TABLE OF CONTENTS

1. Dewan Farooque Motors 3

1.1 Introduction
1.2 Company Origin
1.3 Company Role

2. Supply Chan Management at DFML 4-6

2.1 Supply Chain Management
2.2 Aims & Objective of Supply Chain in DFML
2.3 Supply Chain Management Operation stages at DFML
2.4 DFML Material Management Cycle

3. Key Elements of DFML Supply Chain 7-9

3.1 Production Element
3.2 Inventory Element
3.3 Location Element
3.4 Transportation Element
3.5 Information Element

4. Participants in DFML 10-11

4.1 Cyclic View of DFML Participants
4.2 Supplier
4.3 Producer/Assembler
4.4 Dealer
4.5 Customer
4.6 Push/Pull View of DFML Supply Chain

5. DFML Drivers for Supply Chain Performance 12-13

5.1 A Framework for DFML supply Chain Drivers
5.2 Facilities
5.3 Inventory
5.4 Transportation
5.5 Information
5.6 Sourcing
5.7 Pricing

6. Demand Forecasting Techniques at DFML 14-16

6.1 Demand Forecasting
6.1.1 Demand Forecasting Pattern
6.1.2 Judgment Method
6.2 Material Requirement Planning (MRP)
6.3 Bill Of Material
6.4 Capacity Requirement Planning (CRP) & Strategies

7. Inventory Management at DFML 17-18

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 7.1 Material Department
7.2 Stores
7.3 Warehouses
7.4 Safety Stock

8. Just In Time Systems

8.1 Just In Time (JIT) at DFML 19-20

8.2 Bill of Material (BOM)

8.3 Economic Order Quantity (EOQ)
8.4 Bullwhip at DFML

1. Dewan Farooque Motors Limited (DFML)

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1.1 Introduction
Dewan Farooque Motors Limited is a supplementary of Dewan Mushtaq Group, one of the
country's leading business groups. Dewan is working under the Technical Licensing and
Exclusive Distributor agreements with Hyundai Motor Company .The Hyundai Kia Automotive
Group is South Korea's largest automobile manufacturer, the second largest automaker in Asia
after Toyota and the world's fifth largest automaker after Toyota, GM, Volkswagen and Ford as
of the end of 2009.

1.2 Company Origin

On December 25, 1998, Dewan Farooque Motors Limited entered into Technical Licensing
Agreement with Hyundai Motor Company of South Korea for assembling and manufacturing of
Hyundai vehicles in Pakistan. The project cost was approximately Rs. 1.8 billion financed on a
58:42 Debt to Equity ratio, with the assembly plant's installed capacity of 20,000 vehicles
annually in two shifts.

1.3 Company Role

Dewan Farooque Motors is one of the key players in the automobile industry of Pakistan offering
an impressive lineup of passenger cars and commercial vehicles. Its state-of-the-art plant has a
capacity of 10,000 vehicles per annum on single shift basis and is equipped with the latest
facilities, which includes CED (Electronic Dipping) paint system and robots.
DFML has a long-term vision and plans to expand activities gradually in the automobile
industry, i.e. the mother of engineering industry; as a number of other sectors of the economy
depend on it, directly or indirectly, for their income. Some of these sectors are engineering,
electronics, metal, rubber and plastic. The ultimate aim is to achieve 90% localization by 2015.
The company also imports and market "HYUNDAI" Commuter Vans, which are not being
manufactured in Pakistan. The sale of these vehicles is supported by complete after-sales service,
through a 3'S dealership network. The company has a total of 26 dealers nationwide.
An independent team of professionals in the areas of Marketing, Finance and Production are
working on the project. The vision of the group is to expand activities gradually in the
automobile industry with the introduction of a range of different vehicles. DFML has the
advantage of introducing a superior quality and cost competitive product to a market that was
dominated by Japanese manufacturers.

DFML Product Line

DFML offers a wide range of superior quality and cost competitive products to a market that was
dominated by Japanese manufacturers. Currently, DFML is assembling following products fully
at the assembly plant at Sajawal.

