TABLE OF CONTENTS

1. Dewan Farooque Motors 31.1 Introduction1.2 Company Origin1.3 Company Role

2. Supply Chan Management at DFML 4-62.1 Supply Chain Management2.2 Aims & Objective of Supply Chain in DFML2.3 Supply Chain Management Operation stages at DFML2.4 DFML Material Management Cycle

3. Key Elements of DFML Supply Chain 7-93.1 Production Element3.2 Inventory Element3.3 Location Element3.4 Transportation Element3.5 Information Element

4. Participants in DFML 10-114.1 Cyclic View of DFML Participants4.2 Supplier4.3 Producer/Assembler4.4 Dealer4.5 Customer4.6 Push/Pull View of DFML Supply Chain

5. DFML Drivers for Supply Chain Performance 12-135.1 A Framework for DFML supply Chain Drivers5.2 Facilities5.3 Inventory 5.4 Transportation5.5 Information5.6 Sourcing5.7 Pricing

6. Demand Forecasting Techniques at DFML 14-166.1 Demand Forecasting

6.1.1 Demand Forecasting Pattern6.1.2 Judgment Method

6.2 Material Requirement Planning (MRP)6.3 Bill Of Material6.4 Capacity Requirement Planning (CRP) & Strategies

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7. Inventory Management at DFML 17-187.1 Material Department7.2 Stores7.3 Warehouses7.4 Safety Stock

8. Just In Time Systems8.1 Just In Time (JIT) at DFML 19-20

8.2 Bill of Material (BOM)8.3 Economic Order Quantity (EOQ)8.4 Bullwhip at DFML

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1. Dewan Farooque Motors Limited (DFML)

1.1 IntroductionDewan Farooque Motors Limited is a supplementary of Dewan Mushtaq Group, one of the country's leading business groups. Dewan is working under the Technical Licensing and Exclusive Distributor agreements with Hyundai Motor Company .The Hyundai Kia Automotive Group is South Korea's largest automobile manufacturer, the second largest automaker in Asia after Toyota and the world's fifth largest automaker after Toyota, GM, Volkswagen and Ford as of the end of 2009.

1.2 Company OriginOn December 25, 1998, Dewan Farooque Motors Limited entered into Technical Licensing Agreement with Hyundai Motor Company of South Korea for assembling and manufacturing of Hyundai vehicles in Pakistan. The project cost was approximately Rs. 1.8 billion financed on a 58:42 Debt to Equity ratio, with the assembly plant's installed capacity of 20,000 vehicles annually in two shifts.

1.3 Company RoleDewan Farooque Motors is one of the key players in the automobile industry of Pakistan offering an impressive lineup of passenger cars and commercial vehicles. Its state-of-the-art plant has a capacity of 10,000 vehicles per annum on single shift basis and is equipped with the latest facilities, which includes CED (Electronic Dipping) paint system and robots.DFML has a long-term vision and plans to expand activities gradually in the automobile industry, i.e. the mother of engineering industry; as a number of other sectors of the economy depend on it, directly or indirectly, for their income. Some of these sectors are engineering, electronics, metal, rubber and plastic. The ultimate aim is to achieve 90% localization by 2015.The company also imports and market "HYUNDAI" Commuter Vans, which are not being manufactured in Pakistan. The sale of these vehicles is supported by complete after-sales service, through a 3'S dealership network. The company has a total of 26 dealers nationwide.An independent team of professionals in the areas of Marketing, Finance and Production are working on the project. The vision of the group is to expand activities gradually in the automobile industry with the introduction of a range of different vehicles. DFML has the advantage of introducing a superior quality and cost competitive product to a market that was dominated by Japanese manufacturers.

DFML Product LineDFML offers a wide range of superior quality and cost competitive products to a market that was dominated by Japanese manufacturers. Currently, DFML is assembling following products fully at the assembly plant at Sajawal.

1. Hyundai Santro.2. Hyundai Shehzore

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2. Supply Chain Management in DFML

2.1 Supply Chain ManagementThe design and management of seamless, value-added process across organizational boundaries to in order to minimize total system cost.

