Contents

1.0 1.1 2.0 2.1 2.2 2.3 3.0 3.1 3.2 3.3 3.4 INTRODUCTION ........................................................................................................................... 3 AIMS AND OBJECTIVES............................................................................................................ 4 LOGISTICS & SUPPLY CHAIN CONCEPT........................................................................................ 5 INFORMATION REQUIREMENTS WITHIN THE SUPPLY CHAIN ................................................ 5 PUSH PULL STRATEGY .......................................................................................................... 6 QUALITY MANGEMENT TECHNIQUES ..................................................................................... 6 WHAT IS THE SINGLE EUROPEAN MARET? ................................................................................. 8 THE GOAL OF THE UNITED EUROPE ........................................................................................ 8 BENEFITS OF THE SINGLE MARKET ......................................................................................... 9 DISADVANATAGES OF THE SINGLE MARKET......................................................................... 10 THE EFFECTS OF THE SINGLE EUROPEAN MARKET ON A COMPANYS SUPPLY CHAIN ....... 11 SUPPLIERS AND SUPPLY CHAIN ..................................................................................... 12 ENVIRONMENTAL FACTORS AFFECTING SUPPLY CHAIN .............................................. 13

3.4.1 3.4.2 3.5 4.0 4.1 4.2

SUMMARY OF THE SINGLE EUROPEAN MARKET (SEM) ....................................................... 14 CASE STUDY OF FIAT SPA .......................................................................................................... 15 HISTORY AND BACKGROUND ................................................................................................ 15 FIAT SUPPLY CHAIN SYSTEM BEFORE 1993........................................................................... 16 SERVICE LEVELS ............................................................................................................. 16 SALES AND DISTRIBUTION............................................................................................. 17 LOGISTICS PROCESS/STRATEGY .................................................................................... 17

4.2.1 4.2.2 4.2.3 4.3

FIAT SUPPLY CHAIN SYSTEM AFTER 1993 ............................................................................. 18 SERVICE LEVELS ............................................................................................................. 19 SUPPLIER DEVELOPMENT ............................................................................................. 19 PRODUCTION AND DISTRIBUTION ................................................................................ 19 LEAN PRODUCTION DEVELOPMENT WITH DEALERSHIPS ............................................. 20

4.3.1 4.3.2 4.3.3 4.3.4 4.4

SWOT ANALYSIS OF FIAT ....................................................................................................... 21 STRENGTHS ................................................................................................................... 21 WEAKNESSES ................................................................................................................. 21 OPPURTUNITIES ............................................................................................................ 22 THREATS ........................................................................................................................ 22

4.4.1 4.4.2 4.4.3 4.4.4 4.5

PORTERS VALUE CHAIN......................................................................................................... 24 PRIMARY ACTIVITIES ..................................................................................................... 24

4.5.1 1|Page

4.5.2 4.6

SUPPORT ACTIVITIES: .................................................................................................... 25

PORTERS FIVE FORCES .......................................................................................................... 26 ENTRY BARRIERS HIGH ............................................................................................... 26 POWER OF BUYERS HIGH ........................................................................................... 26 POWER OF SUPPLIERS MEDIUM ................................................................................ 27 THREAT OF SUBSTITUTES - HIGH .................................................................................. 27 DEGREE OF RIVALRY - HIGH .......................................................................................... 27

4.6.1 4.6.2 4.6.3 4.6.4 4.6.5

5.0 CONCLUSION ................................................................................................................................... 28 6.0 RECOMMENDATIONS................................................................................................................ 29

7.0 APPENDICES .................................................................................................................................... 30 8.0 REFERENCES .................................................................................................................................... 31

WORD COUNT: EXCLUDING TABLES, DIAGRAMS, TITLES, HEADINGS, CONTENTS PAGE, COVER PAGE AND EXECUTIVE SUMMARY 7,381

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1.0

INTRODUCTION

The ever increasing importance of logistics is evident in todays world of commerce, however how much of this is due to the changes brought about at the end of 1992 when the EC became a single market ad what did this mean to organisations? So what is Logistics and supply chain management? What role does it play within the organisation? The Council of Supply Chain Management Professionals (CSCMP), one of the leading professional organisations for logistics personnel define logistics management as: Logistics management is a process of supply chain management that plans, implements, and controls the efficient, effective forward and reverse flow of storage of goods, services and related information between the point of origin and the point of consumption in order to meet consumer requirements. Grant et al. (2006)