1. Hyundai Santro.
2. Hyundai Shehzore

1. Supply Chain Management in DFML

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2.1 Supply Chain Management
The design and management of seamless, value-added process across organizational boundaries
to in order to minimize total system cost.

2.2 Aims & Objectives of Supply Chain Management in DFML

The major aims of supply chain management at DFML are:
i. Reliability
ii. Responsiveness
iii. Flexibility
iv. Cost Reduction
v. Asset Management
vi. Quality

2.3 Supply Chain Operations Management Stages at DFML

Dewan Farooque Motors Limited generates revenue with the co-ordination of a large number of
departments, which are directly or indirectly connected, with the operations of the organization:

1. Demand Forecast: is prepared by the Marketing and Sales department, and is forwarded
to the Production Planning department.

2. BOM (Bill of Materials) and MPS (Master Production Schedule) are prepared by
Production Planning department in coordination with the Production department, and are
sent to Procurement department.

3. The Procurement department then queries the members of SVL (Standard Vendors' List)
for availability of materials and their prices; then

4. Purchase Requisition(s) is/are sent to respective vendor(s) after getting approval from the
Finance department.

5. Finally, upon arrival of the materials, samples of raw materials are taken from the
Materials Quarantine and are tested for 'quality standards'; if the materials are up to the
required standards, then they are sent to the Raw Materials Storeroom; or else, are
returned to the respective vendors.

6. When the Materials Requisition is sent from the production floor to the Materials
Management department; materials are issued from the Raw Materials Storeroom to the
production floor. When the product is produced, then again it is sent to the Finished
Goods Quarantine; samples are drawn from the finished goods and are tested for 'quality
standards'. If the finished goods are up to the required level of standards then they are
sent to the Finished Goods warehouse to be distributed; or else, 'batch failure' is reported
to the Production department and the concerned offices.
2.4 Supply Chain Operations Management Stages at DFML

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Takes
BOMDemand
Queries
Purchase
&
Marketing Master
Prod forRequisition
Production
Approved
Marketing
Marketing
Custome
FinanceForecasting
Price
ProcurementProd
Production & Schedule
Planning
&
&Procurement
Purchases
FinalMarketing
Procurement
Production&Raw
Planning
Finished Sales
SalesMaterials
&Material
Product
Vendors
Department
Department
Department
Department
Dept
Sales
Prod r
SalesDept
Dept
Dept

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2.5 DFML Material Management Cycle:

Procurement
Consumable
Warehousin
Consumable
Local
Assemblin
Produce
Processin
Storage
Custome
Local
CKD
Body
Store
Paint
Deale Parts
atof
Material
Material
Store
Shop
Store
Shop
Yard
rggsr

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1. Key Elements of DFML Supply Chain
Block diagram of key elements of Dewan Farooque Motors Limited (DFML) is:

Block Diagram of Key Elements of DFML

3.1 Production Element of DFML

Production element of Dewan Farooque Motors Limited is consisting of 2-Production line each
line consist of following:

a) Body shop (welding).

b) Paint shop (cleaning, and smoothing, coloring).
c) Assembly shop (assemble the whole car).

a) Body Shop
The Body Shop is equipped with the most modern welding equipment and automatic type jigs &
fixtures from Korea to produce highest quality vehicle bodies here.

b) Robotic Paint Shop

The plant has a state of the art Cathode Electro Deposition (EDC) paint shop from Shindurr. The
Cathode Electro Deposition (CED) System provides durability to the body and protection against
rust. The facility also includes high-speed integrated setup of Robots to provide paint quality.
This is the first automobile assembling plant in Pakistan with the state of art robotic equipment.
The use of robots results in the production of evenly sprayed, high gloss, defect-free and high
quality painted bodies.

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c) Assembly Shop & Inspection Line
Different parts and accessories are installed of fixed in the car body which include engine
assembly, wheel assembly, Fuel system, conditioning system and sound system etc.
The tester line, with high precision equipment is employed to test and adjust the vehicles in order
to ensure defect free and highest quality output. Exhaust gas analyzers are also used to ensure
that environment friendly automobiles are rolled-out from the factory.

