Course

BPM Master Information Systems Management

Case study "Automotive CarParts Ltd"

1. Company description
The Automotive CarParts Ltd is located in Salzburg and is a wholesaler of vehicle parts. The CarParts Ltd purchases
all car parts from other wholesalers or directly from manufacturing industry firms, but CarParts acts as a
middleman between the supplier and car repair shops. In addition, the company also distributes automotive
parts directly to private end customers through a large sales store.
Internally, the company's departments are organized in a classical manner (procurement and purchasing,
logistics, distribution and sales, customer relationship management and accounting). The functional barriers
between the departments are quite strong, but not to the extent as in larger companies.
The company's organization is kept flat. CarParts Ltd operates a branch with a large main warehouse, including
purchasing and sales department with CRM and an end users shop in Salzburg. The departments management
and accounting are also situated at this location. Throughout the company, 75 employees are currently employed
in the various departments. An excerpt from the incomplete organizational chart shows the flat organizational
structure.

At CarParts Ltd, the trade in vehicle parts is mainly referred to independent garages, which receive their parts
from wholesalers and not directly from manufacturers. In all sections of the warehouses approximately 40,000
items are in stock. Tires, batteries and liquids are bought in large quantities and occupy therefore a large part
of the warehouse. Customers of CarParts are mainly independent garages, which are supplied several times a
day. The ordering is primarily done by phone or sometimes also by fax. The product range of CarParts is
currently composed of:
Lights Drive Tires and accessories
Brakes Filter hydraulic parts
Chemicals/ oils Trailer coupling Tools and equipment
Electrics Cooling / air conditioning Lacquers / paints
Interior equipment Exhaust systems / catalysts Parts / tuning
Chassis / steering / damper Body parts / glass

Based on the order volume, approximately 70-80% of the customers are garages, whereby the remaining sales
volume is generated by private customers over-the-counter-sales. The focus is therefore on garage customers,
since there is the highest growth rate expected. In addition, the expansion of the private customer segment
should be covered with an online-shop. The entire value chain of CarParts Ltd can be represented as follows:

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Course BPM Master Information Systems Management

Customer CarParts Ltd Suppliers

Manufacturer
Industry TecDoc interface,
Honeywell, Jurid, Herth+Buss, Henkel

Sales CRM Automotive

customer order

Garages interface interface authorized dealers

Management and
Wholesalers
Company with Accounting Stahlgruber, Ghrum, Hennig

own vehicle fleet

Logistics Purchase Carat central
warehouse
Own order interface
Private customers CoSy (Carat order System)

CarParts is a member of the Carat company group, a purchasing group with an own central warehouse, since its
founding in 1997. More than 150 automotive wholesalers have joined the group at that time. Other suppliers do
also offer the entire range of spare parts and represent alternative suppliers. In addition, the company can also
order directly from the manufacturing industry. The customer side comprises independent garages, industrial
customers, companies with own vehicle fleets and private end customers.

In this branch a big predatory competition takes place at the moment also due to the strong use of information
technology where some companies in the DACH region fell already victim to. By delivering good products and
services at a high quality level and a professional collaboration with suppliers and customers, CarParts was able
to survive and grow at the market.

Overall, the company CarParts had an annual turnover of approximately 12 million euro in 2016, whereby the
revenue increased strongly by 2014 (which also led grew the number of employees from 40 to 75). But since
2014 the revenue stagnates and this could may cause problems in a financial perspective soon. Due to the
excessive growth within the last years, the company is facing various challenges actually. The organizational
structure and the individual operating departments become independent by growth and led to power struggle
and turf war between the departments.

Overlaps and duplicated activities can be increasingly observed at the interfaces between the departments.
Furthermore, missing and misinterpreted information disturbs the flow of work and lead to longer processing
and latency time of orders, with the result that orders cannot be delivered on time. This means that important
customers can no longer be delivered within the same day. Complaints in this regard have increased by more
than 25% and an independent garage with several branches has thus switched to another wholesaler and
stopped purchasing at CarParts.