2.2 Aims & Objectives of Supply Chain Management in DFMLThe major aims of supply chain management at DFML are:

i. Reliabilityii. Responsiveness

iii. Flexibilityiv. Cost Reductionv. Asset Management

vi. Quality

2.3 Supply Chain Operations Management Stages at DFML

Dewan Farooque Motors Limited generates revenue with the co-ordination of a large number of departments, which are directly or indirectly connected, with the operations of the organization:

1. Demand Forecast: is prepared by the Marketing and Sales department, and is forwarded to the Production Planning department.

2. BOM (Bill of Materials) and MPS (Master Production Schedule) are prepared by Production Planning department in coordination with the Production department, and are sent to Procurement department.

3. The Procurement department then queries the members of SVL (Standard Vendors' List) for availability of materials and their prices; then

4. Purchase Requisition(s) is/are sent to respective vendor(s) after getting approval from the Finance department.

5. Finally, upon arrival of the materials, samples of raw materials are taken from the Materials Quarantine and are tested for 'quality standards'; if the materials are up to the required standards, then they are sent to the Raw Materials Storeroom; or else, are returned to the respective vendors.

6. When the Materials Requisition is sent from the production floor to the Materials Management department; materials are issued from the Raw Materials Storeroom to the production floor. When the product is produced, then again it is sent to the Finished Goods Quarantine; samples are drawn from the finished goods and are tested for 'quality

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Prod Planning & Prod Dept Procurement Department

Marketing & Sales Dept Production Planning DeptDemand Forecasting

BOM & Master Prod Schedule

Procurement DepartmentTakes Queries for Price & Materials Approved Vendors

Procurement DepartmentPurchase Requisition

Finance Department

Procurement DepartmentPurchases Raw Material

Production Department

Production DepartmentFinal Finished Product

Marketing & Sales Department

Marketing & Sales DeptFinal Finished Product

Marketing & Sales Department

Marketing & Sales DeptFinal Finished Product

Customer

standards'. If the finished goods are up to the required level of standards then they are sent to the Finished Goods warehouse to be distributed; or else, 'batch failure' is reported to the Production department and the concerned offices.

2.4 Supply Chain Operations Management Stages at DFML

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Customer

Dealer

Assembling

Storage at Yard

Body Shop Paint Shop

Processing

Local Parts Store Consumable StoreCKD Store

CKD Material Local MaterialConsumable Material

Producer

Procurement of Material

Warehousing

Stores

2.5 DFML Material Management Cycle:

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3. Key Elements of DFML Supply Chain

Block diagram of key elements of Dewan Farooque Motors Limited (DFML) is:

Block Diagram of Key Elements of DFML

3.1 Production Element of DFML

Production element of Dewan Farooque Motors Limited is consisting of 2-Production line each line consist of following:

a) Body shop (welding).b) Paint shop (cleaning, and smoothing, coloring).c) Assembly shop (assemble the whole car).

a) Body ShopThe Body Shop is equipped with the most modern welding equipment and automatic type jigs & fixtures from Korea to produce highest quality vehicle bodies here.

b) Robotic Paint ShopThe plant has a state of the art Cathode Electro Deposition (EDC) paint shop from Shindurr. The Cathode Electro Deposition (CED) System provides durability to the body and protection against rust. The facility also includes high-speed integrated setup of Robots to provide paint quality. This is the first automobile assembling plant in Pakistan with the state of art robotic equipment. The use of robots results in the production of evenly sprayed, high gloss, defect-free and high quality painted bodies.

c) Assembly Shop & Inspection Line Different parts and accessories are installed of fixed in the car body which include engine

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assembly, wheel assembly, Fuel system, conditioning system and sound system etc.The tester line, with high precision equipment is employed to test and adjust the vehicles in order to ensure defect free and highest quality output. Exhaust gas analyzers are also used to ensure that environment friendly automobiles are rolled-out from the factory.

3.2 Inventory Element of DFML

DFML has the facility of storing the inventory in the warehouses located at Karachi and Sajawal and then stored in the CKD, Local store & consumable stores, while product are stored in the yard located at Plant site. They have the inventory policy that material first comes at HQ and then send to the plant site for the inventory storage. DFML stores 30% stock of the imports as safety inventory.

