
competitive advantage, which would also link in with Porters five forces to identify the attractiveness
of the market, the bargaining power of suppliers and buyers which are all a part of the supply chain
process.
1.1 AIMS AND OBJECTIVES
1. Develop an understanding of the Logistics and Supply Chain Concept
2. Review the changes and implications of the single market to EU supply Chain
operations/systems.
3. Identify factors that have improved and worsened logistics and supply chain.
4. To critically analyse and evaluate the various sectors of the automotive industries Logistic
and Supply Chain, with the use of relevant theories.
5. Investigate the firms overall performance to the change and how it can respond and
improve as an organisation within the Single European Market.
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2.0 LOGISTICS & SUPPLY CHAIN CONCEPTAccording to Emmet (2005) the supply chain is “the process, which integrates coordinates
and controls the movement of goods, materials and information from supplier to a
customer to the final customer”.
The essential point with a supply chain is that is links all the activities between suppliers and
customers to consumers in a timely manner. Supply chains therefore involve the activities of
buying/sourcing, making, moving, storing and selling.
The philosophy of Supply Chain management is to view all these processes as being related
holistically so that they:
Integrate, coordinate and control...
The movement of materials, inventory and information...
From suppliers through a company to meet all the customers and consumers
requirements in a timely manner.
Supply chain management is the management of the entire value-added chain, from the supplier to
manufacturer right through to the retailer and the final consumer. It has three primary objectives:
1) Reduce inventory
2) Increase the transaction speed by exchanging data in real time
3) Increase sales by implementing customer requirements more efficiently.
It involves an integrated total system of operations including distribution and logistics, managing
quality of products and services, human resource management, capacity management, scheduling,
customer satisfaction and execution that includes ERP planning. An effective supply chain occurs
when a company is able to get the right product to the right place at the right quantity at the right
quality and at the right place.
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2.1 INFORMATION REQUIREMENTS WITHIN THE SUPPLY CHAIN
Information is required for every stage of the supply chain and for all levels of supply chain planning.
Advances in both operating systems and computing power make it easier and more economical to
obtain this information. All parts of the supply chain rely on ICT in the planning, operational,
administrative and management processes. Information can be used and transferred by techniques
such as demand forecasting, MRP, JIT, Kanban and ERP which rely on the electronic gathering and
manipulation of data (Emmet, 2005).
The most commonly used tools in E-commerce and IT are:
Enhanced order management and transportation control systems using optical scanning,
image processing, and satellite vehicle tracking systems used in transport and warehouses.
EDI – Electronic Data Interchange
Process automation: such as bar coding.
Artificial Intelligence Expert Systems (AIES): systems that would require human intellect and
time, but are highly efficient as they are automated and save time and cost.
RFID – Radio Frequency ID or tags which enable tracking
(Fraser, N. 2012)
2.2 PUSH – PULL STRATEGY
Supply chain processes fall into one of two categories depending on the timing of their execution
relative to customer demand:
Pull: execution is initiated in response to a customer order (reactive)
Push: execution is initiated in anticipation of customer orders (speculative)
2.3 QUALITY MANGEMENT TECHNIQUES
Quality management represents the involvement and commitment to everyone, in continuously
improving work processes, to satisfy the requirements of consumers, therefore making it
fundamental to Supply Chain management. These are the options available:
KAIZAN – The continuous improvement in a gradual and ordered way, without revolutionising the
existing method
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KANBAN - The purpose of Kanbans is to replace all written work orders, move tickets and
routing sheets. Kanban is essentially a pull flow system where the card represents a
manufacturing lot of a given reference, for a given operation in a work centre. A Kanban card
represents routing operations in a specific work centre with the appropriate lot size to process.
This approach has been adopted well by Toyota. (Langley et al, 2009)
JUST IN TIME – JIT systems are designed to mange lead times and to eliminate waste. Ideally a
product should arrive exactly when a firm needs it. JT works with a zero inventory stockless
production business, with production triggered only by consumer demand (Langley et al, 2009).
LEAN LOGISTICS AND THE SIX SIGMA METHODOLOGY
http://www.sixsigmainstitute.com/leansigma/index_leansigma.shtml
Lean logistics focuses to reduce waste by over production that bias a “pull” or demand system. It
also aims to increase the speed and flow of the supply chain process. It recognises the value
intrinsic of specific products.
The Six Sigma is the management methodology working alongside the lean logistics concept, the
purpose of Six Sigma is to understand and eliminate the negative effects of variation in
processes. The Six Sigma uses the DMAIC (Define-Measure-Analyze-Improve-Control) process
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which is a map, or step-by-step approach, to understand and improve upon organizational
challenges with the aim to reduce variation in processes and attempt to achieve "Six Sigma
Quality.
3.0 WHAT IS THE SINGLE EUROPEAN MARET?The idea of a single market began as early as 1952 (ECSC), by 1958 this evolved into 6 member states
becoming the EEC. At this point in time some measures and regulations such as indirect taxation and
monetary policies were brought in to harmonize trade in certain industries which led to CAP
(Common Agricultural Policies) in 1962.
