Specificity of the automotive sector
A car, the final product of the automotive industry manufacturing process, consists of thousands of sub-assemblies. Only a small fraction of them are manufactured in the car factory itself. The automotive supply chain is a complex network of associations between numerous producers, their suppliers and suppliers of the suppliers. The major challenges for companies from the sector include securing timely deliveries, meeting the rigorous technical parameters and automotive standards, conducting restrictive quality control, ensuring availability of products or satisfying increasing demand announced at a short notice terms, in accordance with the contracts. The factories which turn out ready-made cars are not able to store all the components in their warehouses, because the number of models and equipment versions of each make is very high. Visit any card dealership and ask for a list of engine versions and accessories. What you usually get is a table with 5 columns and 20 lines – and all that for a single car model.
In order to satisfy the marke demand and supply a product configured by the end-customer within a reasonable period of time, the manufacturer would have to ensure availability of almost all components required for every configuration on stock, in order to be able to start production right after the order is received.
Maintenance of high stock levels is very costly. Therefore, the automotive industry relies on a solution ensuring precisely synchronized deliveries of sub-assemblies from the suppliers directly to the final factory assembly lines, right before the time when the part will be used.
The so called Just-in-Time (JIT) deliveries represent a major challenge to the suppliers. Synchronization with the manufacturers’ plans requires a high degree of accuracy when planning the deliveries of specific materials in a pre-defined quantity and sequence for a given client (car manufacturer).
The task should be facilitated by an IT system which can support the receipt of orders, check the production capacity, confirm the product availability dates or notify the customer about the commencement of the product shipment. Those were the requirements that laid foundations for the complex expansion of the SAP system in Sitech, Polkowice.
In the Volkswagen family
Sitech is a part of Volkswagen concern. The factory is one of the main suppliers of car seats for different models of Volkswagen, Seat and Skoda vehicles. Membership in the Volkswagen family means the necessity to meet very high standards of the production and logistic processes and to adapt the IT infrastructure to:
- automotive standards (VDA),
- electronic data interchange (EDI) standards in the entire VW Group,
- stringent requirements concerning deliveries, quality and timeliness characteristic for the whole Volkswagen Group.
More and more SAP
SAP is a widely used ERP solution in the Volkswagen Group and is present in most manufacturing sites in Europe, including Poland. Also Sitech, from the very beginning of its operations in Polkowice, has used SAP, systematically increasing the scope of supported functionalities and processes.
In 1999, following an implementation process conducted by in-house experts, Finance and Controlling modules of SAP were launched. In subsequent years, new functionalities were implemented with the help of BCC in selected production departments, including Project Systems and Investment Management (PS/IM), Materials Management (MM), Production Planning (PP) and Plant Maintenance (PM).
The majority of logistic processes were supported by a dedicated IT system which meant that interfaces with SAP had to be maintained. With time, the company’s business grew significantly and it became obvious that all key processes would have to be transferred to a single, integrated IT system.
More and more often, the old system with its interfaces was the ‘bottleneck’ of the business processes, not able to provide online data (e.g. sales information). Additionally, the interfaces used did not allow for the automation of data, limiting access to the full scope of information significant from the business point of view. The growing volume of manual work, for example, when calculating the materials consumption or the cost of goods sold, additionally contributed to the existing limitations.
Membership in the Volkswagen family means the necessity to meet very high standards of the production and logistic processes
The support of complex and multi-variant logistics processes is the biggest challenge in the management of Sitech. The management of the company decided that implementation of an SAP solution supporting the entire scope of logistics processes – from ordering components, through advanced production planning in all departments, to sales and integration with the customers, will offer a new quality in managing the business.
Therefore, at the beginning of 2007, a decision about complex expansion of the SAP system was made. The general assumption was to focus on those company and system areas which have the highest impact on the operational efficiency and profitability i.e. on the broadly understood logistics.
From process mapping to the launch of an it system
In order to prepare the company well for the implementation, the SAP process was preceded by the mapping of business processes. The deliverables of the project included:
- a complete description of the organization, in accordance with the process management concept for IT purposes and the Quality Management System (business process maps and the organizational structure),
- a unified description of business processes with the possibility of data usage in other projects,
- a summary of interactions with the head office (process points, documents, contractors),
- preparedness to meet the requirements of Volkswagen regarding process management, and
- organizational preparedness for the SAP project.