3.3 Location Element of DFML

Plant LocationLocation of Dewan Farooque Motors Limited has one of the most advanced automobile assembly plants located in Sajawal, Thatta, 152 Kilometers from Karachi. The plant stands on a 40-hectare plot and has been built with an initial investment of more than Rs.1.8 billion. It has facility of high standard of living accommodation for all categories of employees, the availability of land for expansion of production facilities, and the in-house generation of electric power. It has a production base of 10,000 units' p.a. on a single shift basis.

Warehouses LocationThere are 2 warehouses. One is near the head office, which stored items for a temporary time period, and the other is at Sajawal, which is the main. The inventory is stocked in the warehouse for the usage of 2 to 3 months only. It controls the delivery of heavy parts by direct delivery to Sajawal and the light parts are transferred from the head office after recording.

Stores LocationThere are three types of stores located at DFML Sajawal for storing different types of parts.

(i) CKD Stores: It stores imported Parts. Mainly, parts of Engine and glasses are imported from Korea. Company keeps 30% material stock of CKD items/ imports.

(ii) Local Parts Store: It stores Local parts purchased from local vendors like steel sheets, rubber etc.

(iii) Consumable Store: It stores consumable items purchased. The Inventory control department always keeps 200 units in hand as safety stocks.

3.4 Transportation Element of DFML

DFML needs transportation for the complete knockdown material/imported material from Korea, for locally purchased materials, parts and accessories from the local vendor, internal transportation for the processing and assembling with the plant and delivery of the finished cars

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to the dealers. DFML uses shipment mode of transportation for the imported items, for transporting locally purchased goods and imported materials to the plant they use trucks, for internal transportation they uses conveyors, belts, and trolleys, while for the transportation from Plant to dealer they use Trucks and trailers.

3.5 Information Element of DFML

DFML using MRP (material resource planning) strategy through SAP (system application and products in data processing. By SAP DFML controls:

– Development, production, sales, and distribution of products.– Acquisition, operations, and compliance of production assets.– Management of the production, logistics, and distribution network.– Marketing, sales, production, and service for customers.

– Cost/performance optimized procurement, production, and operations.

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Customer

4. Participants in DFML Supply Chain

Following are the participants of DFML supply chain:

1. Suppliers.2. Producer/Assembler (DFML).3. Dealer.4. Customer.

4.1 Cyclic View of DFML Participants

Cyclic view of DFML participants

4.2 SupplierThere are two types of suppliers for the Dewan Farooque Motors:

i) Local Suppliers: These are the suppliers with in the country provides different parts and accessories required to be assembled in the car body.

ii) External Suppliers: These are the suppliers provides goods like car engine etc for the assembling within the car body. These are outside of the country suppliers like Hyundai.

4.3 Producer/Assembler (DFML)Dewan Farooque Motors role is like Assembler in the supply chain which assemble the part and

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Customer Order Cycle

Replenishment Cycle

Assembling Cycle

Procurement Cycle

Dealer

Assmbler (DFML)

Supplier

Customer

produces the finished product.

4.4 DealersDealers are the intermediary between the DFML and end customers. Dealer’s purchases finished cars from DFML and sales it to the end customers. There are 26 registered dealers of DFML within the whole country.

4.5 CustomersCustomers are the end user they purchases the product. All the activities in the supply chain are made to fulfill the requirements and need this participant of supply chain and whole process is carried to facilitate this.

4.6 Push/Pull Processes for the DFML Cyclic Supply Chain

Dewan Farooque motors cyclic supply chain has been divided in to Push/Pull Processes given below. Procurement, Manufacturing and replenishment cycles are in the Push process, while customer order cycle is in Pull process.

Push/Pull Processes for the DFML Cyclic Supply Chain

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Customer Order Cycle

Replenishment Cycle

Assembling Cycle

Procurement Cycle

Dealer

Assmbler (DFML)

Supplier

Procurement,Manufacturing and

Replenishment cycles

PUSH PROCESSES

PULL PROCESS

Customer Order

Cycle

5. DFML Drivers of Supply Chain Performance

1. Facilities2. Inventory3. Transportation4. Information5. Sourcing6. Pricing

5.1 A Framework for Structuring Drivers of DFML

A Framework for Structuring Drivers of DFML

5.2 Facilitiesa. Places where inventory is stored, assembled, or fabricated.b. Production sites and storage sites

DFML has well located plant at Sajawal, Thatta, Karachi head-offices, warehouse and show-rooms give them a primary advantage to handle a verity of products. They have three shops i.e Body shop, Paint shop and assembling shop where necessary processing is done and in assembly shop accessories are assembled within the body of car.