In 1986 the Single European Act is signed. This is a treaty which provided the basis for a vast six-year
program aimed at sorting out the problems with the free-flow of trade across EU borders and thus
creating the ‘Single Market.’ Lord Cockfield’s 300 directives (European Laws) to achieve internal
market were aimed to achieve a much greater degree of integration, not just economically, but
politically as well.
“Part of the power of 1992 is that it is so hard to reduce essentials. At its simplest it is presented as a
‘Europe without frontiers’; but to this graspable notion have been added extra after extra, all
consistent with the aim of a single market but not necessarily vital to it: patent law, broadcasting
standards, labelling rules, corporate structure, vocational training for young people, the pedigree of
bovine animals, and so on and so on.
(The Economist, 1988)
By the end of 1992 the Single market was completed, it allowed four the four freedoms of
movement: goods, services, people and money. However there was still a long way to go especially
with the introduction of the EMU. However the components of 1992 are highly relevant to logistics
in Europe and especially in its future development. By 2005 27 member states had joined the EU;
this creates various advantages for business operating within the Europe which will be discussed
later in the report.
3.1 THE GOAL OF THE UNITED EUROPE
The main purpose of the EU was for Economic integration of the Internal Market, it cover such
diverse areas as:
Economic and social cohesion;
Environment;
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Co-operation between institutions; and
Political co-operation
It provides the legal framework and facilities the political impetus to create a unified market (Dudley,
1989).
The Commission was also concerned with ensuring that the whole market benefits from the Single
Internal Market. It recognised that certain regions have greater economic advantages than others,
yet the act attempts to ensure that other areas on the periphery are also gainers. The measure
would provide considerable opportunities for the development of the less prosperous areas as well
as creating further competitive pressures on countries and companies within the community. This
allows for a better standard of living for all EU citizens.
Before 1992 majority of companies within Europe were either small or medium sized firms, working
predominantly in National boundaries however with removal of barriers and enhancing the market
potentially to the whole of the EU will allow companies to grow and expand and be able to compete
with other major players around the world from TRIAD and BRIC economies.
According to the European Commission “The Single European Market” is all about bringing down
barriers and simplifying existing rules to enable everyone in the EU – individuals, consumers and
businesses – to make the most of opportunities that offered them to have direct access to 27
countries and 480 million people” ( European Commission website). There are numerous benefits
for all EU player s which can be exploited.
3.2 BENEFITS OF THE SINGLE MARKET
First and foremost the key benefit introduced by the agreement was the removal of trade barriers
and non tariff barriers. According to Poist et al (1991) non tariff barriers fall into three categories:
1. Physical barriers (border and custom controls)
2. Technical barriers (divergent national standards and regulations)
3. Fiscal barriers (differing tax rates and monetary structures)
He suggests that the removal of these barriers would lead to a more integrated Single market and
have great potential benefits to organizations at any level. The harmonisation and approximation of
technical barriers has allowed the free movement of goods and also the change to more open public
procurement, both of these initiatives are especially important to logistics because they further
stimulate the trade between member states (Cooper et al, 1991).
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The Single European Market has benefited businesses, consumers and employees alike. The most
noticeable change is the abolishment of border controls, which allows the free flow of trade across
EU borders. This allowed even small and medium sized companies to have access to new export
markets, which previously were not an option because of the cost and hassle that was involved with
border bureaucracy. Border delays in the past led to direct and indirect costs to each shipping and
also significant and unpredictable delays. This meant that organisations had to establish multiple
local warehouses, duplicating stock which leads to a significant cost in their integrated logistics
system. However the changes brought about allowed more direct routing, fewer border delays and
faster shipment times (Sharman, 1992). According to Grant et al (2006) logistical systems that are
placed to serve on a continent basis would save 15-20% on cost reductions compared to a national
system.
The introduction of anti-competition policies has helped increase competition and liberalized free
trade and transport systems in the core countries of Europe. Organizations have the ability to grow
and target and a much larger base of customer, thus leading to more demand. It has given them
possibility to exploit raw materials and resources from other countries. Logistically locate in better
locations again exploiting benefits from low cost (workforce, materials etc.), infrastructure and much
more. Increasing the competitive environment makes the existence of monopolies difficult. This
means that inefficient companies will suffer a loss of market share and may have to close down.
However, efficient firms can benefit from economies of scale, increased competitiveness and lower
costs, as well as expect profitability to be a result.
Consumers are benefited by the single market in the sense that the competitive environment brings
cheaper products, more efficient providers of products and also increased choice of products. What
is more, businesses in competition will innovate to create new products; another benefit for
consumers
The elimination of exchange risk will reduce and should eventually all but eliminate the relative price
variability of goods, services, and labour amongst the Member States of the EMU. The reduction of
relative price variability should encourage intra-EMU trade, foster further integration of markets for
goods and services, and promote economic efficiency within EU Given the relative size and wealth of the
combined economies of the EMU Member States; the euro should prove to be a relatively stable currency. The
stability of the euro should in turn serve to stimulate and compete in trade between Europe and the rest of the
world.
