Hyundai Motor Company: Supply Chain and Operations

Executive Summary

The transformation that Hyundai Motor Company has gone through, becoming one of the leaders of the automotive industry is partially attributed to the improvements in operations and supply chain of the company. The company implemented a hybrid production system in which there are various elements of other manufacturers production systems can be witnessed. The company adopted the Fordist model, which is an integrated single-site manufacturing production system developed by Ford Company, and additionally modified several elements from Toyota Production System (TPS) (Lansbury et al., 2007, Lee and Jo, 2007). A review of the current operations and supply chain of the company revealed that despite using many lean practices, the company is mainly relying on a push model, and accordingly there are many uncertainties and fluctuations in production conditions. It is suggested that the company refer to lean practices, one of which is the Just-in-Time (JIT) system, a method of reliance on suppliers for the availability of components and eliminating all forms of uncertainty and waste in production (Lansbury et al., 2007). It was identified that the reliance on the JIT system in the company is hindered through the lack of technical capabilities in suppliers. Thus, a plan is recommended for developing the technical capabilities of the suppliers of Hyundai Motor Company, utilizing which will enable using JIT processes in the company’s supply chain.

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Current Supply Chain and Operations in Hyundai Motor Company

The strategy used in Hyundai Motor Company (HMC) has gone through several transformations during its period of over 40 years (Lansbury et al., 2007, Lee and Jo, 2007). The production system strategy in the company was built on failures and successes that contributed to the company’s learning process (Wright et al., 2009). The model used in HMC can be seen through analyzing the evolution of Hyundai’s own production system (HPS), originally adopted emulating Toyota Production System (TPS), in which HPS modified TPS to adapt to its own unique case (Lee and Jo, 2007). Additionally, HPS also had elements from the Fordist model, prior to adopting some aspects of the lean systems (Kong and Allan, 2007). Thus, HPS can be generally described as a hybrid model that is adopted and modified from other production systems, currently having its own distinguishing characteristics. At the present time the main strategy used in HMC although can be differentiated based on the setting, in which it operates, it mainly revolves around low cost, high quality production.

The core of the supply chain strategy in cost reduction is achieved through improving coordination with suppliers. As of 2007, having close to 3,000 first and second-tier suppliers, the company focused on creating supplier hubs worldwide (Chandra and Grabis, 2007, Kong and Allan, 2007). Such element of Hyundai’s supply chain management saw the innovation in establishing a systemic network to interconnect manufacturing processes to “suppliers, sales dealers, and customers” (Lee and Jo, 2007). Using Toyota’s just-in-time, Hyundai managed to transfer to Order-to-Delivery (OTD) stage of production, a method of completing the business process in a week, in its aim to become lean and agile (Lee and Jo, 2007). The problem nevertheless, can be seen in the differing attributes through which HPS differs from TPS, in production management and production condition. Unlike Toyota and TPS, the company employed push, rather than pull production. “hourly plan-based process” along with management controlled by production, lead to low production numbers, as compared to Toyota, and high uncertainty and fluctuation (Lee and Jo, 2007).

The process type in the company can be characterized as batch processes, according to the differences in HPS. Relying on the push strategy, batch processes can be defined as higher volume job shops, in which repetitive methods are used to produce similar products and components (Boyer and Verma, 2010). The reliance on automation emphasizes the way the company had little worker involvement in the process and higher automation. The way the company managed low inventory is only due to “tight control exercised parts’ suppliers” (Lee and Jo, 2007).

In that regard, the movement toward being lean and responsive to markets demand, several changes can be implemented in the operations strategy of the company. The current system might require several modifications, specifically in terms shifting toward lean processes, combining with agile response in the supply chain, considering the total reliance on suppliers for the reduction of inventory.

Automotive Supply Chain
Automotive Supply Chain (Chandra and Grabis, 2007)

Agile and Lean Supply Chain

Defining agile supply chains it can be stated they are those which “activities are aligned as a response to certain changes in demand and preferences for differentiation (Machado and Duarte, 2010). The main emphasis, in that regard, can be seen through the reliance on market knowledge as one of the main characteristics of agility. The globalization in production approach taken by the company can be seen as an important factor supporting the reliance on agile supply chains. The methods developed by the company to coordinate production planning and scheduling, production-and-sales-control (P/SC) was based on scheduled cross-functional meetings and scheduling policies for coordination, in which responding to changes and informing all parties involved was a crucial factor (Hahn et al., 2000). It can be argued, however, that agile response, in which the company reacts to changes, should be combined with lean processes, as a way of mixing the paradigms in supply chain management. The main aim of combining lean and agile practices can be seen through reducing uncertainty, which was argued in Lee and Jo (2007) to be a distinguishing characteristic of HPS. A combined approach in a supply chain “leagile chain” was defined in Naylor et al (1997), cited in Mason-Jones, Naylor, and Towill (2000), as establishing a decoupling point between lean and agile practices to suit the needs of upstream and downstream demand.