In the period just before the Single European Act was to be put in place, organisations were moving inexorably towards capturing the advantages of the single European market, which was scheduled to be in place by the end of 1992. Forward looking chief executive officers were already taking steps to implement the strategic, organisational and operational adjustments necessary to improve corporate economic performance, add value to customers and, thus, to capitalise on the opportunities presented by 1992 driven changes. The Single European Market was created to reduce barriers of trade within Europe. It was designed to allow for a vast legislative programme involving the adoption of hundreds of directives and regulations with regards to controlling companies operations within Europe. The Single European Market (SEM) was seen to most companies as a great opportunity as well as potential threat which could require companies to source new methods of operations. These regulations however were put into place in order for countries to recognise each others transportation requirements thus bypassing non-tariff barriers. Organisations were facing increasing competition in 80s and 90s; they were in a position where they were forced to cut costs internally. The SEM allowed them to do this through the use of supply chain and logistics. Not only were costs cut through decreased trade barriers but it also allowed them to reach more consumers and enter new markets to trade within. It allowed freedom of movement of all factors of production, land, enterprise, capital and labour, which was managed by the standardised laws and regulations. The creation of the single market allows for intense competition 3|Page

amongst firms within their industry, thus inevitably forcing out the inefficient companies and allowing efficient companies to capture economies of scale and other benefits such as meeting consumer demands etc. This report looks at Logistics Supply Chain Management within the EU, how the single EU market has advanced or worsened its processes by looking at a case study of Fiat S.p.A. The research proposal will use several theories to identify and analyse the logistics and supply chain process organisation (Fiat). This report looks at the SWOT analysis of Fiat to identify relevant strengths, weaknesses, opportunities and strengths of the firm. It would also contain theories such as Porters Value chain model (1985) to analyse specific activities through which the firm has added/created value and competitive advantage, which would also link in with Porters five forces to identify the attractiveness of the market, the bargaining power of suppliers and buyers which are all a part of the supply chain process.

1.1

AIMS AND OBJECTIVES

1. Develop an understanding of the Logistics and Supply Chain Concept 2. Review the changes and implications of the single market to EU supply Chain operations/systems. 3. Identify factors that have improved and worsened logistics and supply chain. 4. To critically analyse and evaluate the various sectors of the automotive industries Logistic and Supply Chain, with the use of relevant theories. 5. Investigate the firms overall performance to the change and how it can respond and improve as an organisation within the Single European Market.

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2.0 LOGISTICS & SUPPLY CHAIN CONCEPT

According to Emmet (2005) the supply chain is the process, which integrates coordinates and controls the movement of goods, materials and information from supplier to a customer to the final customer. The essential point with a supply chain is that is links all the activities between suppliers and customers to consumers in a timely manner. Supply chains therefore involve the activities of buying/sourcing, making, moving, storing and selling. The philosophy of Supply Chain management is to view all these processes as being related holistically so that they: Integrate, coordinate and control... The movement of materials, inventory and information... From suppliers through a company to meet all the customers and consumers requirements in a timely manner.
Supply chain management is the management of the entire value-added chain, from the supplier to manufacturer right through to the retailer and the final consumer. It has three primary objectives: 1) Reduce inventory 2) Increase the transaction speed by exchanging data in real time 3) Increase sales by implementing customer requirements more efficiently.

It involves an integrated total system of operations including distribution and logistics, managing quality of products and services, human resource management, capacity management, scheduling, customer satisfaction and execution that includes ERP planning. An effective supply chain occurs when a company is able to get the right product to the right place at the right quantity at the right quality and at the right place.