3.2 Inventory Element of DFML

DFML has the facility of storing the inventory in the warehouses located at Karachi and
Sajawal and then stored in the CKD, Local store & consumable stores, while product are stored
in the yard located at Plant site. They have the inventory policy that material first comes at HQ
and then send to the plant site for the inventory storage. DFML stores 30% stock of the imports
as safety inventory.

3.3 Location Element of DFML

Plant Location
Location of Dewan Farooque Motors Limited has one of the most advanced automobile
assembly plants located in Sajawal, Thatta, 152 Kilometers from Karachi. The plant stands on a
40-hectare plot and has been built with an initial investment of more than Rs.1.8 billion. It has
facility of high standard of living accommodation for all categories of employees, the availability
of land for expansion of production facilities, and the in-house generation of electric power. It
has a production base of 10,000 units' p.a. on a single shift basis.

Warehouses Location
There are 2 warehouses. One is near the head office, which stored items for a temporary time
period, and the other is at Sajawal, which is the main. The inventory is stocked in the warehouse
for the usage of 2 to 3 months only. It controls the delivery of heavy parts by direct delivery to
Sajawal and the light parts are transferred from the head office after recording.

Stores Location
There are three types of stores located at DFML Sajawal for storing different types of parts.

(i) CKD Stores: It stores imported Parts. Mainly, parts of Engine and glasses are imported
from Korea. Company keeps 30% material stock of CKD items/ imports.

(ii) Local Parts Store: It stores Local parts purchased from local vendors like steel sheets,
rubber etc.

(iii) Consumable Store: It stores consumable items purchased. The Inventory control
department always keeps 200 units in hand as safety stocks.

3.4 Transportation Element of DFML

DFML needs transportation for the complete knockdown material/imported material from Korea,
for locally purchased materials, parts and accessories from the local vendor, internal

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transportation for the processing and assembling with the plant and delivery of the finished cars
to the dealers. DFML uses shipment mode of transportation for the imported items, for
transporting locally purchased goods and imported materials to the plant they use trucks, for
internal transportation they uses conveyors, belts, and trolleys, while for the transportation from
Plant to dealer they use Trucks and trailers.

3.5 Information Element of DFML

DFML using MRP (material resource planning) strategy through SAP (system application and
products in data processing. By SAP DFML controls:
– Development, production, sales, and distribution of products.
– Acquisition, operations, and compliance of production assets.
– Management of the production, logistics, and distribution network.
– Marketing, sales, production, and service for customers.
– Cost/performance optimized procurement, production, and operations.

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1. Participants in DFML Supply Chain
Following are the participants of DFML supply chain:

1. Suppliers.
2. Producer/Assembler (DFML).
3. Dealer.
4. Customer.

4.1 Cyclic View of DFML Participants

Cyclic view of DFML participants

4.2 Supplier
There are two types of suppliers for the Dewan Farooque Motors:

i) Local Suppliers: These are the suppliers with in the country provides different parts and
accessories required to be assembled in the car body.

ii) External Suppliers: These are the suppliers provides goods like car engine etc for the
assembling within the car body. These are outside of the country suppliers like Hyundai.

4.3 Producer/Assembler (DFML)

Dewan Farooque Motors role is like Assembler in the supply chain which assemble the part and
produces the finished product.

4.4 Dealers
Dealers are the intermediary between the DFML and end customers. Dealer’s purchases
finished cars from DFML and sales it to the end customers. There are 26 registered dealers of
DFML within the whole country.

4.5 Customers
Customers are the end user they purchases the product. All the activities in the supply chain are
made to fulfill the requirements and need this participant of supply chain and whole process is
carried to facilitate this.

4.6 Push/Pull Processes for the DFML Cyclic Supply Chain

Dewan Farooque motors cyclic supply chain has been divided in to Push/Pull Processes given
below. Procurement, Manufacturing and replenishment cycles are in the Push process, while
customer order cycle is in Pull process.

