Example: Automotive component purchasing

[Bob Haugen <linkage@interaccess.com>]

This example (the first I have written up) is pretty sketchy -
no actual case data.  I realized after I wrote my introductory list,
that it would be better to be broad (get a bunch of examples
sketched out) rather than deep (fill in all the blanks) at first.
Also that many other ebXML members will be better at
filling in details than I.  Detail suggestions can be sent
directly to my email address rather than the list, and
I will update the examples. Corrections etc. should
probably be sent to this list for further comment.

-Bob Haugen
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Automotive supply chain business relationships have been refined
over many years and are among the most codified of any industry.
Other assembly line industries often follow (or re-invent) 
automotive practices (e.g. appliances).

Auto practices are codified by the AIAG (Automotive Industry
Action Group). http://www.aiag.org/

Many of the following statements come from AIAG documents.
Credit for compiling them goes to Susan Zaffarano of Oracle
and Sally Fuger of Ford.  (Susan, Sally, please correct me
if I garbled anything.)

Automobile supply chains are (of course) led by the automobile
manufacturing companies.

1. Contracts:
The purchasing process starts with contracts for components,
negotiated between the auto companies and their direct component
suppliers, generally spanning a year.
All the rest of the extended process is governed by the contract.

2. Planning Schedules, AKA forecasts:
"The [X12] 830 Planning Schedule with Release Capability, commonly called the
Material Release, communicates requirement information to a supplier on a
regular basis, for example, weekly.  Forecasting should include at least
the minimum amount of the lead time required for each part.  Horizon
dates are included which specify the date range of the planning period.
The basic assumption of requirements forecasting is that a purchase
order exists which describtes the contractual agreement between the
buyer and the supplier.  The purchase order type normally used is a
blanket purchase order."

2.a. Stages or degrees of commitment:
A feature of the auto component purchasing process is 
a series of step-wise escalating commitments.
The Planning Schedule long-term forecasts have no associated
commitments; they are for information only.
The next (mid-term) horizon gives the supplier authorization
to purchase materials, and the auto company is obligated to
pay for materials purchased even if the schedule is cancelled.
The next (shorter-term) horizon gives the supplier authorization
to fabricate the components, and the auto company is obligated
to pay the full cost even if the schedule is cancelled.
The next stage is delivery schedules, or some other authorization
to ship the components.

3. Shipments: can follow "push" (delivery schedule) or "pull" (practices. 
Sequencing is a further refinement of pull practices.

"from the draft DELJIT: [edifact]:
The requirements-based process, also known as Push or MRP, is the most
prevalent manner of ordering product and is based on forecasted production
needs. Customers? MRP (Material Resource Planning) systems calculate
production plans based on orders they must fill, production lead-time, and
current stock on-hand. This information is used to create a planning
schedule or DELFOR. When demand dictates a need for material, the customer
sends the supplier a message to convey the precise shipping or delivery
requirements."

3.a. Delivery Schedules:
"[X12] 862 Shipping Schedule
The 862 shipping schedule transaction set provides specific shipping and
delivery information for a previous planning schedule transaction.  This
transaction set provides a mechanism to issue precise shipping schedule
requirements on a more frequent basis than by issue a Planning Schedule
transaction set."

3.b. JIT practices:
"When the message is used in a consumption-based (pull, Kanban)
environment:
The consumption-based process is a Just-in-Time closed loop technique based
on replenishment instead of forecasting. When the customer consumes
material, often a standard pack, the event can be signaled from the buyer to
the supplier by a DELJIT [Edifact] message. The DELJIT must be combined with a
longer-term planning schedule, the DELFOR message. This consumption-based
environment is also known as Pull or Kanban.

"A pull signal or kanban number is required in the data to track material
information.  When the Ship To location receives the material, information
related to this pull signal may be used to log receipt and start the payment
process. When the material is consumed, a new signal is triggered for
replenishment."

3.c. The In-Sequence Process

"In-line sequencing is a method of scheduling material (usually built-up
assemblies) in a predetermined sequence, with a calculated lead time which
ensures that material arrives at the time and place of its use in the
assembly process.  When the DELJIT is used to support this business process,
it is a short-term delivery instruction and must be used with a longer-term
planning method, specifically the DELFOR.  The supplier is expected to
prepare shipments in such a way that when the means of transport is unloaded
the components are sorted according to the sequence defined in the message,
either by a sequence number or by date-time."

4. "Recommended Practices:
If you operate in a Just-In -Time manufacturing environment which
requires your trading partners to ship on a frequent basis, you should
use the 830 Planning Schedule with Release Capability to transmit
planning information only and use the 862 Shipping Schedule to transmit
precise shipping requirements.

"If your business practice is such that you have very stable
requirements and run large batches at a time, so that your suppliers ship
either infrequently or ship at known intervals with very little variability,
then you may choose to let the material release (830 or DELFOR) serve for
both planning and shipping authorization."

5. "Transaction Set Relationships:
The Material Release Issuer, Supplier or Ship From, and Ship To
information transmitted in the 830 must match that in the 862 and the
856(ASN)"

"The quantities transmitted in the 862 should be within the horizon
established by the 830."