2.1

INFORMATION REQUIREMENTS WITHIN THE SUPPLY CHAIN

Information is required for every stage of the supply chain and for all levels of supply chain planning. Advances in both operating systems and computing power make it easier and more economical to obtain this information. All parts of the supply chain rely on ICT in the planning, operational, 5|Page

administrative and management processes. Information can be used and transferred by techniques such as demand forecasting, MRP, JIT, Kanban and ERP which rely on the electronic gathering and manipulation of data (Emmet, 2005). The most commonly used tools in E-commerce and IT are:

Enhanced order management and transportation control systems using optical scanning, image processing, and satellite vehicle tracking systems used in transport and warehouses.

EDI Electronic Data Interchange Process automation: such as bar coding. Artificial Intelligence Expert Systems (AIES): systems that would require human intellect and time, but are highly efficient as they are automated and save time and cost.

RFID Radio Frequency ID or tags which enable tracking (Fraser, N. 2012)

2.2

PUSH PULL STRATEGY

Supply chain processes fall into one of two categories depending on the timing of their execution relative to customer demand: Pull: execution is initiated in response to a customer order (reactive) Push: execution is initiated in anticipation of customer orders (speculative)

2.3

QUALITY MANGEMENT TECHNIQUES

Quality management represents the involvement and commitment to everyone, in continuously improving work processes, to satisfy the requirements of consumers, therefore making it fundamental to Supply Chain management. These are the options available: KAIZAN The continuous improvement in a gradual and ordered way, without revolutionising the existing method KANBAN - The purpose of Kanbans is to replace all written work orders, move tickets and routing sheets. Kanban is essentially a pull flow system where the card represents a manufacturing lot of a given reference, for a given operation in a work centre. A Kanban card

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represents routing operations in a specific work centre with the appropriate lot size to process. This approach has been adopted well by Toyota. (Langley et al, 2009) JUST IN TIME JIT systems are designed to mange lead times and to eliminate waste. Ideally a product should arrive exactly when a firm needs it. JT works with a zero inventory stockless production business, with production triggered only by consumer demand (Langley et al, 2009). LEAN LOGISTICS AND THE SIX SIGMA METHODOLOGY

http://www.sixsigmainstitute.com/leansigma/index_leansigma.shtml Lean logistics focuses to reduce waste by over production that bias a pull or demand system. It also aims to increase the speed and flow of the supply chain process. It recognises the value intrinsic of specific products. The Six Sigma is the management methodology working alongside the lean logistics concept, the purpose of Six Sigma is to understand and eliminate the negative effects of variation in processes. The Six Sigma uses the DMAIC (Define-Measure-Analyze-Improve-Control) process which is a map, or step-by-step approach, to understand and improve upon organizational challenges with the aim to reduce variation in processes and attempt to achieve "Six Sigma Quality. 7|Page

3.0 WHAT IS THE SINGLE EUROPEAN MARET?

The idea of a single market began as early as 1952 (ECSC), by 1958 this evolved into 6 member states becoming the EEC. At this point in time some measures and regulations such as indirect taxation and monetary policies were brought in to harmonize trade in certain industries which led to CAP (Common Agricultural Policies) in 1962. In 1986 the Single European Act is signed. This is a treaty which provided the basis for a vast six-year program aimed at sorting out the problems with the free-flow of trade across EU borders and thus creating the Single Market. Lord Cockfields 300 directives (European Laws) to achieve internal market were aimed to achieve a much greater degree of integration, not just economically, but politically as well. Part of the power of 1992 is that it is so hard to reduce essentials. At its simplest it is presented as a Europe without frontiers; but to this graspable notion have been added extra after extra, all consistent with the aim of a single market but not necessarily vital to it: patent law, broadcasting standards, labelling rules, corporate structure, vocational training for young people, the pedigree of bovine animals, and so on and so on. (The Economist, 1988) By the end of 1992 the Single market was completed, it allowed four the four freedoms of movement: goods, services, people and money. However there was still a long way to go especially with the introduction of the EMU. However the components of 1992 are highly relevant to logistics in Europe and especially in its future development. By 2005 27 member states had joined the EU; this creates various advantages for business operating within the Europe which will be discussed later in the report.