The project of mapping the business processes was successfully completed at the end of 2006, laying solid foundations for efficient expansion of SAP in Sitech.
The implementation conducted with the involvement of BCC, lasted from April until December 2007. The scope of the project was large and required participation of close to 30 BCC consultants. All areas of the company’s operations having impact on the business profitability were covered: warehouse management, production planning, quality management, sales and distribution.
Additionally, the financial part of the system was developed to include production costs controlling and treasury management. Initial steps were also taken to implement the HR and payroll module and quality control (the implementation of SAP HR and SAP QM will be continued in the following stages of the project).
In line with the plan, the users started to work with the new system in January 2008. In the following sections, we are describing the most important new SAP functionalities which gave rise to most benefits and improvements.
Conformance with VDA standards
A requirement of the sector is to ensure conformance with the organizational and technical standards. One of the most common standards is the German VDA (Verband der Automobilindustrie). You can come across the name when looking for a new a car.
References to VDA can be found in the technical specification (e.g. many manufacturers calculate the capacity of the car trunk in accordance with the standard).
The need to conform with the standard means that its has to be incorporated in the company’s ERP system. And so, the VDA standard has been implemented in the SAP system of Sitech. The majority of process messages (both electronic and printed) are now built in line with VDA, both in terms of the message content and printout and the graphic form defined in the standard. In a few cases, adjustments to specific requirements of Volkswagen were also introduced.
One of the main assumptions underlying the expansion of SAP was its integration with intelligent terminals communicating with bar code scanners, in order to ensure maximum automation of the high-bay storage warehouse.
As a result of the project, the warehouses were covered with an industrial wi-fi network integrated with the SAP Console server. It is now possible to execute SAP transactions directly on the display of the portable terminal, in any part of the warehouse.
Requisitions for goods movement are generated in SAP. When the requisition is confirmed, a special form is printed (in accordance with the VDA standard) on the respective printer in the warehouse. The printer is selected depending on the location from which the goods will be picked.
The warehouse staff (a forklift truck operator equipped with a mobile terminal) scans the printout and can read on the terminal display the information about the location of the required materials (section, row, rack). Subsequently, the operator goes to the location and by scanning the bar code below the rack can make sure that he reached the right place in the warehouse.
The next step is to scan the bar code on the material packaging and to confirm the quantity of the material picked. In the target destination, the packaging bar code is scanned again to complete the goods movement process. In the background of the process, Handling Units are moved between storage locations and packed or unpacked and the empty container is moved to the target destination.
This solution integrates the elements of the standard MM goods movement functionality, expanded WM functionality, Handling Units Management (packing) and integration with mobile scanners.
The scope of SAP expansion
- Warehouse Management (WM)
- Materials Management (MM)
- Production Planning (PP)
- Sales and Distribution (SD)
- Development of the financial part of the system, including Production Cost Controlling (CO-PC) and Treasury Management (TR)
The final outcome is a fully scanner-based process, from the moment of creating a requisition, through finding the goods in the warehouse, transporting them to the production area, confirming the completion of finished goods production and placing the goods in the high-bay warehouse, virtually without having to us SAP GUI.
An additional advantage is a less time-consuming inventory taking process which is now much more automated.
Meeting the terms of Just-In-Time deliveries is easier
Thanks to the new solution, the warehouse management has been considerably improved, including quicker picking of the goods from the logistics area (high-bay warehouse racks in Sitech have the area of over 10,000 sq. m.), less time needed to prepare the loading of goods onto the trucks, elimination of instances of incorrect allocation of materials to a given transport and reduction of manual operations in the process of goods receipt/ issue of materials in the logistics area.
Many components used in the automotive production processes are small parts and subassemblies. Therefore, standard returnable collective packaging containers are widely used in the industry to store and move the parts around the site or to send them to the business partners.
In the Volkswagen Group, including Sitech, the standard is the KLT packaging system. The movements of goods between warehouses, both inside and outside the company, are executed with the use of pallets and standardized containers which are exchanged between Sitech, its clients and suppliers.
