Modeling Supply Chain Costs in the Automotive Manufacturing Industry the Case of Valmet Automotive

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Modeling Supply Chain Costs in the Automotive Manufacturing Industry the Case of Valmet Automotive Modeling supply chain costs in the automotive manufacturing industry The case of Valmet Automotive Logistics Master's thesis Lauri Koivula 2015 Department of Information and Service Economy Aalto University School of Business Powered by TCPDF (www.tcpdf.org) Aalto University, P.O. BOX 11000, 00076 AALTO www.aalto.fi Abstract of master’s thesis Author Lauri Koivula Title of thesis Modeling supply chain costs in the automotive manufacturing industry – The case of Valmet Automotive Degree Master of Science in Economics and Business Administration Degree programme Information and Service Economy Thesis advisor(s) Markku Kuula Year of approval 2015 Number of pages 114 Language English Abstract This thesis examines mathematical modeling as a means to improve profitability. The research is focused on studying supply chain cost drivers and their potential in regard to cost reduction in the automotive manufacturing industry, where the role of supply chain management is significant because of the capital intensive, fast paced, and high volume nature of the business. Hence, supportive tools for decision making are highly valuable. Therefore, the objective of this study is to develop a total supply chain costing model that can be used to add value to business primarily in the automotive manufacturing sector. Despite its significance, surprisingly little research has been published on the subject of supply chain costs in manufacturing in general, let alone modeling of supply chain costs in the automotive manufacturing industry. Research into costing has been published in management accounting literature, but supply chain management is rarely represented. Simulation and optimization models have been developed, even in the automotive sector, but they are usually very case specific, and discuss mostly manufacturing or distribution related modeling problems. Therefore, this thesis aims to contribute to filling the research gap in modeling total supply chain costs in automotive manufacturing by extending the knowledge of both modeling methods and supply chain cost drivers in the automotive sector. This research is conducted as a case study of a Finnish automotive contract manufacturer, Valmet Automotive Inc., that expressed the need to develop a supply chain costing model to streamline its supply chain processes and generate cost savings through improved understanding and control of its supply chain cost drivers. A literature review of the topic informs the theoretical basis for constructing the costing model. In addition to theory, the mechanics and mathematical formulas of the model are developed based on participant observations and informal interviews with supply chain professionals at the case company. Moreover, verification and validation of the costing model is carried out together with the case company’s supply chain managers. The output of this thesis is a validated total supply chain costing model that was taken into use at the case company. Experimentation proved that the developed model can be used to add value to the case company’s business in forms of cost saving, supply chain process streamlining and performance follow up. Moreover, supply chain managers can utilize the costing model as a strategic planning tool and as a supportive tool for decision making. Lastly, by providing an innovative case study of modeling supply chain costs in the automotive manufacturing industry, this thesis has contributed to the research into supply chain cost drivers and their modeling in the automotive manufacturing context. Keywords Valmet Automotive, industry, Finland, supply chain management, logistics, cost management, cost driver, costing, mathematical modeling, process streamlining i Aalto-yliopisto, PL 11000, 00076 AALTO www.aalto.fi Maisterintutkinnon tutkielman tiivistelmä Tekijä Lauri Koivula Työn nimi Toimitusketjukustannusten mallintaminen autoteollisuudessa – Tapausyhtiönä Valmet Automotive Tutkinto Kauppatieteiden maisteri Koulutusohjelma Tieto- ja palvelutalous Työn ohjaaja(t) Markku Kuula Hyväksymisvuosi 2015 Sivumäärä 114 Kieli Englanti Tiivistelmä Tässä gradututkielmassa tutkitaan yrityksen kannattavuuden parantamista matemaattisen mallinnuksen avulla. Tutkielma keskittyy toimitusketjukustannustekijöiden ja niiden kustannussäästöpotentiaalin kartoittamiseen autoteollisuudessa. Päätöksentekoa tukevat työkalut ovat tarpeellisia erityisesti alalla, jossa investoinnit ovat suuria ja tilanteet vaativat nopeaa päätöksentekokykyä. Tämän tutkielman tavoite onkin kehittää päätöksenteon tueksi toimitusketjun kokonaiskustannuksia mallintava työkalu, jolla voidaan luoda liiketoiminnallista lisäarvoa erityisesti autoteollisuudessa toimiville valmistajille. Aiheen merkityksellisyydestä huolimatta autoteollisuuden