Professional Documents
Culture Documents
Pellton International:
Developing a SupplyChain Partnership
Charles J. Corbett,
Assistant professor of Operations and
Technology Management, John E. Anderson
Graduate School of Management, UCLA
Joseph D. Blackburn,
James A. Speyer Professor of Production
Management, Owen School of Management,
Vanderbilt University
The good news is that our efforts to improve our relationship with Basco in Belgium finally seem to be paying
off, even though it was a slow and tortuous process to
get there, Peter Jackman said. The bad news is that in
the next supply chain project, about to start with
Perdirelli in Milan, the pressure really is on, as theyre
going through a major business redesign exercise. We
cant afford to take as much time and make as many mistakes as we did in this first project.
Peter Jackman is Pelltons logistics manager for Europe.
He has been involved in a project with Basco, a major
customer, to jointly improve the supply chain linking
them and build a strong partnership with their Belgian
and German operations. Because of the success of that
project, Pellton had initiated a similar project with
Perdirelli in Milan, another major customer. Jackman
and some colleagues were trying to decide how to organize this new project, based on what they'd learned from
the previous experience. Jackman was keenly aware of
the challenge he was facing: This time there are opportunities for even greater benefits, but if we fail, we could
lose all of our business with Perdirelli.
An International Journal
Vol. 2 - N1 - 2001
Interested readers
can refer to the complete casePellton International, Partnerships
or Tug of War (A), (B) and (C)
INSEAD, 1997
Basco
Antwerp
Auto
Assembler 1
Competitors
Perdirelli
Milan
Auto
Assembler 2
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Avg. weekly
demand
(m2)
st.dev. of
Avg.
weekly demand inventor held
(m2)
(m2)
Basco Belgium
S1
Total S1
1 780 950
16 961
35 294
4 783 058
45 553
79 963
Basco Belgium
S2
Perdirelli S2/P
Total S2 and
S2/P
391 193
3 726
10 955
2 104 710
8 555 320
20 045
81 479
21 883
115 064
199 091
454 186
large batch sizes with long time intervals between production runs.
Pell-Q is produced in batch production runs ranging
from several hours to several days; changeover times
vary from several minutes to a full day for some of the
die changes. Because of the long changeovers, production batch sizes are large, and cycle times between
batches of the same product range from ten days to six
months for lower demand items. Production lines in
Maastricht run three shifts, seven days a week.
Combined annual output is just under 55 million m2 and
total variable costs (mostly raw materials) average
about 1.3 Euros/ m2. Storage and distribution of the product is very costly because from production through
packaging, storage and delivery to the customer, rolls of
Pell-Q must be refrigerated to keep the plastic sheet on
the roll from bonding and losing definition, rendering
the product unusable by the customer.
Long cycle times make production scheduling difficult.
The scheduled number of rolls in a batch production
run is computed as a combination of firm orders received from Pellton sales agents and forecasts of demand
over the time until the next production run. Rush
orders for material not in stock can sometimes be
accommodated by delivering oversize (i.e. a roll wider
than required) or by disrupting the production schedule. Given the product variety, long leadtimes, and high
forecast uncertainty, stockouts are frequent and often
result in the cannibalization of oversize rolls from the
customers inventory or substitution of a competitors
product. To counter these problems, Pellton realized
that there could be great benefits in a closer partnership
in the supply chain linking them and some of their key
customers. Jackman succinctly summarized the opportunity at a Pellton strategic planning retreat:
Partnerships with our key customers will be critical to
our success. Better information will allow us to reduce
inventory costs, and, as a preferred supplier, we will
gain a larger share of their business.
An International Journal
Vol. 2 - N1 - 2001
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An International Journal
Vol. 2 - N1 - 2001
Standard sizes
STANDARD
SIZE
FORECAST
ACCURACY
AVG SQM
INVENTORY
WEEKS
COVERAGE
81
86
91
96
101
106
TOTAL
163%
45%
62%
58%
N.A.
50%
69%
17.452
27.068
19.996
32.876
260
10.646
108.299
2.9
29.2
3.5
3.1
0
4.8
4.2
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SKU rationalisation
SKU rationalisation lies at the
heart of the solutions that Pellton
An International Journal
Vol. 2 - N1 - 2001
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Manufacturing problems
By reducing the number of items
that need to be produced, Pellton
simplifies its planning process, and
production batches recur with
greater frequency. Nevertheless,
there is no industrial flexibility
approach (Smed) that would
lead to significant improvements
in inventory volumes and in responsiveness. Given that Pellton
works three shifts and seven days a
week, capacity issues are crucial.
Storage concerns
Above and beyond SKU rationalisation, and in order to reduce
inventory levels, Pellton has chosen to only have standard products
on hand, and to produce specific
items only on order. This means
that Pellton still has a problem
with non-standard items. From a
An International Journal
Conclusion
The Pellton case shows that close
partnerships along the Supply
Vol. 2 - N1 - 2001
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Andrew Leahy
Solution Development Director,
Exel Automotive
Organisational differences
Although it can be assumed that
the same cost reduction imperative exists with Perdirelli, clearly no
guarantee exists that Perdirelli
desire a partnership approach, a
certain degree of cultural alignment, and low management turnover in both organisations are
pre-requisites for a successful partnership. Some companies or their
individual managers simply prefer
or the traditional adversarial or
playing Poker with their suppliers!
The communication problems tensions experienced during the development of the Basco partnership
and the subsequent recovery are
important foundations for a successful partnership also seen
within classic project team
dynamics: Forming->Storming->
Norming.
The Pellton team have learned
vital lessons about assumptions
made of the Basco organisation
and learning how process differences and central vs local organisational politics can take time
to understand. The benefit of a
partner can be that it can act as a
neutral , facilitating fact-based discussion and analysis.
An International Journal
Lessons learned
Pilot projects entry and exit
criteria
The Basco project included the successful use of pilots that developed into the use of success criteria,
for example
The introduction of consignment
stock can only occur when inventory levels reach an agreed target.
We would see these as important
in establishing into the next
phases.
It is our view that these points provide effective gateways or project
milestones that are visible and
require commitment and discipline
from both sides to achieve.
Project Management
There was little evidence of a clear
project process from Pellton. A
project-managed approach to the
Perdirelli opportunity would significantly improve the probability of
success. We have learned consistently that the investment in effective project management will deliver the objectives required for
Pellton, to meet customer and
Pellton requirements, on time and
to budget.
Vol. 1 - N2 - 2001
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