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 Push/Pull Processes for the DFML Cyclic Supply Chain

5. DFML Drivers of Supply Chain Performance

1. Facilities
2. Inventory
3. Transportation
4. Information
5. Sourcing
6. Pricing

5.1 A Framework for Structuring Drivers of DFML

A Framework for Structuring Drivers of DFML

5.2 Facilities
a. Places where inventory is stored, assembled, or fabricated.
b. Production sites and storage sites

DFML has well located plant at Sajawal, Thatta, Karachi head-offices, warehouse and show-
rooms give them a primary advantage to handle a verity of products. They have three shops i.e
Body shop, Paint shop and assembling shop where necessary processing is done and in assembly
shop accessories are assembled within the body of car.

5.3 Inventory
c. Raw materials, WIP, finished goods within a supply chain
d. Inventory policies.

DFML has the facility of storing the inventory in the warehouses located at Karachi and
Sajawal and then stored in the CKD, Local store & consumable stores, while product are stored
in the yard located at Plant site. They have the inventory policy that material first comes at HQ
and then send to the plant site for the inventory storage. DFML stores 30% stock of the imports
as safety inventory.

5.4 Transportation

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 e. Moving inventory from point to point in a supply chain
f. Combinations of transportation modes and routes

DFML needs transportation for the complete knockdown material/imported material from Korea,
for locally purchased materials, parts and accessories from the local vendor, internal
transportation for the processing and assembling with the plant and delivery of the finished cars
to the dealers. DFML uses shipment mode of transportation for the imported items, for
transporting locally purchased goods and imported materials to the plant they use trucks, for
internal transportation they uses conveyors, belts, and trolleys, while for the transportation from
Plant to dealer they use Trucks and trailers.

5.5 Information
g. Data and analysis regarding inventory, transportation, facilities throughout the supply chain
h. Potentially the biggest driver of supply chain performance.

DFML using MRP (material resource planning) strategy through SAP (system application and
products in data processing. By SAP DFML controls:
– Development, production, sales, and distribution of products.
– Acquisition, operations, and compliance of production assets.
– Management of the production, logistics, and distribution network.
– Marketing, sales, production, and service for customers.
– Cost/performance optimized procurement, production, and operations.

5.6 Sourcing
a. Functions a firm performs and functions that are outsourced.

Dewan Farooque Motors has fully assembling facility of the finished part at the plant. They have
their own trucks for the transportation. By some suppliers they deal to supply material at their
ware house at Karachi and CKD material shipment is outsourced.

5.7 Pricing
b. Price associated with goods and services provided by a firm to the supply chain.

DFML is very much concerned about the price of Raw Material purchased from outside of the
country or within the country. DFML is very well of it and know that if the price of any good or
part or assembly increases, ultimately their price of output finished car will increase and will
make difficult to compete in the market so sales and procurement dept keep active on it.

6. Demand Forecasting Techniques at DFML

6.1 Demand Forecasting
It's the predication of future events used for planning purpose. It needs to aid in determining
what resources are needed, scheduling existing resources, acquiring the additional resources. It
allows schedules to the machine capacity efficiently reduce production time & cut inventories.
Its methods may base on model using historical data available, quantities methods drawing on
managerial experiences or a combination of both.

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6.1.1 Demand Forecasting Pattern (PULL Supply Chain Strategy)
According to the dealers and the sales & marketing department of the Dewan Farooque Motors
Ltd the demand pattern of the cars is random or un-forecast able variation in demand they said
that they are manufactured cars according to the demand but it is not necessary that the demand
of current month is same as the demand of next or previous month. It is un-forecast-able not
conform that in which month the demand is high & in which its low.

Customer Order Cycle

PULL STRATEGY

Executed in the Response of Customer

6.1.2 Judgment Method

Judgment methods can be used to modify forecasts generated by quantitative methods. Dewan
Farooque Motors are using marketing research method. Market research is a systematic approach
to determine consumer interest in a product or service by creating and testing hypotheses through
data-gathering surveys. DFML have a separate department of research & development. And after
analysis the features of demand they plan annually that how many cars are been manufactured.