kustannustekijöistä ja niiden mallintamisesta on julkaistu yllättävän vähän aiempaa tutkimusta. Simulointi- ja optimointimalleja on kehitetty, mutta ne ovat yleisesti ottaen hyvin tapauskohtaisia ja käsittelevät usein tuotantoon ja jakeluun liittyvien ongelmien mallintamista. Siispä tämä gradututkielma pyrkiikin edistämään tutkimusta toimitusketjun kokonaiskustannusten mallintamisesta autoteollisuudessa kasvattamalla tietämystä autovalmistajien toimitusketjukustannustekijöistä ja kustannusten mallintamismenetelmistä. Tutkielma toteutetaan empiirisenä tutkimuksena yhdessä autoalan sopimusvalmistajan Valmet Automotive Oy:n kanssa, joka esitti tarpeen toimitusketjukustannustensa mallintamisesta. Mallinnustyökalun avulla Valmet Automotive pyrkii tehostamaan toimitusketjuprosessejaan ja luomaan kustannussäästöjä paremmin ymmärtämällä ja hallitsemalla toimitusketjukustannustekijöitään. Menetelmät kustannuslaskentamallin kehittämiseksi perustuvat kirjallisuuskatsaukseen aiheesta, sekä tutkijan havaintoihin Valmet Automotiven toimitusketjuprosesseista että epämuodollisiin haastatteluihin yhtiön toimitusketjualan ammattilaisten kanssa. Laskentamallin oikeellisuuden vahvistaminen toteutetaan yhdessä Valmet Automotiven toimitusketjujen hallinnasta vastaavien esimiesten kanssa mallinnuskirjallisuudessa esiteltyjä menetelmiä käyttäen. Gradututkielman lopputuloksena kehitettiin kokonaiskustannuslaskentamalli, joka otettiin käyttöön Valmet Automotiven toimitusketjujen hallinnassa. Tutkielman empiiriset kokeet osoittivat, että mallinnustyökalulla voidaan luoda lisäarvoa yhtiölle kustannussäästöjen muodossa toimitusketjuprosesseja tehostamalla. Lisäksi kustannuslaskentamallia voidaan hyödyntää yhtiön päätöksenteon tukena ja strategisena suunnittelutyökaluna. Tämä gradututkielma on onnistunut myös edistämään akateemista tutkimustyötä toimitusketjujen kustannustekijöistä ja niiden riippuvuussuhteiden mallintamisesta autoteollisuudessa innovatiivisen tapaustutkimuksen avulla. Avainsanat Valmet Automotive, autoteollisuus, Suomi, toimitusketjujen hallinta, logistiikka, kustannusten hallinta, kustannustekijä, kustannuslaskenta, matemaattinen mallintaminen, prosessien tehostaminen iii Acknowledgements First of all, I would like to thank Valmet Automotive Inc. for providing and financing this research opportunity. Throughout the writing process of this thesis I have been able to extend my knowledge of the automotive industry, supply chain management, and modeling techniques, of which I am grateful to Valmet Automotive. Moreover, I am pleased to know that this research has proven to be of value for Valmet Automotive, and that the developed tool has been taken into use. I appreciate the support of my thesis supervisors: professor Markku Kuula from Aalto University and Mrs. Marita Saarinen from Valmet Automotive. Thank you for your encouragement and constructive feedback throughout the writing process of my thesis. Furthermore, I want to thank Mrs. Saarinen for her time and advice throughout the process of developing the costing model. In addition, I would like to thank Mr. Heikki Kivijärvi from Valmet Automotive, who acknowledged the need to carry out this research, and trusted me with the research opportunity in the first place. Besides, I give thanks to Mr. Teppo Siivonen from Metso Corporation, who connected me with this research opportunity at Valmet Automotive and also gave me valuable feedback on my thesis. I thank all the people who contributed to my thesis by participating in the informal interviews, helping in the development of the costing model, proofreading, and providing comments to my written work. I especially want to thank my colleague Mr. Mikko Luoma, who encouraged me in the early stages of the research process and provided me with literature on the research topic. In addition, I thank Mr. Luoma for always having time for my questions and phone calls, and sharing his professional experience and knowledge with me. Lastly, completion of this thesis would have been difficult without my friends and colleagues who helped me commute between my home in Helsinki and Valmet Automotive’s office in Uusikaupunki. In addition, these very friends offered me a place to stay overnight whenever I was visiting Uusikaupunki. I give my sincere thanks to these helpful people. Moreover, I am thankful to my dear family and friends for all your support, understanding and encouragement throughout the completion of this thesis. You cheered me up whenever I needed it, and finally, we are able to celebrate this achievement together. v Table of Contents Abstract .................................................................................................................................................................................. i Tiivistelmä .......................................................................................................................................................................
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