Kammy Case Study

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

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

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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

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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