6.2 Material Requirements Planning (MRP)

Material requirement planning (MRP) at Dewan Farooque Motors Limited is carried out through
SAP (System application and products in data processing) By SAP DFML controls:
– Development, production, sales, and distribution of products.
– Acquisition, operations, and compliance of production assets.
– Management of the production, logistics, and distribution network.
– Marketing, sales, production, and service for customers.
– Cost/performance optimized procurement, production, and operations.

MRP controls acquisition, storage, assembling, storage and distribution. The cycle begins with
the purchase of materials or services from outside suppliers. Materials are stored and then
converted into goods or services by one or more transformation processes. Manufacturers store
semi finished and finished goods and finally distribute the finished products to customers.
Materials management decisions have short time horizons and therefore are more tactical then
strategic. However, they have a major cumulative effect and thus attract considerable managerial
attention. Tactical decisions about materials are important for two reasons.
The entire departments within the organization are inter-connected with each other by SAP. All

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inventories are controlled through SAP. Required material or accessories balance in stock and
availability and consumption etc can be checked and demand through software. A software
system has been connected for the coordination between the production, store and procurement
departments in the DFML.

6.3 Bill of Materials (BOM) at DFML

Bill of materials (BOM) is the term used to describe the "parts list" of components needed to
complete Finished Goods (end-item). A bill of material is a formally structured list for a ‘father
item’ or factory made item (semi-finished or subassembly or finished) which lists all the
component parts of the father item with the name, quantity, and unit of measure of each
component, called ‘child item’ in ERP.
In DFML BOM used for MRP or Material Requirement Planning. To compute the shortage
quantity the BOM is exploded automatically by ERP software to list the item/s required to be
purchased to fulfill a given sales order. This MRP report, in turn will help purchase officer to
procure items. BOM master is also helpful in keeping track of revision numbers or engineering
changes, called R number. This R number is also reflected on the work orders etc. to help user.

6.4 Capacity Requirement Planning and Strategies

6.41 Capacity Requirements Planning
Capacity requirements planning is a computerized tool that is used to determine the capacity to
help the alleviate bottlenecks and to help identify potential problems before they occur.

Measures of Capacity
Capacity is the amount of work that can be done a period of time.
Capacity= Available time x Utilization x Efficiency.

Utilization Rate
Utilization at DFML is calculated as the number of customers entertained per showroom or
number of order per month.
Utilization = (Average Output Rate / Maximum Capacity) X 100
= (150/ 150) X 100= 100%

Calculation for Average Output Rate

Total Number of units assembled in a year = 1,800 units/year.
Average output per month = 1800 / 12 = 150 units.
Total Number of Showrooms in Pakistan = 22.
Maximum Capacity = 150 safety stock per month.

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 1. Inventory Management At DFML
The inventory management is segmented into 3 categories:
1) Material departments
2) Stores
3) Warehouses

7.1 Material Department

Material department consist of:

i) Complete Knock Down (CKD)/Import Department.

ii) Local Parts Department.
iii) Consumable parts Department.

i) Complete Knock Down (CKD)/Import Department

CKD (Completely Knock Down) is the main department where only the imported parts are
stored. The order of the parts is placed on internet and the further dealing is done through
documentation and the further issues are resolved in personal meetings. The order for the parts is
placed according to the production of cars to be made in the next following month instead of
ordering parts annually or on estimate basis. The ordered parts are received at Karachi port and
transferred directly to the main assembly plant located at SAJAWAL.

ii) Local Parts Department

Department purchases the parts locally from the local vendors. It control the delivery of heavy
parts by direct delivery to SAJAWAL and the light parts are transferred from the head office
after recording. Payments of the delivered parts are made within 30 to 40 days after PDI (pre-
delivery inspection).

iii) Consumable parts Department

Department Purchases the consumer goods like Greece, oil, battery water, break oil, coolant, etc.
The company first schedules the items, and then takes a follow-up with the vendors. The
company then pays the outstanding amount to the vendors after checking the quality of the goods
purchased.

