Porsche Logistics: How Supply Chain Strategy Saved an Icon

Introduction

This paper examines logistics at Porsche in 1992, at the accession of Wendelin Wiedeking, who at the time of writing continues as Porsche's chairman. When Wiedeking moved up from his position as Manufacturing Manager, he inherited a company that was failing. His ability to use logistics to improve Porsche's profitability and quality offers lessons for the entire auto industry, and propelled him to become one of the most respected managers in Germany.

Porsche's stunning success depended on logistics within its plant and in its relationships with parts suppliers. The company's willingness to adopt Toyota's kanban system reduced overall manufacturing time and halved the man-hours required to produce its automobiles. Porsche's current challenges center on how to manage growth in production as logistics becomes increasingly complicated by the introduction of very different auto platforms, and on dealing with space constraints at its existing central manufacturing facility in Zuffenhausen.

Porsche has built quality automobiles in a suburb of Stuttgart since 1931. After the Second World War, Porsche developed the 356 automobile using parts largely sourced from Volkswagen. Only in 1963 did Porsche have the resources to develop its own in-house vehicle, the 911. Porsche remained a small manufacturer, with the 911 as the continuing mainstay of its sales and profits.

Background: Porsche Before 1992

Attempts to add more product lines succeeded only in losing money, losing focus, and alienating Porsche's hard-core 911 fans. The 912, 914, and 924 (later the 944), which were manufactured by Volkswagen, did not achieve the popularity of the iconic 911.

Porsche had made little progress on manufacturing efficiencies. Throughout the 1980s, Porsche prided itself on quality but saw a rising cost disadvantage compared to Japanese manufacturers. By 1992, it took 120 man-hours to build a 911 — substantially more than any other auto manufacturer. The main problem was parts: they were scattered throughout the warehouse and manufacturing floor.

Wiedeking brought in the Shin-Giujutsu group, a consulting firm comprised of former Toyota manufacturing managers (Nash 1996). One Shin-Giujutsu consultant, on studying Porsche's manufacturing in 1993, remarked: "This is not a factory, it is a warehouse."

Rather than simply recounting what actually happened at Porsche, this paper analyses what needed to be done using what is now common currency in logistics thinking. A modern consultant, steeped in current logistics theory, would have identified three major flaws in Porsche's logistical arrangements:

Projecting Modern Logistics Thinking onto Porsche

Inventory far in excess of what was needed. Porsche maintained a 30-day inventory of parts on hand, resulting in high sunk inventory costs and a very complex warehousing arrangement.

Dependence on in-house subassembly and parts creation. Rather than buying subassemblies and focusing on final assembly at the Zuffenhausen plant, Porsche's managers had accepted delivery of a large number of individual parts. These were then assembled off-line and installed on the vehicle during the final assembly operation.

The need for line workers to search for parts in the warehouse. The assembly line resembled a job shop rather than a continuously flowing operation, as workers were frequently required to leave the line to locate missing parts.

The auto industry has completely revamped its manufacturing methods. In previous years, smaller manufacturers such as Chrysler and BMW were forced to rely on their parts suppliers for R&D and the supply of completed subassemblies to the manufacturing line, since these companies could not afford the investment in vertical integration undertaken by Ford, GM, and Mercedes, among others.

Current Methods and Technology in the Auto Industry

From a position of cost disadvantage, Chrysler and BMW created a flexibility advantage. Their reliance on parts suppliers meant they could develop new models more quickly and keep down costs during model changeovers.

Part of this transformation has come from new computing tools. With each automobile order today, Porsche is able to pick parts in advance of the chassis moving down the assembly line, ensuring that parts arrive precisely when they are needed. Such precise control would not have been possible before the 1990s. This type of program goes by many names, but IBM refers to it as a "Dynamic Inventory Optimization System." Where implemented, it has allowed auto manufacturers to reduce inventory by 30–60% (IBM 2007). The results bring several key benefits:

First, a reduction in inventory reduces cash needs and increases return on assets. Second, just-in-time delivery of parts to the exact point of need reduces "search and find" time on the factory floor.

The second major logistical shift in the industry is the "focused factory" approach, which uses logistics to combine tightly intertwined subassembly suppliers with final-assembly manufacturers. As a result, non-core manufacturing functions — such as steering racks, exhaust assemblies, and even entire engine assemblies — have been bid out to focused factories (Skinner 1974). Although the focused factory concept was developed in 1974, the advent of modern logistics has made such specialization viable across a broad range of geographies.