BOSCH Supply Chain Management - SCM Project

by: Lukman Susanto & Pari Purna Somavarapu

Abstract / Executive Summary

This paper is analysing current BOSCH Australia logistic system, opening the possibility to
improve the services by minimising lead-times. BOSCH Australia as most other BOSCH
plants in the world are integrated with SAP system, which enable them to run the system
seamlessly. The only possible improvement can be done is its distribution and delivery
strategy as well as further coordination with its customers.

About BOSCH Australia

Robert Bosch Australia is a leading developer of technology for multinational automotive

vehicle producers and a company committed to providing Australian customers with a wide
range of premium quality, automotive and consumer products.

A wide range of manufacturing and distribution activities and a strong and growing export
business make Robert Bosch Australia a regional cornerstone of the global Bosch Group and
a major contributor to the Australian economy. The manufacture and supply of automotive
products is the company’s core business, accounting for the major share of total turnover and
driving the growing export business.

 
Robert Bosch Australia’s fastest moving manufactured products are automotive body
electronics, diodes and automotive security systems. Robert Bosch Australia also distributes
power tools, household appliances, gas hot water systems and Blaupunkt car audio
equipment. Hydraulics from the Bosch Automation Technology division are assembled and
marketed by Bosch Hydraulic Systems.

More than 1700 people are employed at the national headquarters in the Melbourne suburb of
Clayton in Victoria. Professional engineers and technical personnel are involved in the
development of new and exciting automotive products.

Robert Bosch’s supply chain involves major electronics and automotive companies such as
Motorola, Siemens, Tyco Electronics, Hyundai, Ford Australia and General Motor (GM).
BOSCH Australia Logistic Functions

Analysed products: Automotive Body Electronics & Power Tools

Production Planning

Production Planning will be determined by customer orders and sales forecast from historical
data. Based on this information and supported by current trend, production dept will
determine their production planning and prepare the purchase requirement to purchasing
department which will then create the purchase order.

As part of BOSCH worldwide PP strategies, BOSCH Australia has involved in DELMIA

(digitalised PP) where the system simulated production planning to include the identification
and elimination potential problem in a virtual environment, before they become real problems
(Dassault Systemes). This system is originally prepared to meet one of BOSCH major
customers, DaimlerChrysler. DELMIA engineering process provides different methods of PP
through a transparent system using a single data model (Dassault Systemes).

MRP (SAP) and Purchase Order

Purchase Orders are automatically generated by MRP system depending on the production
plan. These orders will be approved by the purchasing department teams and then sent to the
suppliers through EDI (Electronic Data Interchange). After the materials have been shipped,
supplier will then send ASN (Advanced Shipment Notice) for references.

Transportation Methods
Main inbound logistics are handled by Schenker AG Logistics to transport raw materials
internationally from Motorola (USA), Siemens (Germany) and Tyco Electronics (USA).
Method of transportation is determined by the volume and the urgency of the materials. Raw
material is generally brought in by ocean freight whereas if the nature of the material required
is urgent, airfreight is used for the transport. Custom clearance and local inbound
transportation is also handled by Schenker as part of their services.

Inbound Warehouse

When the materials arrive in warehouse, warehouse staff will check for defects and quantity
against both ASN and purchase order. Any discrepancies will be noted in the system and
notified to the suppliers. Staff will then input the delivery details to goods receipt in the
system (SAP).

Internal Goods Movement (SAP)

Raw materials are moved into manufacturing area as required by the internal ordering
process. Internal Ordering is done in SAP by the manufacturing department. Manufacturing
department puts in the order in the internal system (SAP) for the raw materials depending on
the orders.

Outbound Warehouse

Once the product is finish, manufacturing department will forward the goods to warehouse.
Warehouse staff will then record and update the stock in the system.