7.2 Stores
There are three types of stores at DFML for storing different types of parts.

i) CKD Stores:
It stores imported Parts. Mainly, parts of Engine and glasses are imported from Korea.
Company keeps 30% material stock of CKD items/imports.

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ii) Local Parts Store
It stores Local parts purchased from local vendors like steel sheets, rubber ets.

iii) Consumable Store

It stores consumable items purchased. The Inventory control department always keeps 200
units in hand as safety stocks.

7.3 Warehouses:
There are 2 warehouses. One is near the head office, which stored items for a temporary time
period, and the other is at Sajawal, which is the main. The parts are identified by its label and the
shelves have tags on them where the item code, item name, store code and rake no is written
down on each tag. The inventory is stocked in the warehouse for the usage of 2 to 3 months only.

7.4 Safety stock

To avoid CKD delays and robbing, DFML manages to store at least 1 month's safety stock for
continuous production. Cost does increase but not more than the cost burden due to plant
inactivity. Moreover, by continuous production, they ensure shorter delivery times.

7.4.1 Setting Stock Levels

One major objective of capacity control department is to ensure that "stock-out" does not occur,
and that "surplus" stocks are not carried. Stock-out occurs because insufficient stocks are carried;
this may lead to production stoppage and hence loss of customer goodwill. Surplus stock results
in increased storage costs, and also ties up capital which could be utilized more profitability in
other projects. On the other hand the working capital of the company tends to increase. The stock
levels to be properly determined the company maintain strict figurative policies relating to the
Re-Order Level, Minimum Level and the Maximum Stock Level.

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8. Just-in-Time (JIT) Systems
Just in Time, or JIT is a set of techniques to improve the return on investment of a business by
reducing in-process inventory, and its associated costs. JIT causes dramatic improvements in a
manufacturing organization's return on investment, quality, and efficiency.

8.1 Just in Time at DFML

At DFML there is no use of JIT but in future their mission is to test this kind of approach & if it
is suitable then implement it permanently.

8.2 Bill of Materials (BOM) at DFML

Bill of materials (BOM) is the term used to describe the "parts list" of components needed to
complete Finished Goods (end-item). A bill of material is a formally structured list for a ‘father
item’ or factory made item (semi-finished or subassembly or finished) which lists all the
component parts of the father item with the name, quantity, and unit of measure of each
component, called ‘child item’ in ERP.
In DFML BOM used for MRP or Material Requirement Planning. To compute the shortage
quantity the BOM is exploded automatically by ERP software to list the item/s required to be
purchased to fulfill a given sales order. This MRP report, in turn will help purchase officer to
procure items. BOM master is also helpful in keeping track of revision numbers or engineering
changes, called R number. This R number is also reflected on the work orders etc. to help user.

8.3 Economic Order Quantity (EOQ)

Given the cost structure of a company, there is an order quantity that is the most cost effective
amount to purchase at a time. This is called the economic order quantity (EOQ).
There is a trade-off between lot size and inventory level.
• Frequent orders (small lot size): higher ordering cost and lower holding cost.
• Fewer orders (large lot size): lower ordering cost and higher holding cost.
• EOQ = (square root of 2UO / hC)
• where:
• U = annual usage rate
• O = ordering cost
• C = cost per unit
• h = holding cost per year as a percentage of unit cost.

DFML tries to control its minimum inventory level with a lot size of 30 parts for CKD. The
pricing of material is also kept in the mind for the EOQ control.

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8.4 Bullwhip Effect at DFML

Bullwhip Effect
The ordering patterns share a common recurring theme: The variability of an upstream site are
always greater than those of the downstream site.
Bullwhip effect is the variation in the demand due to the any member within the supply chain,
due to which company production or sales effects.

Causes of “Bullwhip” Effect at DFML

1. Demand Forecast updating
2. Order dating
3. Price Fluctuation
4. Rationing and shortage Gaming

Counteract the Bullwhip at DFML

1. Avoid multiple demand forecast update.
2. Break order batches.
3. Stabilize prices.
4. Eliminate Gaming in Shortage Situations

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