The goal of the project was to work out a solution which would ensure complex monitoring of the current location, number and content of ach of the containers on the company grounds and tracking the status of containers sent to the suppliers and clients. In this way, the person responsible for the circulation of containers may at any point in time check whether free containers are available to dispatch a particular client order.
In order to meet the requirements, the following complementary functionalities have been implemented in SAP:
- Handling Unit Management (HUM) which ensures automatic packing and unpacking of materials based on the packing instruction and depending on the materials movement type. In materials movements, the majority of materials in a plant are treated as handling units and not as a standard material quantity.
- Automatic movement of empty containers. This functionality ensures placement of each container in the area where it is most needed and reporting the numbers of containers available.
- Tracking containers issued to clients and suppliers: because of the high value of containers, Sitech must be able to track continuously which and how many of their containers have been sent to particular counterparties.
The benefits of launching this solution are mainly associated with accurate knowledge of the number and types of containers available in the company and the ones sent to the suppliers and clients. It is thus possible to plan, ahead of time, the delivery of the next batch of containers to the plant.
In the context of tight goods dispatch deadlines, a large number of clients and a variety of containers and matching goods, the system helps to avoid a situation when goods cannot be issued to the client due to the lack of appropriate containers.
In Sitech, a single product is usually available in a number of production versions. Additionally, technological modifications are introduced from time to time. For example, depending on the version, the back of the seat for the popular VW Golf can have adjustment in the lumbar section, sport-style side panels or other options. In terms of the construction, most versions rely on the basic model.
In order to avoid multiplication of the product range in the SAP system (causing problems with the identification of materials, inventory taking or price list generation, etc.), product versioning was implemented in Sitech, depending on the specific requirements of each client. For example, around forty different variants are available only for the so called Golf-class platform.
This approach has a major bearing on production and procurement planning. The system must be able to differentiate between product versions and select the right parameters for each version (Bill of Material items, routings with the processing times and locations etc.).
From the perspective of a Finance Director
A dynamic growth of Sitech sp. z o.o. in Polkowice revealed certain areas of information deficits, particularly in a number of key business functions in the automotive sector, such as logistics, production and sales. Thanks to a large-scale expansion of the SAP system in our company, a number of complex processes in those crucial areas have been automated. The employees can now effectively control the outcomes of all operations and make dynamic adjustments, if and when necessary.
The preliminary exercise of mapping all Sitech processes using ARIS software, helped us introduce numerous valuable modifications and improvements in particular business areas during the project.
The process maps also served as a baseline for the analysis of the implementation effectiveness, not only in the context of the IT solutions, but also the organizational and process changes.
It is worth emphasizing, that only due to maximum commitment on the part of our staff, BCC consultants and the project management, nine months were sufficient to successfully launch the new functionalities of such SAP modules as Warehouse and Materials Management (WM & MM), Production Planning (PP), Sales and Distribution (SD), Treasury Management (TR) and Production Cost Controlling (CO-PC). From the Finance point of view, a particularly valuable advantage is the possibility of quick, direct and accurate valuation of particular business operations which is the basis for various decision making processes and actions and a source of information for the purpose of numerous reporting requirements of the company and the entire Volkswagen Group. A tangible outcome of the SAP expansion project is the availability of information about the status and profitability of the production orders and sales orders right after they are settled in the system. In the past, we had to wait for that information a few days. The optimization of the entire logistic chain, from planning to finished goods trading, also resulted in major benefits i.e. lower inventory levels and costs, combined with timely deliveries. We have already seen that quicker and better information and shorter response time to the changing market situation translates into higher operational effectiveness and competitiveness of the company.
Finance Director, Sitech
Handing over this time-consuming job from the operator to the system is an unquestionable advantage. Of course, the planning results are subject to verification and, if necessary, can be overwritten by the person responsible for a particular product range.
Due to high expectations of the clients and a large number of shipments every day, the outgoing transport has to be planned with accuracy level down to two hours. For each order, the date and time of shipment must be defined, taking into account the distance to the client’s premises, means of transport (by road or by sea) and the goods weight. Then, the appropriate transport type has to be ordered from a carrier for a precise time of the day.
In order to facilitate the work of transport planners, a standard SAP LE-TRA solution has been implemented with the addition of dedicated reports.