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3.3 DISADVANATAGES OF THE SINGLE MARKET
With the process of Enlargement to 27 member states, the Single European Market took on a whole
new meaning and with it a new set of problems. Firstly nations felt that there was loss of national
sovereignty. According to Derham (2010) new members join must agree to all the regulations even if
it is against their national rules and by signing they give away some of their national sovereignty.
This could lead us on to believe that Supra and National legislation is not yet harmonized across the
whole of EU members especially with the introduction of the new emerging Easter European bloc.
Some changes are so drastic that governments are not will to push changes ahead. Take the
deregulation of transport, Cooper et al (1991) explains that even though there is a great effort being
made by the European commission to set transport limitations in terms of weight and size, there’s
still remains a difference between certain member states and standards set by the European
Commission.
Exchange rate with non Euro members is a problem faced my MNES trading within Europe. The
complication met by governments trying to facilitate national economic adjustments with just the
use of a fiscal policy is not enough especially if the EMU member states grow at different rates or
face asymmetric shocks.
As good as the idea of having over 400 million potential customers may sound it’s not really all that
real. Consumer preference will always change border to border; differences of culture do still exist.
3.4 THE EFFECTS OF THE SINGLE EUROPEAN MARKET ON A
COMPANY’S SUPPLY CHAIN
“In the 1990s, focus changed from internal efficiency in the logistics function to external relations
between the parties in the total supply chain. The largest potential for improvements is not found
inside an individual company, but in the interfaces between legally independent companies in the
supply chain. This development has enhanced the importance of supply chain management.”
(Larsen, 2000)
The formation of the Single European Market has had a drastic effect on supply chain management
within Europe. One of the advantages it has created is that it has closely integrated co-operation
between all actors within the supply chain thus increasing transparency and potentially eliminating
distorted information, also known as the ‘bull whip effect’ (Lee et al, 1997)
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With the increased efficiency of information and transport and the quick development of technology
combined with economies of scale in production it is clear to say that there has been a positive
effect on firms however the recent trend has shown that SEM has led to a concentration of relatively
few but large global suppliers. Within Europe the driving forces behind changes in logistics structure
and strategy are the:
Removal of trade and transport barriers between EU countries;
Opening of new markets in Eastern Europe;
Acceptance of a single European currency
Development of information Technology and fast communication systems:
The emergence of pan-European logistics service providers is also point worth mentioning. The SEM
brought many acquisitions and mergers together for example is the Danish logistics provider (DFDS
Transport) which acquired it closest competitor Dantrasport. This has led to a fast, reliable and cost
effective distribution service in Europe, catering to the needs of international customer demands.
With the removal of trade barriers companies have now centralised their production and
distribution facilities. With fewer sites, less chance of inventory duplication and an increase in
greater volumes due to an increase in demand has allowed companies to achieve greater Economies
of scale. However the product does have to travel a great deal further and often across many
borders to get to its destination.
There are now new challenges and pressures faced by European organisations; this comes in the
form of technology. With advances in communication systems and the development of IT such as
RFID and EDI has lead to shifts in bargaining power. The most successful companies are the ones that
have completely integrated IT within their logistics and supply chain e.g. Wal-Mart.
3.4.1 SUPPLIERS AND SUPPLY CHAIN
Since The SEM was put in place there has been a trend within the European industry towards a
reduction in supplier base and differentiated supplier co-operation. The reason for this is because
many companies have changed their production strategy from predominantly in-house production
to outsourcing a range of production processes. Firms have realised that they must develop closer
ties and integrate their supply chain with their suppliers in order to become more efficient, cost
effective and increase product quality especially if that supplier play a critical role within the
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processes, components or systems that are critical to the customer company’s production process
(Larsen, 2000).
Technological development has been the key to deciding a supplier rather than suppliers who are
competitively priced. This is seen with the new collaborative approaches firms have developed with
their supplier, most firms now allow supplier to have access to sales forecast so inventories stock
levels can be managed accordingly, and suppliers now play a major role in the design construction
phase of new products (Kaiserplast developing products with B & O). Outsourcing of non critical
purchase has also become a commonality.
3.4.2 ENVIRONMENTAL FACTORS AFFECTING SUPPLY CHAIN
Another factor that has affected trade is rules and regulations that have been put in place such as
environmental regulations. Companies construct regular life cycle analyses of their products and
process in order to reduce adverse environmental impact on the total supply chain. Environmental
requirements are also influencing the choice of supplier and the production process in general; this
can be seen when the EU requested that all electrical and electronic products being exported to the
region to follow the restrictions of hazardous substances (RoHS) directives in order to reduce certain
substances used in products (Walther and Spengler, 2006).
Transport companies are also facing changes in the future. Restrictions on when and where to travel
is growing amongst countries with a good deal of city traffic. Countries such as Austria have
introduced a system where eco points are rewarded to the most environmentally friendly transport
companies. This is leading to the introduction of new more eco friendly trucks, which only add costs
to a company, however could save them money in the long run.
Companies now are also being to adopt a more reverse logistics process, this has been both
beneficial to the consumer with after sales service and the environment with the use of recycling
which can be seen in the printer and battery industry (Kopicki et al, 1993).