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Combining notions in a supply chain implies that the coordination efforts in the HMC, evident through the establishment of suppliers’ hubs, and increasing information share, will be combined with lean processes. Identifying which principles can be applied relies on the areas in which uncertainty exists. According to B.H. Lee and H.J. Jo (2007), two sociology professors in Chung-Ang University and Ulsan University, South Korea, respectively, the areas of production condition can be seen as an area in which high uncertainty and fluctuation exists. One suggestion can be seen through building the technical capabilities of suppliers, so as to maintain a buffer against defects, which in turn will enable complete adoption of JIT and lean production. The latter will in increase the productivity of the company, reducing waste. The elements in which JIT can be applied in the Hyundai can be seen through focusing on reducing supplier-buyer cycle times, specifically targeting the development of the technical capabilities of suppliers (K.LIKER and Y.CHOI, 2006, Monczka, 2009).

Implementation Plan

Building the technical capabilities of suppliers can be implemented through three stages, which are building the suppliers’ problem solving skills, developing common lexicon, hone core suppliers innovation capabilities (K.LIKER and Y.CHOI, 2006). Additional aspect can be seen through focusing on second and third tier suppliers (Monczka, 2009).

All of the latter can be implemented through a guest engineer program, in which the suppliers will have training sessions that will increase their technical skills. Similar to Toyota, suppliers’ representative from different tiers, will be sent to the office of Hyundai, where they will work side by side with the company’s lead engineers. Additionally, training seminars will be conducted in order to increase the cooperation between different suppliers and vendors. The general plan of can be seen as follows:

  1. Building the technical capabilities of suppliers
    1. Identifying the scope and the objective of the training seminars and guest engineer programs (K.LIKER and Y.CHOI, 2006).
    2. Establishing the deadlines for the program.
    3. Start of the program.
    4. Evaluation.
    5. Conducting a training seminar.
    6. Evaluation.
  2. Implementing JIT
    1. Reducing supplier-buyer cycle time (Monczka, 2009).
  3. Integrating a leagile supply system.

The main aim in building the technical capabilities of suppliers will be in developing closer relationships. The tasks indicated in the aforementioned outline will be performed by an assigned team of engineers and managers who will identify the main objectives of the program. A suggested objective can be seen through forming a unified document that will contain the knowledge base, common terminology and lexicon, and specifications, that will be used in communications between the company and their suppliers (K.LIKER and Y.CHOI, 2006). In that regard, the document can serve as the foundation for future training sessions and /or when forming contracts with new suppliers.

The projected period for the plan is detemrin3ed to be 6 months after which a period of evaluation will follow. Accordingly, periodical monitoring and evaluation group will be established to assess the impact of the program. A few measurement criteria that can be used for evaluation are the productivity of the company, order-delivery time, costs of inventory, and others.

Reference List

Boyer, K. K. & Verma, R. 2010. Operations & Supply Chain Management for the 21st Century, Mason, Ohio, South-Western/Cengage Learning.

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Chandra, C. & Grabis, J. A. 2007. Supply Chain Configuration : Concepts, Solutions and Applications, New York, Springer.

Hahn, C. K., Duplaga, E. A. & Hartley, J. L. 2000. Supply-Chain Synchronization: Lessons From Hyundai Motor Company. Interfaces, 30, 32-45.

K.liker, J. & Y.choi, T. 2006. Building Deep Supplier Relationships. Harvard Business Review on Supply Chain Management. Web.

Kong and Allan. 2007. Learning From Supply Chains: Multiple Models in the Automotive Industry.

Lansbury, R. D., Hy*Ondae Chonghap Sangsa (Korea), S*O, C.-S. O. & KW*On, S. U.-H. 2007. The Global Korean Motor Industry : The Hyundai Motor Company’s Global Strategy, London ; New York, Routledge.

Lee, B. H. & Jo, H. J. 2007. The Mutation of the Toyota Production System: Adapting the Tps at Hyundai Motor Company. International Journal of Production Research, 45, 3665-3679.

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Machado, v. C. & Duarte, S. 2010. Tradeoffs Among Paradigms in Supply Chain Management. Proceedings of the 2010 International Conference on Industrial Engineering and Operations Management. Web.

Mason-Jones, R., Naylor, B. & Towill, D. R. 2000. Lean, Agile or Leagile? Matching Your Supply Chain to the Marketplace. International Journal of Production Research, 38, 4061-4070.

Monczka, R. M. 2009. Purchasing and Supply Chain Management, Mason, Oh, South-Western.

Wright, C., Chung-Sok, S. & Leggett, C. 2009. If at First You Don’t Succeed: Globalized Production and Organizational Learning at the Hyundai Motor Company. Asia Pacific Business Review, 15, 163-180.

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