Order Processing
Orders are normally placed through EDI (body electronics) and fax (power tools). Sales
department will then send the copy of the order to warehouse (automatically done in SAP).
Warehouse staff will check the current stock level and possibility of ordering it from the
production line or from overseas where the product is made. When the product is ready,
TOLL logistic will deliver it locally or Schenker for the international delivery. Account
department will be informed about the order and the delivery progress and customer will be
invoiced.

Distribution Centres

At Bosch Australia (Clayton) outbound warehouse acts as distribution centre. All the
processed orders will be transported to the customer by TOLL Logistics Group locally and
Schenker internationally.
BOSCH Australia Logistic Facts

  Automotive Body Power Tools

Electronics

Production Plant Australia Switzerland & China

Australia Market Share Main vendor ( > 60% ) Up to 15%

Customer Satisfaction Excellence in meeting N/A

(Bosch survey) customer production plan
and requirements

Customer Satisfaction N/A (expected sources Incomplete orders (less

(Our survey) unreachable) than requested amount)
Bosch comment: short
stock in Australia, items
produced in Switzerland or
China

Reliability of Delivery Over 99% Depending on stock level

Delivery Lead Time On schedules – no lead Six (6) weeks (ordering,

times shipping, clearance, etc)

Quality Top of the ranges Above average

Response to variation in Made-to-order (no Australia stock 110% of

volume variation expected except total customer orders.
for accidental failures)

Price / Cost Depending on customer Highly competitive

specification

Figure 1

 
Current Operation Strategy Analysis
(PROBLEM)
 

BOSCH Australia is concentrating on their automotive and other electronics component such
as ABS system, power steering sensor and EDR (Electronic Driving Recorder) some sort of
Black Box for aircrafts in cars. BOSCH is running their production system throughout
different plants worldwide. This allows different countries with different expertise to
concentrate in different products. The drawback of having plants in various locations is
obviously in their logistic system. Fortunately, BOSCH has got a collaborated international
logistic system, which makes the distribution of its products worldwide can be seamlessly
done. This cannot be said that the whole delivery and distribution system is trouble-free.
There are limitations in their system caused mainly by variation of order and uncertain stock
level.

BOSCH is able to handle virtually every planned order perfectly, thank to their amazing
system and complete global sourcing solution. BOSCH business system, which is backed by
SAP, has set a standard on how manufacturing enterprises should be. Their only main
problems raised in transaction with small customers who have not got an organised future
plan.

Here are the problems, which may occur during the transactions with customer:

 Worldwide plants have stretched their logistics to the limit and everything is expected
to be perfect.
 Minimum stock level means limited order variation can be handled.
 Orders are only partly filled as result of shortage of stock
 As many other enterprises, BOSCH is only “exceptionally good” in dealing with other
enterprises (with modern business-standard systems such as ERP).
 Such massive logistic system usually results in massive costs in delivery and massive
lead-time, especially for small orders.

 
For products such as power tools that are produced mainly in Switzerland and China, lead-
time in ordering from any other countries may take up to 2 months to complete. This often
puts many customers off from BOSCH and goes with other vendors who are willing to keep
high stock level in local countries.
Robert BOSCH Australia                      Product: Automotive Body Electronics

Figure 2 – See figure 4 diagram B

Suppliers Warehouse Manufacturing Warehouse

Motorola RBAU Logistics RBAU Logistics RBAU Logistics

Siemens 1555 cnr Centre and 1555 cnr Centre and 1555 cnr Centre
McNaughton roads McNaughton roads McNaughton ro
Tyco Electronics Clayton 3168 - Victoria Clayton 3168 - Victoria Clayton 3168 - Victoria
Information System / Information Exchanges
Methods Methods

EDI Internal Goods Movement system in SAP

  Methods Methods

Production Order system in SAP Internal Goods Movement

Sourcing / Ordering / Transporting / Sales / Distribution
Sourcing Transport

Bosch Worldwide Sourcing database / Additional search Internal Trucks and forklifts
  Ordering Distribution