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3.5 SUMMARY OF THE SINGLE EUROPEAN MARKET (SEM)
While the SEM was supposedly complete by the end of 1992, it remains a project in
continuous creation. There still remain much legislation that need to be implemented in
member states; several important areas, particularly energy, remain unlegislated, also
several member states have been accused of exploiting loopholes and discovering new ways
to protect domestic markets.
Even though it is important to observe that it has had its benefits to many people. It has
allowed opportunities for companies to grow and become competitive; it creates a good
opportunity for large companies to become larger while at the same time it produces many
difficulties for smaller companies to expand their services.
It is fair to say that benefits outweigh the negative, with immense completion coming from
NAFTA and BRIC economies it was vital for EU to join and remain one of the key players in
trade across the world.
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4.0 CASE STUDY OF FIAT SPA
4.1 HISTORY AND BACKGROUND
Fiat is one of the pioneers in the car industry. It is an Italian automobile manufacturer, engine
manufacturer, financial and industrial group based in Turin in Piedmont region. Since its inception in
1899, the company has constantly moved forward on the path of success. Fiat has excelled in many
fields other than consumer vehicles, such as railroad vehicles, tanks and aircrafts. The manufacturing
unit of Fiat based in Brazil is the best-seller for Fiat cars outside Italy. Fiat also has factories in other
countries like Argentina and Poland. Joint venture operations can be found in Italy, France, India,
Turkey, Serbia and Russia. Fiat was one of the six European Volume car makers. It had production
facilities in Italy, Poland, and Brazil and (through a joint venture) Turkey, with a total output of more
than 2 million cars, of which 1.5 million was produced in Italy.
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Fabricca Italiana Automobili Torini
1899: Founded by Giovanni Agnelli1908-1910: Introduction into the USA1939-1945: Agnelli family removed from control1963: Return of the Agnelli’s and Major reorganisation 1973: The Oil Price Shock and its effects1979-1984: Rise and fall of Fiat in the USA1986-1993: Acquisition of Alfa Romeo and Maserati2000-2005: Partnership with GM2004: Sergio Marchionne takes over as CEO2009: Global Alliance with Chrysler
It sales were mainly concentrated in Italy (1 million cars) and Western Europe (about 0.5 million
cars), almost all produced in Europe. By the end of 1991 Fiat had a market share of 15.2% in Europe
close second to the Volkswagen and Audi group. With new technologies, new models and motto of
innovation and superior technology, Fiat has continued to display expertise in the international
market.
4.2 FIAT SUPPLY CHAIN SYSTEM BEFORE 1993
Before 1993, Fiat had a very good financial position, with little debts and plenty of liquidity, but
some difficulties began to surface. Fiats most popular models were outdated and the reputation
they had of a cheap car, with poor quality and poor service which did not help sales especially when
the integration of the European market between; 1986-1992 was increasing competition.
In the decade before The SEM came to place the automobile industry saw a great influx of
competition coming from Japan; by 1988 Japan had three companies ranked in the top ten in the
automobile industry. The threat of dealing with Japanese levels of quality and service and at the
relative cheapness of its vehicles was a threat faced by all firms within Europe. Fiat however saw an
opportunity in developing links with Eastern Europe long before the Single market was even
considered (1912). Fiat maintained and developed these links in the 1950’s and 60’s by pursuing
agreements from product licensing and technology transfer, in Poland and the Soviet Union. It was a
way to reduce it’s heavily reliance on the Italian market which went down from 61% in 1986 to
44.3% in 1992 (Done 1990 and Cooper et al 1994). The strategy of entering untapped markets in
Eastern Europe will lead to the benefits of low cost production however cars produced there in this
period were only sold within Eastern Europe due to technical standards of each nation.
The design and the engineering of the car was predominantly function based, this is where the
design of each model was different from another model in terms of components. Having different
parts for each model only added to the complication, increased costs and lead times, however this
was required because each vehicle had to be modified for each national market accordingly (Canoy
et al, 2007), the product was be passed on one function at a time e.g. engineering, manufacturing
etc. In this period Fiat like many other automobile producers had many first tier and direct suppliers
which led not only to great deal of time delays and cost, but also a deficiency in quality.
4.2.1 SERVICE LEVELS
Fiat service levels were poor at this time as were many other competitors (other than the Japanese)
nonetheless improvements were being made. The delivery time for cars sold from the inventory to
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the consumer was in between two – four weeks. Delivery times for cars made to customer orders
were 10 – 15 weeks, with little reliability on receiving it on time (Taylor 1997).
4.2.2 SALES AND DISTRIBUTION
The sales structure was in a way centralised to each brand (Fiat, Lancia and Alfa Romeo). Each brand
had a sales manager in each market (a country or an area within Italy); reporting to the general
manager of each brand, in this case Fiat. The role of a sales manager in each market was to agree
upon a set of objectives with the headquarters (in terms of volume, inventory holding warehouses,
profitability and turnover) and to translate them into objectives for area managers. The area
manager’s role was to co-ordinate the zone managers; the area manager had to translate the
objectives of the area into objectives for each zone, and also to monitor the zone managers’
activities in terms of sales etc. The zone manager was the interface with dealership with regards to
the sales of new cars (Taylor, 1997).
