Improving supply chain responsiveness for diesel engine remanufacturing

Thesis (M.B.A.)--Massachusetts Institute of Technology, Sloan School of Management; and, (S.M.)--Massachusetts Institute of Technology, Engineering Systems Division; in conjunction with the Leaders for Global Operations Program at MIT, 2011.Cataloged from PDF version of thesis.Includes bibliographical references (p. 71).Achieving a significant reduction in order-to-shipment lead-time of remanufactured diesel engines can dramatically decrease the amount of finished goods inventory that Caterpillar needs to carry in order to meet its delivery commitments to Cat dealers around the globe. This project was launched to devise ways to hold less finished goods by reducing the order-to shipment lead time for diesel engines. To achieve this goal, a team was formed with representatives of all business units involved in the supply chain. Following the first three steps of a DMAIC methodology, the team used the following techniques and made the consequent findings: (1) Define: using Value Stream Mapping, a first-ever value stream map of the supply chain was developed. This identified gaps and focused efforts on key areas. (2) Measure: using statistical lead time analysis, a Monte Carlo simulation was performed to estimate order-to-shipment lead times for the baseline and optimized scenarios of a build-to-order scheme. This identified an opportunity to reduce lead times by increasing parts inventory. (3) Analyze: an inventory model was developed to quantify the economic implications of reducing lead time by increasing inventories. The results were compared to the savings of holding less finished goods to find out the best lead time reduction scenario. Results show that holding inventories as spare parts to enable a build-to-order strategy is less costly than relying on a build-to-stock strategy, but there is a point of diminishing returns. Our research has shown that having all business units collaborate in the process of overhauling the supply chain is key when looking for results that are optimal for the enterprise as a whole. It has also been observed that, if left unattended, a supply chain can be shaped by decisions that, at best, manage to achieve only local optima. In the worst case, the whole supply chain may evolve into a system that has little to do with the company's strategic goals. These observations highlight the need, and support the recommendation, to have a "process owner" who is responsible for coordinating efforts across the supply chain.by Diego A. Méndez de la Luz.S.M.M.B.A