Clear separations and conditions regarding the responsibility do only exist in an informal manner. The
management has the ultimate decision-making power. Due to lack of delegation of responsibility the
management is overloaded because, due to the flat hierarchy each decision comes to the management.
Important information, as a basis for business decisions, are prepared directly in the departments due to lack
of time, the prepared materials are not always of high quality - and afterwards presented to the management.
The management leads the departments by traditional target agreements (management by objectives), which
are only quantitative (for example revenue goals, sales goals). The objectives are defined together with the
department managers. For the achievement of the objectives these persons gain an annual bonus.

The workflows of the company have only been partially analyzed and not yet well documented - only in those
areas where the workflows have been requested by customers or suppliers for quality purposes. The workflows
have been adapted over the years due to the changed economic conditions and are more or less lived. Due to
the missing documentation, it is not possible to approach a redesign of workflows and make the operational
structure of the company transparent.

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The company is currently struggling in expanding its product range regarding hydraulic hoses. According to
surveys and massive inquiries it can be determined that customers are strongly interested in hydraulic hoses.
The rigid structure prevents the organization in orientate on the competition and on their customers, who
strongly requests these hydraulic hoses and could therefore be another important source of revenue. The
CarParts Ltd is not able, due to the problems in the existing company structures and operating procedures, to
systematically capture and analyze the needs and desires of their customers, and to adapt on this basis its
product range.

In the automotive tuning sector, one of the trends is to personalize specific parts or create parts based on
individual demands. But the management of CarParts Ltd does not know how many requests have already arrived
in this regard, how much market potential exists and how these tasks could be handled within the company.

In addition, the CarParts Ltd faces further challenges which meet the entire industry of automotive parts
wholesalers. The digitization and networking of the entire value chain in the automotive parts industry continues.
The digital "opening" of the company regarding suppliers and customers is a key success factor of companies in
this industry. Orders for motor vehicle parts have changed in respect of the delivery time - parts must be
delivered faster by wholesalers to garages (due to new vehicle models and an increasing variety of models).

The storage at the independent garages is usually limited to lubricants, screws and liquids, which are suitable for
almost all models. All other automotive parts are ordered from wholesale with delivery times of a few hours
(just-in-time). Therefore, garages expect from their wholesaler multiple daily deliveries and a very high product
availability. This requires CarParts Ltd to ensure a structured and reliable procurement and an efficient storage
organization. The use of information technology increases the opportunity for independent garages to compare
prices online on certain eProcurement portals (tires, lubricants and car chemicals). Thereby, the price pressure
for CarParts Ltd is growing. So, a flexible pricing based on discounts and pricing information is necessary to remain
competitive. The pricing based on clean company data is currently one of the biggest challenges in the sales
process.

Another challenge for companies in this sector is the prevention of quality defects in products. Especially in this
area customers are very sensitive, because of frequent product recalls in the industry. Therefore, it is necessary
to proceed in a standardized and transparent manner. Therefore, a certification of the company to one of the
following standards should be achieved within the next years:
ISO 9001: 2015 with its structure and the model of process orientation, as a basis for automotive-specific
oriented quality management systems
ISO / TS 16949 as a base standard for quality management systems in the automotive industry

The management of CarParts has analyzed the company, based on current information (discussions with
department managers and employees, based on KPIs) and wants now to align the company for the future to
ensure the continued existence. Thereby it is necessary to analyze the company in terms of the processes and to
optimize the organizational point of view (provided by the customers and suppliers) - in the sense of a continuous
supply chain. In this context, the modernization of the current IT landscape is scheduled with a focus on all
processes along the value chain: procurement - logistics - distribution. Based on a process-oriented realignment
and optimization of CarParts Ltd, the organizational structures, processes and competencies have to be created
/ built up, which enables the organization to control and develop the business processes in a targeted-oriented
way. Thereby customer needs can be detected promptly and after a detailed analysis they can be adjusted fast
and flexible to the product range, if required. By the optimization of the value chain, a good product availability
and short delivery times for customers can be assured. This will be possible through the inclusion of additional,
large and established supplier networks. To do so, the organizational and technical conditions must be
established. Management's expectations, with respect to the new approach are:
Reduction of process cycle times and process errors
Ensuring continuous transparency, corporate accountability and enable data- and fact-based
decision-making as a basis for integrated corporate control
Increasing efficiency for further growth

The management considers it as one of the most important tasks to build up and anchor a quality management
system in the organization, including certification according to a standard for the industry within the next five
years. This is intended to support the external communication (with customers and suppliers) and to control
internal basic QM process instructions such as procedures, processes and workflows. The quality management

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system is intended to be closely integrated with the business process management and should be treated as one
unit in the organization.