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DFML Competitive Strategy

DFML SupplyChain Strategy

Facilities Inventory Transportation

Information

Supply chain structure

DFML Cross Functional Drivers

Sourcing Pricing

DFML Logistical Drivers

5.3 Inventoryc. Raw materials, WIP, finished goods within a supply chaind. Inventory policies.

DFML has the facility of storing the inventory in the warehouses located at Karachi and Sajawal and then stored in the CKD, Local store & consumable stores, while product are stored in the yard located at Plant site. They have the inventory policy that material first comes at HQ and then send to the plant site for the inventory storage. DFML stores 30% stock of the imports as safety inventory.

5.4 Transportatione. Moving inventory from point to point in a supply chainf. Combinations of transportation modes and routes

DFML needs transportation for the complete knockdown material/imported material from Korea, for locally purchased materials, parts and accessories from the local vendor, internal transportation for the processing and assembling with the plant and delivery of the finished cars to the dealers. DFML uses shipment mode of transportation for the imported items, for transporting locally purchased goods and imported materials to the plant they use trucks, for internal transportation they uses conveyors, belts, and trolleys, while for the transportation from Plant to dealer they use Trucks and trailers.

5.5 Informationg. Data and analysis regarding inventory, transportation, facilities throughout the supply chainh. Potentially the biggest driver of supply chain performance.

DFML using MRP (material resource planning) strategy through SAP (system application and products in data processing. By SAP DFML controls:

– Development, production, sales, and distribution of products.– Acquisition, operations, and compliance of production assets.– Management of the production, logistics, and distribution network.– Marketing, sales, production, and service for customers.– Cost/performance optimized procurement, production, and operations.

5.6 Sourcingi. Functions a firm performs and functions that are outsourced.

Dewan Farooque Motors has fully assembling facility of the finished part at the plant. They have their own trucks for the transportation. By some suppliers they deal to supply material at their ware house at Karachi and CKD material shipment is outsourced.

5.7 Pricingj. Price associated with goods and services provided by a firm to the supply chain.

DFML is very much concerned about the price of Raw Material purchased from outside of the

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country or within the country. DFML is very well of it and know that if the price of any good or part or assembly increases, ultimately their price of output finished car will increase and will make difficult to compete in the market so sales and procurement dept keep active on it.

6. Demand Forecasting Techniques at DFML

6.1 Demand ForecastingIt's the predication of future events used for planning purpose. It needs to aid in determining what resources are needed, scheduling existing resources, acquiring the additional resources. It allows schedules to the machine capacity efficiently reduce production time & cut inventories. Its methods may base on model using historical data available, quantities methods drawing on managerial experiences or a combination of both.

6.1.1 Demand Forecasting Pattern (PULL Supply Chain Strategy)According to the dealers and the sales & marketing department of the Dewan Farooque Motors Ltd the demand pattern of the cars is random or un-forecast able variation in demand they said that they are manufactured cars according to the demand but it is not necessary that the demand of current month is same as the demand of next or previous month. It is un-forecast-able not conform that in which month the demand is high & in which its low.

Customer Order Cycle

Executed in the Response of Customer

6.1.2 Judgment Method

Judgment methods can be used to modify forecasts generated by quantitative methods. Dewan Farooque Motors are using marketing research method. Market research is a systematic approach to determine consumer interest in a product or service by creating and testing hypotheses through data-gathering surveys. DFML have a separate department of research & development. And after analysis the features of demand they plan annually that how many cars are been manufactured.

6.2 Material Requirements Planning (MRP)

Material requirement planning (MRP) at Dewan Farooque Motors Limited is carried out through SAP (System application and products in data processing) By SAP DFML controls:

– Development, production, sales, and distribution of products.– Acquisition, operations, and compliance of production assets.– Management of the production, logistics, and distribution network.