Phone / Fax enquiries Internal Truck and forklifts

Physical Storage / Equipments / Picking System
Storage/Tiers Equipment

Up to 40 meters warehouses – 12 tiers Forklifts, Cranes

  Storage/Tiers/Equipment Storage/Tiers/Equipment

Up to 40 meters warehouses – 12 tiers Up to 40 meters warehouse

Transport / Export / Import
SCHENKER Logistic for international ocean/air freight SCHENKER Logistic for international ocean/air freight

TOLL Logistic for domestic surface TOLL Logistic for domestic surface
SCHENKER Logistic for international ocean/air freight SCHENKER Logistic for i
 
TOLL Logistic for domestic surface TOLL Logistic for domesti
Management / Manager / Strategy / Leadership : Lead by Geoff Muston in overall
Geoff Muston, Logistics Manager, Building: 102, RBAU Geoff Muston, Logistics Manager, Building: 102, RBAU

Daryl Budgeon, Customs & Shipping Manager Craig Dixon, Works Logistics Manager
Chris Hallett, Ext Warehouse Manager Geoff Muston, Logistics M
 
Terence Juds, Warehouse Supervisor Steve Kelcey, Distribution

Robert BOSCH Australia                      Product: Power Tools

 
Figure 3 – See figure 4 diagram C

Suppliers Warehouse Distribution Centre

BOSCH Switzerland
RBAU Logistics RBAU Logistics
Skil
1555 cnr Centre and 1555 cnr Centre
Dremel McNaughton roads McNaughton ro
Clayton 3168 - Victoria Clayton 3168 - Victoria
Vermont America
Information System / Information Exchanges
Methods Paper (Fax Ordering & Inv

EDI
  Methods

Internal Goods Movement system in SAP

Sourcing / Ordering / Transporting / Sales / Distribution
Sourcing Sales/Marketing

Bosch Worldwide Sourcing database / Additional search Customer Requirements (In

  Ordering Phone / Fax enquiries

Physical Storage / Equipments / Picking System

Storage/Tiers Transport

Up to 40 meters warehouses – 12 tiers Delivery through local TOL

  Storage/Tiers/Equipment

Up to 40 meters warehouses – 12 tiers

Transport / Export / Import

SCHENKER Logistic (international) TOLL Logistic (domestic)

  Internal Bosch trucks

Management / Manager / Strategy / Leadership : Lead by Geoff Muston in overall

Geoff Muston, Logistics Manager, Building: 102, RBAU Geoff Muston, Logistics M

Daryl Budgeon, Customs & Shipping Manager Daryl Budgeon, Customs &
Chris Hallett, Ext Warehouse Manager
 
Terence Juds, Warehouse Supervisor
BOSCH Australia – Logistic Department – Supply Chain Diagram

Figure 4

designed by Lukman Susanto & Pari Purna Somavarapu

Figure 4 shows four kinds of supply chain in BOSCH Australia depending on their product
category, type of order and production plan.

Diagram A:  This diagram is representing products such as spark-plugs which are
manufactured and marketed in Australia. Supplier supplies raw material
required which will be kept in inbound warehouse. Finished products are sent to
distribution centres (DCs) to meet general retailer (customer) demand.

Diagram B:  This diagram is representing products such as made-to-order package of engine
care or automotive body electronics for special order which should be made in a
special batch lot. Finished products are directly delivered to the retailer
(customer) who placed this special order.
Diagram C:  This diagram is representing products such as power tools, white-goods and car
stereo. These items are imported from other BOSCH plant (mainly Germany),
kept in BOSCH Australia’s warehouses and then distributed to major retailers
based on their order.

Diagram D:  This diagram is representing complete built-up made-to-order customised

products which require no further processing and the only action takes place in
redirecting the items to the customer. Supplier in this diagram would also
normally be other BOSCH plants (i.e. Germany).