Each market had a distribution centre; cars predominantly made in the Italy plants would go to the
distribution centre. The activities that took place within in the distribution centre at any given time
are listed below:
Receiving of cars from plants
Storage of cars
Shipment of cars to dealerships
Preparation of special series
Repair of transportation damages
Periodic maintenance of stored cars.
Fiat spa was represented by 3000 dealerships for their three brands and a 1000 of them were in
Italy. The zone manager handled the responsibility of anywhere in-between 10-20 dealerships, and
an area manager was in charge of 10-15 zone managers. Sales volume varied depending on the
market. In Italy sales of 600 cars per year could be achieved by a dealership in Italy per dealership,
where as Germany the average was around 50 cars per dealership.
4.2.3 LOGISTICS PROCESS/STRATEGY
In terms of sale strategy and logistics it is fair to say Fiat have adopted a push strategy, it was based
much more around forecasts. A sales manager of a market is to create a monthly forecast with up to
a six month time horizon of deliveries to dealers and final customers. Forecasts are used to see how
many cars a dealership will gain from the production in that allotted time, also a certain amount of
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inventory (by model/version) was required by each dealership to satisfy consumer demand and
‘push’ the sale’ (Taylor, 1997).
This activity was centralised however did complicate things in terms of potential sales and
production capacity within that period. A great deal of planning was required in order to achieve
sales targets and meet consumer demands. The use of the “weight matrix” to statistically identify
the relative weight of each body, colour and model based on the sales history of a particular market.
Difficulties were found by the zone managers trying to convince the dealers outside of Italy to
subscribe to the decision list. Fiat noticed that dealers outside of Italy had more bargaining power to
influence the list, this was due to:
Different regulations in certain countries
The presence of powerful dealer associations, which dramatically influences the plan
The lower market share of Fiat outside Italy (4-7%, as opposite to about 50% in Italy) making
Fiat dealerships less attractive.
(Taylor, 1997)
The cars that were not subscribed were collected in the markets distribution centre, which were sold
using heavy promotions.
The period before 1993 Fiat had adopted a MRP ii (Manufacturing resource planning) approach. It
required the effective planning of all resources/sectors within the business. Fiat believed that they’re
planning and scheduling was state of the art. However the dealerships did not see eye to eye with
this approach. They felt that the sales proposals did not fit their needs and they were unaware of
when the car would be received until it leaves the production plant.
4.3 FIAT SUPPLY CHAIN SYSTEM AFTER 1993
With a somewhat high degree of vertical integration which was affecting profit margins, an outdated
product line and too heavy reliance on its domestic market that was affecting sales and profit
margins, sales abroad required higher logistic costs and aggressive marketing policies (lower prices,
more advertising, etc.) domestic sales had to finance abroad expansion.
All these issues required Fiat to launch an immense reorganisation process which involved all the
group’s activities, the relationship with its suppliers and the dealer’s network (Camuffo et al, 1998)
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4.3.1 SERVICE LEVELS
Fiat realised that they key competitive tool for the future was to have outstanding customer service,
for the old and newer models that were being released. In this period of change delivery times for a
car in inventory to customer went down to one week an delivery times for cars specifically made to
customer requirements, went down to six weeks for 90% of the cars to eight weeks for 100% of cars.
This was a much greater improvement from what is before the SEM.
4.3.2 SUPPLIER DEVELOPMENT
Fiat revolutionised its relationships with its parts manufacturers. The objective was to vertically
integrate by merging, acquiring business or creating partnerships which it did by acquiring Magneti
Marelli a component manufacturer. Fiat decided to reduce the number of first tier and direct
suppliers in a hope to improve the quality and reduce the cost of cars. Long-term relationships were
being set with greater emphasis on collaboration, trust, assistance and JIT.
Fiat traditionally was known have a high degree of vertical integration compared to any of its rivals
however; Internal sourcing has been increasingly regarded as a rigidity factor which hinders the
quality and efficiency improvements. Fiat strategies changed from internal sourcing to outsourcing
complex and high tech parts, these would majorly come from the suppliers of Fiat who were in
partnership with (Camuffo et al, 1998).
Fiat was focused on developing a lean production system; these characteristics were passed on to
the suppliers. Fiat was keen on developing homogenised components and keen to integrate it on a
worldwide basis, this was achieved when the suppliers acquired ISO 9000 certification (Volpato,
2002).
4.3.3 PRODUCTION AND DISTRIBUTION
The establishment of the Greenfield factory plant in Melfi (Italy) was a great advantage, this area
was dedicated for the suppliers to produce the components required for Fiat cars. The greatest
advantage to this place was that bordering this component plant was assembly plant; lead times
were dramatically reduced thus meeting JIT requirements. This design of plant was replicated in
other countries such as Brazil and Argentina for Fiat (Volpato, 2002).
The change to a platform based organisational structure; it was an integrated expertise of all the
departments involved in the development: Purchasing, Technology, Product Planning and Design
and administrative control. Using this method Fiat was capable of producing a family of models to
suit the needs of economies. Fiat realised in order to add value and to adopt a more lean production
strategy it would need to centralise product design in adherence to market needs of the consumers,
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standardisation of components, the cars would share chassis and other components, involve a
selected amount of suppliers.