This management system should consist of the three "pillars" - corporate policy (statements about corporate
culture, customer policy, guidelines for quality, etc.), corporate objectives (specific targets for departments,
teams and processes), as well as company processes for the achievement of named goals and customer
requirements.
Among others, the management expects a clearer division of tasks and responsibilities, faster and quality-assured
processes, a better coordination at the interfaces, more flexible corporate structures and a rapid expansion of
the product range. The objective is to bring the customer-oriented business strategy and business objectives in
line and to implement them operational in merchantable time without quality defects.
The management is aware, that appropriate skills have to be established within the company. However, there
are two employees (in the logistics and distribution department), who have a solid process understanding and
they have had already accomplished trainings about the continuous improvement process - a long time ago.

2. Current documentation of process organization
The operational structure and procedures of CarParts Ltd are, as already mentioned, not completely
documented. This means that employees perform the same tasks in different ways and wrong routines have
emerged. This fact leads to losses in efficiency, to media disruptions, to process failures, to a lack of transparency
and to long lead times.

2.1. Division Procurement and Purchasing

The purchasing department works with the outdated software OpusWare (ERP-system), which supports the
current processes inadequately. The system has not been developed further over the past few years.
Additionally, there is a risk of overloading in this department, since the company grows stable. The overload also
results from the fact that the software has inconsistencies in article and vendor management and constant media
disruptions occur at the interfaces to other departments. Also the ability to integrate suppliers via interfaces is
missing (currently querying prices and stocks is only possible manually). New products must also be entered
manually and prices are assigned to the appropriate price lists. Without the integration of suppliers, an automatic
order processing is not possible, if the minimum stock falls below a certain limit. The current ERP system does
not provide a warning of low stock levels and no forecast of requirements, based on the previous year.

2.1.1. Evaluate, select and manage suppliers

The supplier evaluation and supplier selection are important sub-processes of the procurement process. For this,
the need is determined, criteria for supplier selection are examined, potentially eligible suppliers are identified
and afterwards these suppliers are evaluated based on certain criteria. This review is the basis for the subsequent
selection of the supplier, including the setup of a cooperation contract and possibly the development of
framework agreements and certain delivery terms. The management of suppliers in the ERP-system is limited by
the maintenance of master data.

Other significant operations in this department are the immediate order, the daily and weekly order and the
seasonal order.

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2.1.2. Immediate order after order intake

If orders are accepted by phone, at the counter, by fax or mail, the employee checks (who has also entered the
order), if the item ordered is in stock or if it must be ordered. Under certain circumstances, orders are placed
twice, by mail and phone at the same time. If the ordered item is in stock, it is immediately picked with the
delivery note. If the item must be ordered, the employee checks the stock status, the price, the correct vehicle
assignment of the spare part, the item number, the low-quantity surcharges, delivery dates, main and preferred
suppliers (according to framework agreements), any scaled prices, quantity- and value-dependent surcharges
and discounts, delivery costs and differing price units, for up to five suppliers.

These checks are conducted online through ordering systems or often by phone. Then the article is ordered by
phone or online. After the order was placed, the supplier sends an order confirmation by email, which must be
checked for accuracy and completeness and, if necessary, reworked. These checks cannot be generalized, since
the applied rules are depending on the current article group, manufacturer and supplier. Experience and
expertise are needed to decide, which items have to be ordered from which supplier and at which terms. In
addition to high tension potential among employees, there is a number of orders placed every day at individual
suppliers. The employees must make sure, in a time-consuming way that the mentioned checks are performed
immediately, even if very few items are actually ordered. But since some suppliers deliver several times a day,
orders will not be summarized, because there is no coordination between the employees. If orders are processed
automatically in the future, it will be a high expenditure to define which article groups have to be ordered from
which manufacturers, and which graduated prices, surcharges and delivery dates exist paired with the according
framework contracts. This knowledge is currently distributed among several employees.

