Navistar International Corporation, formerly known as International Harvester Company, is a U.S. based holding company that owns the manufacturer of International brand commercial trucks. It is located in Warrenville, Illinois, with about 500 employees and revenues of almost $10 billion. Through a network of about 1,000 dealer outlets in North and South/Central America, and more than 90 global countries, it sells parts and contracts for services for large truck machinery. Most recently, the company has moved into financing for its customers and distributors, adding that niche to its marketing base (Navistar.com). The company has been vociferously criticized for spending over $6 million on lobby and not paying corporate taxes from 2008-10, instead receiving over $18 million in tax rebates -- all the while making a profit of almost $900 million and increasing executive pay by over 80% (Portero, 2011).
Trimco is a supplier to Navistar of kits that complete the final assembly of their products. There is an unacceptable margin of error in these kits resulting from various inefficiencies and lack of training at Trimco; lack of communication between Navistar and Trimco; and a clear lack of appropriate levels of quality control in both organizations. Changing the logistics and supply chain communication via technology is recommended, as are serious tactical and strategic discussions and implementation of a Lean Six Sigma chain of production and manufacturing protocols.
Issues Identification - One of the maxims of the company culture has been quality improvement, something that has taken literally decades to refine. The three basic tasks that the company has promoted for the last several decades are: 1) Establish the set requirements expected from employees; 2) Supply the knowledge and training that everyone in the company needs to ensure #1 is met; 3) Spend managerial time, focus, and expertise encouraging and empowering employees to meet the necessary requirements.
Despite several years of major Quality Improvement Initiatives, in June 1997 company managers identified a serious quality issue that was affecting delivery and production of several of its lines. Essentially, the Chantham assemblers were not consistently able to assemble interior trim into truck cabs because of missing, broken, or inappropriate parts. The interior trim includes floor paneling, mats, carpeting, handles, and panels. External trim includes reflectors, horns, lights, door handles, bumper trim and much of the chrome we see on a finished vehicle. Given the customization of the orders that the company serves, quality or procurement issues are can be quite serious.
Previous studies had the company providing premade "kits" for specific trucks, ostensibly with all the parts necessary to complete each unit. These kits include up to 26 individual parts with a direct material cost of approximately $600-800. In reminiscence to Henry Ford's assembly plant, these kits were moved through an assembly line in what is known as a caboose, or a container for trim kits that travel in front of each specific truck.
The tactical issues are rather easy to identify in general, much harder to delineate:
Inability to find or use parts in the caboose
Slowing down of the line due to reordering or parts
Extra time and money in material handling, post-assembly installation, and human resource management
A delay in the delivery of some of the units, since the issues with the caboose varied greatly (Schiele, 1998).
Essentially, these delays and errors are costing the company over $200,000 per annum in hard costs; delays of anywhere from hours to days, timing of transportation, and the ability for the company to even perform at a marginally acceptable customer satisfaction rate.
Environmental and Root Cause Analysis -- Of course, there is never a single, or easy, answer to logistical and supply challenges. In this case, Navistar contracts out over 450 trim parts to a Trimco Industries. Trimco supplies to the Chatham and Springfield plants, making the total yearly part delivery to exceed 400,000. The error margin on these parts is about 3,100 (defective, missing certain components, or inappropriately made for installation). This results in an error ratio of 7.7%, certainly way too high for a company of this level expertise.
Investigation of this issue found that the level of Trimco's automation and quality control procedures was mixed, at best. Some of the custom parts actually required a significant portion of manual labor -- cut and sew processes. In addition, Trimco's QC procedures varied depending on the shift, production techniques, and specific part ordered. Essentially, due to a lack of centralization and primitive computer systems, Trimco had a great deal of difficulty in accurately monitoring outgoing parts -- to the point of sometimes sending shipments out with inappropriate parts or insufficient quantities of certain critical parts. There was actually no consistency in errors; one day it might be truck panels, one day it might be chrome -- the frustration was the inability to actually track a longitudinal set of error data. Further investigation found that one of the major issues at Trimco was a high level of employee turnover and thus difficulty in maintaining a certain level of expertise and training levels. Thus, Trimco employees were not only unable to handle Navistar's design changes that might include repositioning of trim parts, size/location of certain parts, or even color and material changes. There was a significant lack of coordination between Navistar and Trimco, and then Trimco and its current staff. Even though both organizations used a JIT (Just in Time) inventory system, it still took time between orders and delivery to fix problems and issues -- up to 5 days from the Trimco Plant to Navistar's Chantham location.
Alternatives and Options- There are both strategic and tactical issues surrounding the difficulties between Trimco and Navistar. From a strategic standpoint, Navistar often changes product specifications without adequately notifying Trimco. However, Trimco's production of the appropriate kits can only be called "sloppy."
There were actually seven major categories on the trim issue that were significant between Trimco and Navistar:
Missing Parts -- Shortages of materials for parts at Trimco, mistakes from Trimco employees; kits are shipped incomplete.
Defective Parts -- QC issues with Trimco, quality problems undetected or ignored; parts had to be scrapped or returned to Trimco for replacement, enhancing delays.
Damaged Parts -- Again, sloppiness at Trimco, some kits contained parts that were damaged to the point they could not be installed; sometimes the damage occurred during manufacturing, sometimes during delivery, often it seemed due to improper packaging and, sometimes, at Navistar in storage.
Incorrectly Punched Parts -- Despite having a template, often parts from Trimco were not punched properly and would not fit into truck interiors; sometimes, too, changes in design made by Navistar were not appropriately conveyed to Trimco, resulting in products being sent for an older, or incorrect batch.
Incorrect Specifications -- There was a considerable lack of communication between the engineering department at Navistar with last-minute product changes and the appropriate departments at Trimco. Navistar had to retool these parts and were often unable to make them work.
Incorrectly Sent Parts -- Due to the large employee turnover at Trimco, there was no real consistency in what Trimco employees would pick for the kits. Colors were often mixed, two right doors instead of a right/left combo, or even the kits including several different model numbers rather than a single unit. This resulted in Navistar reordering "pieces," and then waiting for the correct units to arrive. Tim was then required to hunt for the missing kits, match up appropriate parts, and hope that the right assembly products were on the line that day.
Robbed Parts -- Often kits were robbed to make full kits, then the incomplete kits haphazardly stores to the point that few at Navistar could find the correct parts, match them up, and retain them for the appropriate line needs.
There are a number of both strategic and tactical options that could be made to ensure a better fit between the two organizations. The preference, of course, would be to retain Trimco because of their past expertise and working relationship, however, in order for that to happen there are both strategic and tactical issues that need to take place within the organization. Similarly, Navistar can only blame so much on Trimco; if they are miscommunicating specifications, failing to deliver needed documents, storing products incorrectly, and even making it impossible for installers to find complete kits; there is then a communications breakdown in Navistar as well.
Procedure to delivery appropriate specifications to Trimco
Procedure flowchart designed to ensure that any product changes get to the right people at the right time.
Trimco cannot produce correct parts without correct specs. Navistar needs to ensure that all its responsibilities are handled.
To get a true idea of the problem, stop robbing of kits.
Consider charging back delays to Trimco by deducting downtime from invoices.
There are really no consequences in place at present; nor impetus for Trimco to improve its deliverables.
Are procedures in place for ordering and monitoring exact kits?