Current example of flow diagram in Power Tools ordering in Australia from China

Figure 5

DEPEND ON

METHOD

INSTANT

INSTANT

INSTANT

INSTANT

1 DAY

5 DAYS

1 DAY

INSTANT

INSTANT
 START HERE

CUSTOMER RECEIVE
ORDER
 BOSC
AUS

ACC
DEPT
BOSC
CHIN

ACC
DEPT

BOSCH AUSTRALIA

INBOUND WHOUSE
BOSCH CHINA

WAREOUSE
BOSCH AUSTRALIA

DISTRIBUTION CTR

CUSTOMER PLACED
ORDER

BOSCH AUSTRALIA

OUTBOUND WH

BOSCH CHINA

SALES DEPT
 BOSCH AUST WH

STOCK CHECK
BOSCH AUSTRALIA

SALES DEPT

6 WEEKS

INSTANT

PROBLEM!!!

The most significant lead-time is happened in the international inbound logistic

(shipping and clearance) and the needs of transporting goods from warehouse in
China to go through BOSCH Australia warehouse. Over 7 weeks in total of lead-
time!!!
 

                  Path of GOODS MOVEMENT ordering power tools into

Australia from China

                  Path of INVOICING ordering power tools into Australia from
China

                  Other paths

BOSCH Australia – Logistic Department – Organisation Structure

Figure 6
Depth analysis on BOSCH Australia Logistic Systems (Logistic, EDI and
DCs)

BOSCH Australia Logistic Team / Leadership

Geoff Muston, Logistics Manager

 Trade Sales Logistics

LOGISTIC 1

Geoff Muston (acting), Trade Sales Logistics Manager

Steve Kelcey, Distribution Centre Manager

Chris Hallett, External Warehouse Manager

Works Logistics

LOGISTIC 2

Craig Dixon, Works Logistics Manager

Allen Crowley, Works Store Supervisor

Ajaib Singh, Electronics Store Supervisor

Trade Sales Planning

LOGISTIC TEAM 3

Daryl Budgeon, Trade Sales Planning Manager

Customs & Shipping

 LOGISTIC TEAM 4

Gunther Reissig, Customs and Shipping Manager

Systems

LOGISTIC TEAM 5

Five (5) team members of system analysts.

Special Projects

Ashok Krishnamurthy, Project Manager

 
BOSCH Australia Warehouses
 

Victoria – BOSCH Australia Headquarter

RBAU Logistics Warehouse

Holding stock for various electronics and automotive components

1555 cnr Centre and McNaughton roads, Clayton 3168

New South Wales

Schenker Logistics – Branch warehouse

Unit 3, Parklands Industrial Estate

13-23 South Street, Rydalmere, NSW. 2116

Area 1800 sqm, holding stock for household appliances and gas appliances.

Western Australia

Warehouse New Wave Logistics Pty Ltd

5 Harrison Rd, Forrestfield 6058

South Australia

Warehouse Contracted to Robert Middleton's Distribution

70-72 Pym St Dudley Park

Area 780sqm, holding stock for household appliances, gas appliances, power tools
and automotive.

Queensland
 Branch warehouse 1/44 Murdock Circuit Acacia Ridge

Area 1028sqm, holding stock for household appliances and gas appliances.

 
EDI – Supply Chain Information System & Theory

Robert BOSCH Australia has been using EDI intensively especially in relation to its supplier
to improve, reduce rework and streamline business processes.

BOSCH Australia describes EDI vision for supplier and freight provider as for quick respond
to its customers’ requirements with its suppliers.

The business (ordering) process using EDI:

1.                  Bosch Australia sends DELFOR (Delivery forecast with embedded release) using
cumulative quantities.  This schedule contains both customer orders and forecast.

2.                  Supplier sends CNTRL (message acknowledging or rejecting, with error indication, a
received interchange, functional group or message) message acknowledging receipt of
DELFOR.

3.                  Supplier system processes data and prepare cumulative delivered

4.                  Supplier dispatches goods and generates “Delivery advice” when the goods are
dispatched from supplier.

5.                  For overseas suppliers, second copy of the dispatch advice to be sent the Bosch
Australia freight forwarder shipments.

6.                  When BOSCH Australia physically receives goods system updates the last delivered
quantity and cumulative for the next DELFOR.