Facts and figures

In case of order at a supplier, the average process throughput time is about 1.5 hours (including latency and lay
times). The customer takt time of the process is 5 (every 5 minutes an order has to be processed). Per day about
100 orders are processed. The following table provides information about the most common process errors:

Process error Occurrence (%)

Duplicate orders (mail, phone) 22
Wrong order data in case of phone orders 10
Post-processing of orders due to errors 9
Incorrect use of vendor-specific rules 3
Wrong information of storage status 17

2.1.3. Daily and weekly order for accumulation of inventories

Every day, an employee checks the storage if shelves are empty. On each shelf a magnetic sign with the article
number, the manufacturer and the product name is mounted. If the product is running out, the employee writes
the according product information manually into an order book. If an employee takes the last article from the
shelf space, he/she is also committed to write a record in the order book. Since this is often forgotten, based on
daily pressure, this has already led to serious consequences in operational processes. Based on the order book,
the necessary articles are ordered once daily, so that in each article shelf is at minimum one article available. A
weekly order is placed to bring the article quantity to the maximum stock, which basically depends on the article.

2.1.4. Seasonal order of bulk goods

In the automotive industry, there are many seasonal products. For all these products, the wholesaler wants to
buy them anticyclical to obtain special rates. The tire industry, as an example, produces winter tires in the
summer, which are then shipped directly after production to wholesalers to keep the warehouses empty. The
amount is determined based on sales in the previous year, which is then ordered and delivered on palettes from
the most favorable dealer. Thereby, the according supply contracts and annual bonuses need to be checked.
After delivery, the palettes are stored in the stock of CarParts.

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2.2. Division Logistics

In the logistics division, the software OpusWare supports some processes such as the booking of delivery notes
as a receipt and the creation of new articles in the article master data. The pricing takes place according to stored
price lists of article groups, so that a customer is simply assigned to a price list and thereby the sales prices are
calculated. If a customer order is booked and the delivery note is printed out, the booking of outgoing goods is
done automatically. The results in a negative stock amount in the warehouse, based on the fact that a delivery
note is sometimes printed out several times and the inventory is therefore reduced. A commissioning is only
possible with the delivery note. Barcode scanners are not supported and the article data needs to be entered
manually when goods are received and orders are processed. The annual stocktaking therefore lasts several
weeks.

2.2.1. Perform stock-receipt

In this process delivered goods are taken over from stock. If goods are shipped, the warehouse employee sights
the goods and searches after the appropriate order in OpusWare. If the order cannot be found, the purchase
department will be contacted by phone. If there is an order, it is passed over to the warehouse (paper, e-mail)
and the warehouse employee adjusts the goods based on the order and the delivery note (article, quantity,
condition). If there is no corresponding order, the goods will not be accepted and an incorrect delivery is noted.
If the delivered goods have defects (wrong product, wrong amount of items or goods damaged), only the correct
part of the delivery is accepted and the purchase department is informed. If the goods are completely fine, the
delivery note is signed by the warehouse employee and handed over to the purchase department. After that, a
certain storage location is assigned by the warehouse manager and the goods are stored. In parallel the goods
receipt is registered in the system.

2.2.2. Perform goods issue

This process describes the goods issue in the case of a customer order. The process starts with the transfer of a
customers order to the warehouse (by list, email). If the order is characterized with a partial delivery, the articles
in stock must be delivered immediately. If the order is characterized with a total delivery, all items must be in
stock before the goods can be sent. In case of a partial delivery, the warehouse employee checks which articles
are in stock. These articles are brought to the depot, packed and booked in the system. At the same time, a
delivery note must be printed and attached to the partial delivery. The non-overlapping and therefore not
shipped goods of the order must be suspended and noticed on the whiteboard "outstanding partial deliveries"
and must be sent, once the goods have been received. In case of a total delivery, for which all articles are in
stock, the goods are packed, booked in the system and the delivery note must be attached. If not all goods are
in stock, the order must be suspended and noticed on the whiteboard "pending total deliveries" and sent as soon
as the items are in stock. At the end of the process, the packaged goods are handed over to the carrier and the
carriers receipt must be handed over to the sales department. Here, the exact date and time of the collection of
goods are recorded manually.