The new Melfi plant, suppliers managed the assembly line of the new models (Fiat Punto) with a
synchronous Kanban system. For Fiat Synchronous Kanban means that the delivery of parts must
arrive in the same sequence of the bodies processed by the assembly line, the supplier has only two-
three hours to the order of delivery. The synchronous kanban is applied at the moment to 42% (in
value) of the supplied components (Camuffo et al, 1998).
4.3.4 LEAN PRODUCTION DEVELOPMENT WITH DEALERSHIPS
Previous to 1993, dealerships were seen as an external aspect with limited bargaining power, past
incentives were dependant on sales. However the late 1990’s Fiat made progress in developing a
‘Customer Satisfaction Index,’ Fiat targeted customer satisfaction as a key variable, this meant that
dealer incentive schemes were linked to customer satisfaction, they would develop systematic
interviews of customers at different stages of their car life cycle and in different situations e.g.
before and after sale, repair services, etc. (Camuffo et al, 1998). This allowed Fiat to understand the
needs of customers more accurately and also developing better ties with the dealerships.
Fiat realised that Dealerships did not feel at ease with the process of the decision plan made by
managers, it was too rigid and did not meet demand at the right time. In response Fiat decided to:
Increase in deliveries and a reduction of stock,
Reduce order processing time by having internet and telecommunications system in place,
and also the use of ad hoc improvement programs.
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4.4 SWOT ANALYSIS OF FIAT
4.4.1 STRENGTHS
Know how – Fiat has had a long experience of the auto industry and contributed to the development
of the industry.
Control and strategic Partnerships - With acquisitions and mergers with the likes of Ferrari, Alfa
Romeo, Jeep, Chrysler and Iveco allows control over their markets. Not to mention there many
industrial partnerships and joint Ventures with suppliers and logistics distributors (TNT).
Very Lean structure- It has allowed them to reduce waste, become more environmentally friendly,
reduces cost and improves overall customer value.
Supplier Relationship - with the reduction and increased collaboration with suppliers Fiat has been
able to produce quality, low cost components whilst receiving the product with use of Kanban and
JIT.
Management Team – A highly motivated and a dedicated management team that works well within
the centralised hierarchical structure of the firm, to reach target improve organisational
performance.
Brand name and Reliability – With acquisitions such as Ferrari and Chrysler, Fiat has been able to
develop better quality and more reliable cars, according to the Reliability Index (2009) Fiat cars are
above the industry average.
Small cars – Fiats range of small economical, reliable cars has been a success story especially with
the reintroduction of the award winning fiat 500.
Environmental Commitment – fiat has abided and exceeded all environmental regulations, from
efficient plants to efficient cars.
4.4.2 WEAKNESSES
Too Italian – Even though has gained more market share in other states since SEM, it still remains to
lie on the Italian market, especially when majority of the components and plants are based there.
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Lack of Economies of Scale – In comparison to some of its rival, the scale of production is low. With
the limited financial power it’s hard for fiat to sustain economies of scale thus the company focuses
more on quantity rather than quality.
Marketing – Even with the implementation of the Customer satisfaction index, Fiat is struggling to
find the balance of consumer needs within the market and their idea of engineering brilliance. Fiat
culture is too far to represent the dealers and customers of the market.
Outsourcing – Has been wrongly implemented, the firm is dependent on key components from its
suppliers thus too much power is given to suppliers.
4.4.3 OPPURTUNITIES
Form alliances with key companies such as PSA, with similar products. This will allow them to expand
further into European markets.
Expanding operations in emerging markets such as India and China.
Exploit more opportunities in Eastern Countries in terms of cheap labour etc.
4.4.4 THREATS
Volatility of the Exchange rate is becoming a problem for the EU and the rest of the world due to the
economic crisis.
The Strength of competition coming from Japan and Korea is becoming more prominent in the
automotive industry
Loyalty of customers within Italy
The downturn in the market has dramatically slowed down the sales of new cars
The impact of regulations on the value chain. With the constant reconfiguration in the
automotive value chain due to changes in preferences and technology, it’s increasing costs
and difficulty.
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STRENGTHS WEAKNESSES
Know How
Control
Strategic Partnerships
Supplier Relationship
Lean Structure
Management Team
Brand Name & Reliability
Small Cars
Environmental Commitment
Too Italian
Lack of Economies of Scale
Marketing
Outsourcing Strategy
OPPURTUNITIES THREATS
Creating Alliances
Expanding operations to emerging markets
Exploit opportunities
Volatility of the Exchange Rate
Strength of Competition
Customer Loyalty
Downturn in the market
Regulations
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4.5 PORTERS VALUE CHAIN
4.5.1 PRIMARY ACTIVITIES
1) Research and Development
R & D is carried out in two centres: Centro Stile and CRF both located in Italy. These centres have
won several awards showing their level of quality. The purpose of this R & D is for: “(i) The
optimisation and further development of fuel-efficient conventional powertrain technologies
including the investments in machinery and tooling for the launch of a new family of more efficient
transmissions, mainly for smaller vehicles application; and (ii) the development of new more fuel-
efficient exhaust systems, powertrain and electronic components, aiming mainly at CO2 reduction”
(EIB 2009).