EDI Strategies
Improve logistics, planning and accounts payable for BOSCH Australia

Improve cross departmental processes

EDI Results

Cheaper customs clearance, faster goods receipting, more efficient accounts payable, reduced
lead times and connection to BOSCH Australia Web EDI system.

Success Factors

58% of schedule lines on EDI - Error rate of ASNs < 6%

Distribution Strategies & Theory

RE: BOSCH Australia Stock Policy

Bosch Australia needs to forecast customer demands and carry inventory when there is a
lead-time gap between the customer/demand lead-time and the supply lead-time. Bosch Trade
Sales Division has a negative lead-time gap for most products because customers expect
deliveries within hours or days, but it normally takes weeks or months to manufacture and/or
import products. Therefore, Bosch needs to be proactive in meeting customer demands by
forecasting over the lead-time gap and carrying stock.

If stock needs to be carried, the organisation needs to determine whether it will be held in a
centralised, decentralised or flexible distribution network. The importance of selecting the
best possible strategy cannot be overestimated as it may result in a substantial competitive
advantage. Logistical efficiency is directly related to and limited by the facility network
structure. The number, size and geographical arrangements of facilities have a direct
relationship to customer service capability and cost.
 

The factors that will determine which stocking strategy should be adopted are:

1.                  Distribution Lead-Time Gap

The distribution lead-time gap is the difference between the customer lead-time and
the BOSCH Australia / supplier lead-time to deliver the product from the distribution
centre. The distribution lead-time (i.e. the BOSCH Australia supplier lead-time)
includes the time taken for order placement, planning, dispatch and transport to the
customer. The distribution lead-time will be greater for the centralised rather than the
decentralised distribution network due to longer transport times. A decentralised
distribution network strategy must be adopted if the centralised distribution lead-time
is greater than the customer lead-time.

2.                  Cost

The table below explains how costs compare for centralised and decentralised
distribution networks:

  Centralised Decentralised Comments

Inventory  Requires higher stock levels as safety

Costs stock is needed in each location to
compensate forecast error.

Transport  Transport costs are normally higher for

Costs centralised networks. Although
delivery of larger orders from suppliers
is normally cheaper, these costs are
often eaten-up by the premium
transport costs that may be incurred to
provide speedy delivery of stock to
customers.

Infrastructure  The greater the number of warehouses,

Costs the higher the infrastructure costs.
 Planning  Production planners need to determine
Workload replenishment actions for each product
and at each location in a decentralised
Complexity network and distribution of excess
inventory.

Lead-Time  The lead-time from warehouse to

customer is greater from a centralised
warehouse location.

Organisations must determine the distribution strategy that will satisfy customer
service requirements at the lowest total cost. Typically, a centralised distribution
strategy provides a lower inventory investment at lower total cost; however customer
service level can be sacrificed. Similarly, a decentralised distribution strategy will
usually provide superior service levels to customers, however this is usually at a
higher inventory investment and total cost. A flexible distribution strategy, where
some products are held in a central stocking location and others are held in a
decentralised distribution network, may offer the best balance between service level
performance and cost.

For cost reasons, most companies are centralising inventory unless dictated by
customer service expectations (i.e. the lead-time gap). Inventory planning is also
being centralised and supported by integrated inventory management software.
Strategy Derivation to refine BOSCH
Logistic Systems (SOLUTION)
 

There are two major problems with existing BOSCH logistic systems, they are:

 Lead-time in international orders is too long and this can be minimised by

reorganising their logistic strategies.
 Small customers are normally unorganised in their ordering plan, which makes
BOSCH reluctant in keeping high stock level. This problem can be minimised by
approaching them to carefully plan their future orders by giving BOSCH an upfront
notice.