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PULL STRATEGY

– Marketing, sales, production, and service for customers.– Cost/performance optimized procurement, production, and operations.

MRP controls acquisition, storage, assembling, storage and distribution. The cycle begins with the purchase of materials or services from outside suppliers. Materials are stored and then converted into goods or services by one or more transformation processes. Manufacturers store semi finished and finished goods and finally distribute the finished products to customers. Materials management decisions have short time horizons and therefore are more tactical then strategic. However, they have a major cumulative effect and thus attract considerable managerial attention. Tactical decisions about materials are important for two reasons.The entire departments within the organization are inter-connected with each other by SAP. All inventories are controlled through SAP. Required material or accessories balance in stock and availability and consumption etc can be checked and demand through software. A software

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Planning Reports

Planning Reports

Performance Reports

Performance Reports

Changes to Planned Orders

Changes to Planned Orders

Planned Order

Schedule

Planned Order

Schedule

Orders / Forecast

of Service Parts

Orders / Forecast

of Service Parts

Master Productio

n Schedule

Master Productio

n Schedule

Bills of Material

File

Bills of Material

File

MRP System

MRP System

Inputs

MRP Computer Program

Outputs

Inventory

Status File

Inventory Transactio

ns Data

Inventory Transactio

ns Data

Exception Reports

Exception Reports

PrimaryOutputs

Secondary

Outputs

ELEMENTS OF MRP

system has been connected for the coordination between the production, store and procurement departments in the DFML.

6.3 Bill of Materials (BOM) at DFML

Bill of materials (BOM) is the term used to describe the "parts list" of components needed to complete Finished Goods (end-item). A bill of material is a formally structured list for a ‘father item’ or factory made item (semi-finished or subassembly or finished) which lists all the component parts of the father item with the name, quantity, and unit of measure of each component, called ‘child item’ in ERP.In DFML BOM used for MRP or Material Requirement Planning.  To compute the shortage quantity the BOM is exploded automatically by ERP software to list the item/s required to be purchased to fulfill a given sales order.  This MRP report, in turn will help purchase officer to procure items.  BOM master is also helpful in keeping track of revision numbers or engineering changes, called R number.  This R number is also reflected on the work orders etc. to help user.

6.4 Capacity Requirement Planning and Strategies

6.41 Capacity Requirements PlanningCapacity requirements planning is a computerized tool that is used to determine the capacity to help the alleviate bottlenecks and to help identify potential problems before they occur.

Measures of CapacityCapacity is the amount of work that can be done a period of time.Capacity= Available time x Utilization x Efficiency.

Utilization RateUtilization at DFML is calculated as the number of customers entertained per showroom or number of order per month.Utilization = (Average Output Rate / Maximum Capacity) X 100= (150/ 150) X 100= 100%

Calculation for Average Output RateTotal Number of units assembled in a year = 1,800 units/year.Average output per month = 1800 / 12 = 150 units.Total Number of Showrooms in Pakistan = 22.Maximum Capacity = 150 safety stock per month.

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7. Inventory Management At DFML

The inventory management is segmented into 3 categories:1) Material departments2) Stores3) Warehouses

7.1 Material DepartmentMaterial department consist of:

i) Complete Knock Down (CKD)/Import Department.ii) Local Parts Department.iii) Consumable parts Department.

i) Complete Knock Down (CKD)/Import DepartmentCKD (Completely Knock Down) is the main department where only the imported parts are stored. The order of the parts is placed on internet and the further dealing is done through documentation and the further issues are resolved in personal meetings. The order for the parts is placed according to the production of cars to be made in the next following month instead of ordering parts annually or on estimate basis. The ordered parts are received at Karachi port and transferred directly to the main assembly plant located at SAJAWAL.

ii) Local Parts DepartmentDepartment purchases the parts locally from the local vendors. It control the delivery of heavy parts by direct delivery to SAJAWAL and the light parts are transferred from the head office after recording. Payments of the delivered parts are made within 30 to 40 days after PDI (pre-delivery inspection).

iii) Consumable parts DepartmentDepartment Purchases the consumer goods like Greece, oil, battery water, break oil, coolant, etc. The company first schedules the items, and then takes a follow-up with the vendors. The company then pays the outstanding amount to the vendors after checking the quality of the goods purchased.