2) Suppliers & Components
Fiat has adopted an outsourcing policy that splits the operative and productive life cycle into many
segments. However the implementation of the outsourcing can create some difficulties, it increases
complexity and as a consequence Fiat have lost control over the value chain itself (Vincenzo et al,
2006). However the relationship between Magneti Marelli the components manufacturer (subsidiary
of fiat) and Fiat have showed an ability to keep costs low, it also sells to third parties thus increasing
profit to spend and improve fiat components (Fiat S.p.A, 2007)
3) Manufacturing and Final Assembly
Comau, the global industry leader, assembles most of the finished components to complete the
manufacturing process. Even with Comau’s reputation Fiat have struggle to improve quality, this
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could be due to the fact that they are trying to achieve economies of scale but are failing due to high
level inventory costs (Vincenzo et al, 2006).
4) Marketing
Marketing has not great relevance in the Fiat value chain. As many analysts have pointed out,
Marketing is not considered as a way to improve products by understanding customers’ needs, but
rather as a way to convince people to buy something which is far from their expectations. This trend
can only bring the customer far from the FIAT product. There is no partnership between Marketing
and Engineering and what is of huge concern is that the “supremacy” of Engineering over Marketing
is very strong. The result is the FIAT’s attempt to build something which is perfect from an
Engineering perspective but absolutely far from customers’ needs and tastes (Vincenzo et al, 2006).
However with the introduction of the new CEO Mario Marchionne, the company has developed its
brand image a great deal.
5) Dealers & Service
The dealers of Fiat present both positive and negative implications. The amount of dealerships will
always customers will easily find a dealer. However the culture is of great concern because it does
not consider customer requirements in terms of reaching their required needs.
4.5.2 SUPPORT ACTIVITIES:
1) Infrastructure
Good infrastructure within Europe due to the seven factories in Italy and the one in Poland.
Improvement in distribution channels to America with the 35% stake of Chrysler.
2) Logistics
Due to Fiats many suppliers, and production methods it is important for them to be efficient
otherwise it will cause lags in production. The use of Intermodal transport within the EU and USA
and partnerships with companies such as TNT and CEVA, who are known to be a reputable company,
manage the inbound and outbound logistics.
1) Human Resources
High quality management team and workforce with a centralised decision making process.
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4.6 PORTERS FIVE FORCES
The Porters five forces are used to identify industry attractiveness describe the Industry structure
and evaluate the industry competition.
4.6.1 ENTRY BARRIERS – HIGH
The initial costs to set up a new firm, with high completion levels all with mature economies of scale
makes it difficult to enter the market, unless it was targeting a niche market.
Other points to mention is that with Fiats Knowledge, Technology, Brand image, Distribution
channels, Mergers all result to a less likely chance of entry especially with constantly changing
Government regulations.
4.6.2 POWER OF BUYERS – HIGH
A constant change in consumer preferences always makes it difficult to satisfy customer needs.
Customers have also realised the power they have with dealership in negotiating, this results in a
reduction of profits.
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4.6.3 POWER OF SUPPLIERS – MEDIUM
Due to Fiats outsourcing methods it is clear to see suppliers will hold a degree of power of Fiat
especially if there is no mutual respect between them. The subsidiaries companies on the other
hand have resulted in better relationships thus lowering some supplier power.
4.6.4 THREAT OF SUBSTITUTES - HIGH
Because of the closeness of the rivalry with many competitors offering a similar product any price
change from any of them could dramatically affect demand. This is why it is important for Fiat to
flaunt its Italian passion and brand, making it unique against its competitors.
4.6.5 DEGREE OF RIVALRY - HIGH
Rivalry amongst competitors is high due its concentration of activities, minimal product differences
and price wars. The new method of strategic licenses to reduce overheads also plays a crucial role in
rivalry. With increasing competition coming from Asian countries Fiat must try and explore new
markets to increase market share globally.
Constantly changing consumer demand and increase power has resulted in a reduction in profits and
constant development of products in order to meet this change in consumer which only results in
higher costs.
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5.0 CONCLUSION
The research has explored in the deep matter of Business logistics supply chain Management in the
relation to the Single European Market creation. The Investigation through various key concepts
includes: logistics, supply chain functions and the influences and changes that were necessary to
combat the changes that SEM brought along with it.
In turbulent economic conditions, with an increasing amount of competition not only from European
companies but also global has led European firms to integrate their supply chains more effectively in
order to add value and gain a competitive advantage over potential threats. Mergers and
Acquisitions taking occurring at a regular rate in order to maximise economies of scale and remain
competitive seems to be the way forward for MNC’s.
The case study of Fiat S.p.A demonstrated the active modification of its Businesses Logistics and
Supply Chain Management structure. Incorporating Just in time and Kanban helped not only their
production process but also helped gain a competitive advantage in a competitive industry.