3.1

THE GOAL OF THE UNITED EUROPE

The main purpose of the EU was for Economic integration of the Internal Market, it cover such diverse areas as: Economic and social cohesion; Environment; Co-operation between institutions; and Political co-operation

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It provides the legal framework and facilities the political impetus to create a unified market (Dudley, 1989). The Commission was also concerned with ensuring that the whole market benefits from the Single Internal Market. It recognised that certain regions have greater economic advantages than others, yet the act attempts to ensure that other areas on the periphery are also gainers. The measure would provide considerable opportunities for the development of the less prosperous areas as well as creating further competitive pressures on countries and companies within the community. This allows for a better standard of living for all EU citizens. Before 1992 majority of companies within Europe were either small or medium sized firms, working predominantly in National boundaries however with removal of barriers and enhancing the market potentially to the whole of the EU will allow companies to grow and expand and be able to compete with other major players around the world from TRIAD and BRIC economies. According to the European Commission The Single European Market is all about bringing down barriers and simplifying existing rules to enable everyone in the EU individuals, consumers and businesses to make the most of opportunities that offered them to have direct access to 27 countries and 480 million people ( European Commission website). There are numerous benefits for all EU player s which can be exploited.

3.2

BENEFITS OF THE SINGLE MARKET

First and foremost the key benefit introduced by the agreement was the removal of trade barriers and non tariff barriers. According to Poist et al (1991) non tariff barriers fall into three categories: 1. Physical barriers (border and custom controls) 2. Technical barriers (divergent national standards and regulations) 3. Fiscal barriers (differing tax rates and monetary structures) He suggests that the removal of these barriers would lead to a more integrated Single market and have great potential benefits to organizations at any level. The harmonisation and approximation of technical barriers has allowed the free movement of goods and also the change to more open public procurement, both of these initiatives are especially important to logistics because they further stimulate the trade between member states (Cooper et al, 1991). The Single European Market has benefited businesses, consumers and employees alike. The most noticeable change is the abolishment of border controls, which allows the free flow of trade across EU borders. This allowed even small and medium sized companies to have access to new export 9|Page

markets, which previously were not an option because of the cost and hassle that was involved with border bureaucracy. Border delays in the past led to direct and indirect costs to each shipping and also significant and unpredictable delays. This meant that organisations had to establish multiple local warehouses, duplicating stock which leads to a significant cost in their integrated logistics system. However the changes brought about allowed more direct routing, fewer border delays and faster shipment times (Sharman, 1992). According to Grant et al (2006) logistical systems that are placed to serve on a continent basis would save 15-20% on cost reductions compared to a national system. The introduction of anti-competition policies has helped increase competition and liberalized free trade and transport systems in the core countries of Europe. Organizations have the ability to grow and target and a much larger base of customer, thus leading to more demand. It has given them possibility to exploit raw materials and resources from other countries. Logistically locate in better locations again exploiting benefits from low cost (workforce, materials etc.), infrastructure and much more. Increasing the competitive environment makes the existence of monopolies difficult. This means that inefficient companies will suffer a loss of market share and may have to close down. However, efficient firms can benefit from economies of scale, increased competitiveness and lower costs, as well as expect profitability to be a result. Consumers are benefited by the single market in the sense that the competitive environment brings cheaper products, more efficient providers of products and also increased choice of products. What is more, businesses in competition will innovate to create new products; another benefit for consumers The elimination of exchange risk will reduce and should eventually all but eliminate the relative price variability of goods, services, and labour amongst the Member States of the EMU. The reduction of relative price variability should encourage intra-EMU trade, foster further integration of markets for goods and services, and promote economic efficiency within EU Given the relative size and wealth of the
combined economies of the EMU Member States; the euro should prove to be a relatively stable currency. The stability of the euro should in turn serve to stimulate and compete in trade between Europe and the rest of the world.