The outcome is the planner’s console with a single screen in which the planner can define what has to be sent, when, to whom and how and, additionally, check the status of current shipments. Thanks to the use of the ‘time window’ concept (i.e. a defined period of time when a single transport is processed at a single workstation), the transport reports help the logistics staff precisely plan the loading of trucks on the company grounds and monitor the timeliness. Thanks to this tool, the employees can quickly react to any problems with the transport services.
Closer cooperation in the supply chain
The majority of Sitech clients and a large group of suppliers use EDI as the main channel of communication for order placement, confirmation of deliveries, etc.
The reliability and efficiency of data exchange via the EDI has a great impact on the quality of cooperation in the whole supply chain, in which the Polkowice plant is only one of the links, including the ability to execute the orders in accordance with the contract provisions. Therefore, a significant part of the SAP expansion project was:
- creation of a complex communication platform, closely integrated with the SAP solutions implemented in Sitech, ensuring the required standards of electronic data interchange with the existing and future business partners, and
- implementation in the SAP system of a set of key messages conforming with the VDA standard.
The EDI solution was developed as a set of interfaces operating on the SAP XI (SAP Exchange Infrastructure) platform, a tool from the SAP NetWeaver family. The VDA standard and the OFTP communication protocol were used. Such a solution ensured trouble-free integration of incoming and outgoing SAP messages and scalability (VDA and OFTP are widely recognized standards in the automotive industry, hence adding new partners and developing messages based on the standard is much simpler).
The new solutions apply to messages sent to the clients and to suppliers. The areas of improvements in the cooperation with Sitech clients include:
- scheduling agreements – using the messages sent via EDI to Sitech, the client defines the type of product and quantity ordered from Sitech and the required date of delivery. This information is recorded in a scheduling agreement in the form of a scheduling line (detailed information about the product and its delivery date). The orders sent by clients are placed in advance, for a longer period of time (in order to enable production planning), however, adjustments can be made in subsequent EDI messages. All the information received via this channel is collected and recorded in the scheduling agreement form. For example, the message defines the quantities of goods the client wants to receive in 3, 4 or 5 months. A month before the deadline, the client sends new messages with detailed information about the dates when the deliveries should arrive and the exact product numbers matching the ordered models e.g. the factory in Wolfsburg confirms the demand for 320 seat backs with sport-style side panels and adjustment in the lumbar section;
- outgoing deliveries – each delivery to Sitech client must be notified in advance. Thanks to EDI, the client receives confirmation of the type and quantity of goods that will be delivered and the delivery date. In this way, the client can prepare for the receipt of the goods which often go directly to the assembly lines.
The improvements introduced in the cooperation with the suppliers are similar to the functionalities discussed above with regard to the clients. The only difference is the opposite direction of processes in the supply chain.
For example, in the case of Schedule Lines, the scheduler sends the content of the scheduling agreement between Sitech and the supplier and the required delivery schedule. Sitech suppliers are obliged to meet the delivery deadlines sent to them via the solution, and the delivery notification informs Sitech about the actual dispatch of goods.
At present, Sitech has a complex SAP system, covering all the key areas of the company’s operations. Meeting the terms of Just-In-Time deliveries is easier mainly thanks to the automation of the complex business processes, with the emphasis on system solutions and the operator’s role limited to control or adjustment of the automatic processing results.
Thanks to a more efficient organization of the entire logistic chain, from planning and adjusting the production schedule driven by the customer orders, to optimized ordering of individual spare parts and components and finished goods trading, the company derives substantial benefits, associated with lower costs of stock maintenance due to lower inventory levels.
The full integration of logistic processes in a single environment and availability of timely information accessible from many locations at the same time, makes it possible to untap the company’s potential even more effectively.
The achieved improvements in the logistics processes, both internally and at the point of contact with the business partners, are critical to higher performance effectiveness of Sitech and to the focus on the company’s long-term objectives. Eventually, “each drive starts off from the seat”.
Sitech sp. z o.o. is a manufacturer of car seats from Polkowice. The factory, which belongs to Volkswagen, operates in Legnica Special Economic Zone. The site is one of the largest automotive industry investments in Lower Silesia and employs over 1300 people. The key customers for Sitech products are Volkswagen Group car manufacturers, including Skoda and Seat.