Modifying product design to meet requirements and production plants all meeting regulations and
standards was also a change they had to adopt.
The changes brought about after 1993 affected all businesses not only in Europe in but around the
world, these changes as well as giving them an opportunity to reach more consumers it also added
complicated decision making and the introduction of new competition (Japan and Korean
automobile industry. However recent economic conditions suggest that EU is going through a
difficult time but as a whole the decision of Uniting Europe was most beneficial, it has led to the
ability to compete against much larger nations and organisations around the world.
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6.0 RECOMMENDATIONS
The over reliance on its domestic market is one of the biggest issue Fiat is facing right now,
all the operation are based in Turin and there’s not many plants outside of Europe other
than Brazil. Production can be closely monitored but it also means that export costs will be
higher and the ability of local responsiveness will be slow. This could be the reason why it is
not performing well outside of its domestic market. To improve on this Fiat must develop
plants of outside of Europe to target more consumers and benefit from, cheap labour force,
material or whatever other benefit they may receive within that market.
Another major problem with Fiat is its ability to consider the consumer preference; it is too
busy focusing on what Fiat calls ‘Engineering class.’ The ability to identify consumer needs
and develop cars to what they require and also an improvement in customer support is also
required to surpass their needs and to retain them. This is most important not only for sales
but brand image.
Alliance with either a Japanese company such as Honda or Toyota will benefit them greatly
in terms of gaining local knowledge of local tastes and preferences to possibly expanding
there. It will also give them valuable knowledge from the leaders in Supply Chain
Management (Toyota); this will allow them to adopt these methods in any market they
decide to enter giving them a competitive advantage by adding value on the production and
distribution of cars.
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7.0 APPENDICES
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8.0 REFERENCES Cammarata, V and Kurucz, V and Maj, V and Pavlovic, A and Portmann, K. (2006) ‘The FIAT
Case:a Therapeutical Crisis.’ Università della Svizzera italiana, - Corporate Strategy – Prof. Erik R.
Larsen. [Online] [Accessed on the 10th February 2012]
http://www.lulu.com/items/volume_30/470000/470624/1/print/470624.pdf
Camuffo, A and Volpato, G. (1998) ‘Making manufacturing lean in the Italian automobile
industry: the trajectory of fiat’ Venice, Italy: Department of Business economics and
Management. [Online] [Accessed on the 10th February 2012]
http://gerpisa.org/ancien-gerpisa/actes/10/10-2.pdf
Camuffo, A and Volpato, G. (1999) ‘Global sourcing in the automotive supply chain: The case of
Fiat Auto “project 178” world car.’ Venice, Italy: International Motor Vehicle Program. [Online]
[Accessed on 9th February 2012] http://dspace.mit.edu/bitstream/handle/1721.1/729/cam-
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Cooper, J., Browne, M. and Peters, M. (1994) European Logistics: Markets, Management and
Strategy. 2nd ed., Oxford: Blackwell Publishers.
Cousins, B., Lamming, R., Lawson, B., Squire, B. (2008) Strategic Supply chain Management-
Principles, Theories and Practise. 0 ed., Harlow: Pearson Education Limited.
Done, K. 1990: Fiat’s Grand European design. Financial times, 9 July.
Economist, the 1998: Europe’s Internal Market. 9 July
Emmett, S. (2005) Supply chain in 90 minutes .Gloucestershire: Management Books 2000 ltd.
(Fiat S.p.A, (2007), annual report: Consolidated and statutory financial statements, Turin.)
Frasier, N. (2011) European Supply Chain Operations. Manchester: Manchester Metropolitan
University. 41-page handout, distributed online 28th October 2011 on Moodle for Module
“Managing Business Logistics and Supply Chain Management”
Howlegg, M.,Miemczyk, J. (2003) Delivering the 3 day car: the strategic implications for
automotive logistics operations. Journal of Purchasing and Supply Management, Vol. 9, no.2, pp
63-71
Kopicki RJ, Berg MJ, Legg LL, Dasapp V, Maggioni C (1993). Reuseand Recycling Reverse Logistics
Opportunities. Coun. Logist. Manage. Oak Brook, IL.
Larsen-Skjoet, T. (2000) ‘European logistics beyond 2000.’ Industrial Journal of physical
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Lee, hl, Padmanabhan, V. And whang, S. (1997), the bullwhip effect in supply chains, sloan
management review, spring, pp. 93-102
Sharman, G. (1989) ‘What 1992 means for Logistics. ’Mckinsey Quarterly, Spring, no.1, pp.104-
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Taylor, D. (1997) Global cases in Logistics and Supply chain Management. 1st ed., London:
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Volpato, G. (2002) ‘Fiat Auto: Toward Globalization’ Venice, Italy: International Motor Vehicle
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Walther G, Spengler T (2006). Impact of WEEE-directive on reverse logistics in Germany. Int. J.
Phys. Distrib. Log. Manage., 36(5): 337– 361
Wynsta, F., von Corswant, Fredrik. Wetzels, Martin. (2010) In Chains? An Empirical study of
Antecedents of Supplier Product development activity in the automotive trade industry. Journal
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