3.3

DISADVANATAGES OF THE SINGLE MARKET

With the process of Enlargement to 27 member states, the Single European Market took on a whole new meaning and with it a new set of problems. Firstly nations felt that there was loss of national sovereignty. According to Derham (2010) new members join must agree to all the regulations even if

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it is against their national rules and by signing they give away some of their national sovereignty. This could lead us on to believe that Supra and National legislation is not yet harmonized across the whole of EU members especially with the introduction of the new emerging Easter European bloc. Some changes are so drastic that governments are not will to push changes ahead. Take the deregulation of transport, Cooper et al (1991) explains that even though there is a great effort being made by the European commission to set transport limitations in terms of weight and size, theres still remains a difference between certain member states and standards set by the European Commission. Exchange rate with non Euro members is a problem faced my MNES trading within Europe. The complication met by governments trying to facilitate national economic adjustments with just the use of a fiscal policy is not enough especially if the EMU member states grow at different rates or face asymmetric shocks. As good as the idea of having over 400 million potential customers may sound its not really all that real. Consumer preference will always change border to border; differences of culture do still exist.

3.4

THE EFFECTS OF THE SINGLE EUROPEAN MARKET ON A COMPANYS SUPPLY CHAIN

In the 1990s, focus changed from internal efficiency in the logistics function to external relations between the parties in the total supply chain. The largest potential for improvements is not found inside an individual company, but in the interfaces between legally independent companies in the supply chain. This development has enhanced the importance of supply chain management. (Larsen, 2000) The formation of the Single European Market has had a drastic effect on supply chain management within Europe. One of the advantages it has created is that it has closely integrated co-operation between all actors within the supply chain thus increasing transparency and potentially eliminating distorted information, also known as the bull whip effect (Lee et al, 1997) With the increased efficiency of information and transport and the quick development of technology combined with economies of scale in production it is clear to say that there has been a positive effect on firms however the recent trend has shown that SEM has led to a concentration of relatively

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few but large global suppliers. Within Europe the driving forces behind changes in logistics structure and strategy are the: Removal of trade and transport barriers between EU countries; Opening of new markets in Eastern Europe; Acceptance of a single European currency Development of information Technology and fast communication systems:

The emergence of pan-European logistics service providers is also point worth mentioning. The SEM brought many acquisitions and mergers together for example is the Danish logistics provider (DFDS Transport) which acquired it closest competitor Dantrasport. This has led to a fast, reliable and cost effective distribution service in Europe, catering to the needs of international customer demands. With the removal of trade barriers companies have now centralised their production and distribution facilities. With fewer sites, less chance of inventory duplication and an increase in greater volumes due to an increase in demand has allowed companies to achieve greater Economies of scale. However the product does have to travel a great deal further and often across many borders to get to its destination. There are now new challenges and pressures faced by European organisations; this comes in the form of technology. With advances in communication systems and the development of IT such as RFID and EDI has lead to shifts in bargaining power. The most successful companies are the ones that have completely integrated IT within their logistics and supply chain e.g. Wal-Mart.

3.4.1 SUPPLIERS AND SUPPLY CHAIN

Since The SEM was put in place there has been a trend within the European industry towards a reduction in supplier base and differentiated supplier co-operation. The reason for this is because many companies have changed their production strategy from predominantly in-house production to outsourcing a range of production processes. Firms have realised that they must develop closer ties and integrate their supply chain with their suppliers in order to become more efficient, cost effective and increase product quality especially if that supplier play a critical role within the processes, components or systems that are critical to the customer companys production process (Larsen, 2000).

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Technological development has been the key to deciding a supplier rather than suppliers who are competitively priced. This is seen with the new collaborative approaches firms have developed with their supplier, most firms now allow supplier to have access to sales forecast so inventories stock levels can be managed accordingly, and suppliers now play a major role in the design construction phase of new products (Kaiserplast developing products with B & O). Outsourcing of non critical purchase has also become a commonality.