Facts and figures

In case that goods are in stock, the average process throughput time is approximately 45 minutes. If not all goods
are in stock, between 2 and 5 hours. (depending on the delivery time of missing items). Per day about 100 orders
are processed. The following table provides information about the most common process errors:

Process error Occurrence (%)

Loss of the note for order transfer 12
Incorrect labeling of an order (part, total) 8
Loss of an order on the whiteboards 18
Shipping of wrong articles to customers 21
Incorrect storage level check (items yet in stock) 4

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2.3. Division Sales

Orders are being accepted by phone, fax, mail, field workers or in person at the counter of the office. Currently,
there is no online shop. A known issue in OpusWare is, that only a small number of document types are
supported, such as delivery notes, invoices, cash sales and credit notes. The organization of follow-ups, open
documents and returns is done by hand using folders and shelves. Offers are written in text processing system.
Also the pricing is not very effective. Old and faulty price items (due to poor master data maintenance) result to
the fact, that items were sold below purchasing prices, because the prior pricing was maintained incorrectly. In
addition, employees can apply discounts and set sale prices by themselves. Thus, it is up to the negotiating skills
of the customer, what discount he/she received from the employee. This led not only to customers
dissatisfaction, due to changing discounts from different employees, but exceeded also the competence of the
sales staff.

2.3.1. Process customer orders

Customers order by phone, e-mail, fax or personally. A dedicated telephone sales-channel does not exist. The
customer places the order by mentioning one of these data:
Article name and / or manufacturer (article number)
VIN / KBA-Nr. of the vehicle and / or of the spare part
Manufacturer number or Carat article number
The task of the employee is to pick out the right article with the right article number, based on those
characteristics. If the customer states the exact article name and / or the manufacturer's item number, the
employee can seek the article directly in OpusWare, select the customer and create the order. If the customer
cant state the correct article description, the employee hangs up (later callback) and opens the supplier catalogs
on the computer. The employee is now looking for the correct part within the spare parts catalogs of different
suppliers, based on the specified information.

The employee notes the matching item numbers and looks them up in OpusWare, to see the stock availability of
CarParts. Since this stock availability is mostly inaccurate, the employee has to make sure in the warehouse that
the specified stock is correct. She / he then orders the item and prints the delivery note. Afterwards she/ he calls
back the customer and trasmits the delivery dates and prices. Since the quality of master data has proven to be
bad, automated pricing for the customer is not possible. Therefore, the employees often perform the pricing by
using a pocket calculator and customer discount tables manually and write them on the order. The employee
who took over the order, is responsible for the entire order.

If the customer orders, the responsbile employee takes care of the order confirmation, incoming goods (in case
of a reorder), picks the according item from the warehouse, picks the items in delivery boxes, orders any products
with specific characteristics by phone and handles also wrong deliveries. The existing lack of division of labor
leads to inefficiency and increased susceptibility to errors. Since other customers call during the processing of an
order, employees tend to forget orders, place wrong orders, assign orders incorrectly and calculate wrong prices.

Peak times lead to a mess, because the employees are running through the storage, commissioning, talking to
customers, perform goods receipt and receive and transmit orders in parallel. Another difficulty is that every
customer is usually supplied several times a day by CarParts. (up to three times a day) But each customer orders
more than three times per day. On every order the mentioned process starts from scrath. The customer is usually
called back with information about the delivery time and price, which the employee previously examined after a
extensive research.

Facts and figures

The average process throughput time of the order processing (in case of stored articles) is approximately 40
minutes. Per day about 100 orders are processed. The following table provides information about the most
common process errors:

Process error Occurrence (%)

Wrong selling price (selling below purchase price) 8
Forgotten order 14
Wrong product in offer 10
Wrong customer allocation in orders 17
Incorrect storage level check (items yet in stock) 5

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