7.2 StoresThere are three types of stores at DFML for storing different types of parts.

i) CKD Stores: It stores imported Parts. Mainly, parts of Engine and glasses are imported from Korea. Company keeps 30% material stock of CKD items/imports.

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ii) Local Parts StoreIt stores Local parts purchased from local vendors like steel sheets, rubber ets.

iii) Consumable StoreIt stores consumable items purchased. The Inventory control department always keeps 200 units in hand as safety stocks.

7.3 Warehouses:

There are 2 warehouses. One is near the head office, which stored items for a temporary time period, and the other is at Sajawal, which is the main. The parts are identified by its label and the shelves have tags on them where the item code, item name, store code and rake no is written down on each tag. The inventory is stocked in the warehouse for the usage of 2 to 3 months only.

7.4 Safety stockTo avoid CKD delays and robbing, DFML manages to store at least 1 month's safety stock for continuous production. Cost does increase but not more than the cost burden due to plant inactivity. Moreover, by continuous production, they ensure shorter delivery times.

7.4.1 Setting Stock LevelsOne major objective of capacity control department is to ensure that "stock-out" does not occur, and that "surplus" stocks are not carried. Stock-out occurs because insufficient stocks are carried; this may lead to production stoppage and hence loss of customer goodwill. Surplus stock results in increased storage costs, and also ties up capital which could be utilized more profitability in other projects. On the other hand the working capital of the company tends to increase. The stock levels to be properly determined the company maintain strict figurative policies relating to the Re-Order Level, Minimum Level and the Maximum Stock Level.

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8. Just-in-Time (JIT) Systems

Just in Time, or JIT is a set of techniques to improve the return on investment of a business by reducing in-process inventory, and its associated costs. JIT causes dramatic improvements in a manufacturing organization's return on investment, quality, and efficiency.

8.1 Just in Time at DFMLAt DFML there is no use of JIT but in future their mission is to test this kind of approach & if it is suitable then implement it permanently.

8.2 Bill of Materials (BOM) at DFML

Bill of materials (BOM) is the term used to describe the "parts list" of components needed to complete Finished Goods (end-item). A bill of material is a formally structured list for a ‘father item’ or factory made item (semi-finished or subassembly or finished) which lists all the component parts of the father item with the name, quantity, and unit of measure of each component, called ‘child item’ in ERP.In DFML BOM used for MRP or Material Requirement Planning.  To compute the shortage quantity the BOM is exploded automatically by ERP software to list the item/s required to be purchased to fulfill a given sales order.  This MRP report, in turn will help purchase officer to procure items.  BOM master is also helpful in keeping track of revision numbers or engineering changes, called R number.  This R number is also reflected on the work orders etc. to help user.

8.3 Economic Order Quantity (EOQ)

Given the cost structure of a company, there is an order quantity that is the most cost effective amount to purchase at a time. This is called the economic order quantity (EOQ).There is a trade-off between lot size and inventory level.

Frequent orders (small lot size): higher ordering cost and lower holding cost. Fewer orders (large lot size): lower ordering cost and higher holding cost. EOQ = (square root of 2UO / hC) where: U = annual usage rate O = ordering cost C = cost per unit h = holding cost per year as a percentage of unit cost.

DFML tries to control its minimum inventory level with a lot size of 30 parts for CKD. The pricing of material is also kept in the mind for the EOQ control.

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8.4 Bullwhip Effect at DFML

Bullwhip EffectThe ordering patterns share a common recurring theme: The variability of an upstream site are always greater than those of the downstream site.Bullwhip effect is the variation in the demand due to the any member within the supply chain, due to which company production or sales effects.

Causes of “Bullwhip” Effect at DFML1. Demand Forecast updating2. Order dating3. Price Fluctuation4. Rationing and shortage Gaming

Counteract the Bullwhip at DFML1. Avoid multiple demand forecast update.2. Break order batches.3. Stabilize prices.4. Eliminate Gaming in Shortage Situations

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