SUPPLY CHAIN INTEGRATION WITH DEMAND DRIVEN MATERIAL REQUIREMENTS PLANNING SYSTEM - Case: Wärtsilä 4-Stroke

Abstract

This study investigates how the case company Wärtsilä 4-Stroke could implement in its supply chain new material management system called as demand driven material requirements planning (DDMRP). The previous DDMRP literature is focused on single company implementations where benchmark company LeTourneau Inc. have been capable to increase its return on invested capital from 4% to 22% in four years by taking the DDMRP in use. This study aims to investigate how the DDMRP system could be extended for controlling also the supplier network since the production of Wärtsilä 4-stroke products is performed into great extent by external suppliers.

Previous supply chain studies show that supply chain synchronization leads to lower inventory levels and improved responsiveness. This study strives to investigate if the case company could achieve similar results by integrating its supply chain with the DDMRP. The investigation is performed by using supply chains of three example case components supplied to the Vaasa factory located in Finland.

First part of the research results is dedicated on illustrating the DDMRP system for three example cases. Second part shows how the implementation could be done in collaboration with suppliers. In the first part is shown calculated results how, with the DDMRP integrated supply chain, the total inventory holding of first example could be reduced by 47%, which would mean 809 000 euros reduction in working capital. At the same time the responsiveness could be improved by having shorter component delivery lead time. For two remaining example cases the total inventory reduction potential should be investigated with the suppliers in collaborative DDMRP implementation project. The second part of results presents a project proposal how such collaborative DDMRP implementation project could be performed. Objective of the project would be to create integrated supply chain which purpose would be to improve profitability, reduce total inventories and improve supply chain responsiveness.