Strategy 1 Solution
Current BOSCH Worldwide Distribution Strategy

 
 

Suggested BOSCH Worldwide Distribution Strategy

            represent distribution centres in different countries / plants

This first strategy is designed to keep all international stock of each plant in a centralised
distribution centre/warehouse in the middle of each region. For example, China who
produced power tools will only keep the number required for local market and send the rest
of the stocks to Singapore as the main distribution centre for Asia Pacific region. This system
will reduce the amount required for goods to be transported within region.

Strategy 2 Solution
Approaching customers (especially small-medium size) to organise their sales / production
plans so that early preparation can be done. This requires careful analysis on market trend as
well as historical data. By allowing tolerance time, the lead-time can be minimised to
approximately half.

Current purchasing system by small to medium size of businesses

                                                                           
LEAD-TIME

ORDER                                                  ACTUAL TIME                   DELIVERY

                                                                                WHEN PRODUCT

IS NEEDED

With a careful plan, customers are expected to provide information on their order earlier than
what used to be happened. By letting BOSCH know earlier, they can prepare the order sooner
which in turn will bring the delivery time closer to the actual time when the product is
needed.

Suggested purchasing system by small to medium size of businesses

                                  LEAD-

TIME                                     DELIVERY

ORDER                                                                                                  ACTUAL TIME

                                                                                WHEN PRODUCT

IS NEEDED

Suggested example of flow diagram in Power Tools ordering in Australia

Figure 7

MAXIMUM OF

3 WEEKS!!!
 INSTANT

DELIVERY
CONFIMATI
DEPEND ON

 METHOD

INSTANT

INSTANT

INSTANT

INSTANT

5 DAYS
 1 DAY

INSTANT

INSTANT

START HERE
CUSTOMER RECEIVE
ORDER

BOSC
AUS

ACC
DEPT
BOSC
CHIN
 ACC
DEPT
ASIA-PACIFIC SING
WAREHOUSE

BOSCH AUSTRALIA

DISTRIBUTION CTR

CUSTOMER PLACED
ORDER
BOSCH AUSTRALIA

OUTBOUND WH

BOSCH CHINA

SALES DEPT
BOSCH AUST WH

STOCK CHECK
BOSCH AUSTRALIA

SALES DEPT

INSTANT
SOLUTION!!!

The most significant reduce lead-time is happened after moving the stock from any BOSCH
in Asia Pacific region to a centralised warehouse located in the middle of the region (i.e.
Singapore) and possibilities to deliver goods directly from warehouse in China straight to the
customers.

                  Path of GOODS MOVEMENT ordering power tools into

Australia from China

                  Path of INVOICING ordering power tools into Australia from
China

                  Other paths

Customer Responses on Proposal

Most of BOSCH customers are happy with the suggestion and they will try to prepare their
production / sales planning earlier giving BOSCH a little bit more extra time to prepare the
orders. They are however still expecting BOSCH being more flexible towards order variation
which may happen every now and then when they receive big projects. BOSCH Australia in
the other hand is tied-up with the production schedules from other countries / other BOSCH
plants and unable to change their production pattern for minor uncertain things.

Conclusion

Since the recent improvement of its logistic information system, BOSCH Australia has
developed high standards throughout its supply chain. BOSCH Australia learnt from its
parent company BOSCH Germany in developing and improving its production efficiency.
This efficiency is demanded as one of the most important business competitiveness
requirements.

Most of the transactions and information exchanges are done electronically and the only
possible improvement in their overall logistic system is through organising their delivery and
distribution strategies.

The quickest solutions that we can offer are establishing regional distribution centres to
shorten each region delivery time and organise the distribution strategies. This method is
expected to reduce most of delivery times however this increases the management complexity
in every production plants and the cost involve in delivering products from plants to its
regional distribution centres.
 

Another improvement required is further cooperation with small to medium size of customers
to plan their sales / production earlier to allow more tolerance for BOSCH to prepare /
produce the orders.

References

Robert Bosch Australia / Germany

Undisclosable internal sources

Sharifi, H., Zhang, Z., 1999, "A methodology for achieving agility in manufacturing
organizations: an introduction", International Journal of Production Economics.

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