3.4.2 ENVIRONMENTAL FACTORS AFFECTING SUPPLY CHAIN

Another factor that has affected trade is rules and regulations that have been put in place such as environmental regulations. Companies construct regular life cycle analyses of their products and process in order to reduce adverse environmental impact on the total supply chain. Environmental requirements are also influencing the choice of supplier and the production process in general; this can be seen when the EU requested that all electrical and electronic products being exported to the region to follow the restrictions of hazardous substances (RoHS) directives in order to reduce certain substances used in products (Walther and Spengler, 2006). Transport companies are also facing changes in the future. Restrictions on when and where to travel is growing amongst countries with a good deal of city traffic. Countries such as Austria have introduced a system where eco points are rewarded to the most environmentally friendly transport companies. This is leading to the introduction of new more eco friendly trucks, which only add costs to a company, however could save them money in the long run. Companies now are also being to adopt a more reverse logistics process, this has been both beneficial to the consumer with after sales service and the environment with the use of recycling which can be seen in the printer and battery industry (Kopicki et al, 1993).

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3.5

SUMMARY OF THE SINGLE EUROPEAN MARKET (SEM)

While the SEM was supposedly complete by the end of 1992, it remains a project in continuous creation. There still remain much legislation that need to be implemented in member states; several important areas, particularly energy, remain unlegislated, also several member states have been accused of exploiting loopholes and discovering new ways to protect domestic markets. Even though it is important to observe that it has had its benefits to many people. It has allowed opportunities for companies to grow and become competitive; it creates a good opportunity for large companies to become larger while at the same time it produces many difficulties for smaller companies to expand their services. It is fair to say that benefits outweigh the negative, with immense completion coming from NAFTA and BRIC economies it was vital for EU to join and remain one of the key players in trade across the world.

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4.0 CASE STUDY OF FIAT SPA

4.1 HISTORY AND BACKGROUND

Fiat is one of the pioneers in the car industry. It is an Italian automobile manufacturer, engine manufacturer, financial and industrial group based in Turin in Piedmont region. Since its inception in 1899, the company has constantly moved forward on the path of success. Fiat has excelled in many fields other than consumer vehicles, such as railroad vehicles, tanks and aircrafts. The manufacturing unit of Fiat based in Brazil is the best-seller for Fiat cars outside Italy. Fiat also has factories in other countries like Argentina and Poland. Joint venture operations can be found in Italy, France, India, Turkey, Serbia and Russia. Fiat was one of the six European Volume car makers. It had production facilities in Italy, Poland, and Brazil and (through a joint venture) Turkey, with a total output of more than 2 million cars, of which 1.5 million was produced in Italy.

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It sales were mainly concentrated in Italy (1 million cars) and Western Europe (about 0.5 million cars), almost all produced in Europe. By the end of 1991 Fiat had a market share of 15.2% in Europe close second to the Volkswagen and Audi group. With new technologies, new models and motto of innovation and superior technology, Fiat has continued to display expertise in the international market.

4.2

FIAT SUPPLY CHAIN SYSTEM BEFORE 1993

Before 1993, Fiat had a very good financial position, with little debts and plenty of liquidity, but some difficulties began to surface. Fiats most popular models were outdated and the reputation they had of a cheap car, with poor quality and poor service which did not help sales especially when the integration of the European market between; 1986-1992 was increasing competition. In the decade before The SEM came to place the automobile industry saw a great influx of competition coming from Japan; by 1988 Japan had three companies ranked in the top ten in the automobile industry. The threat of dealing with Japanese levels of quality and service and at the relative cheapness of its vehicles was a threat faced by all firms within Europe. Fiat however saw an opportunity in developing links with Eastern Europe long before the Single market was even considered (1912). Fiat maintained and developed these links in the 1950s and 60s by pursuing agreements from product licensing and technology transfer, in Poland and the Soviet Union. It was a way to reduce its heavily reliance on the Italian market which went down from 61% in 1986 to 44.3% in 1992 (Done 1990 and Cooper et al 1994). The strategy of entering untapped markets in Eastern Europe will lead to the benefits of low cost production however cars produced there in this period were only sold within Eastern Europe due to technical standards of each nation. The design and the engineering of the car was predominantly function based, this is where the design of each model was different from another model in terms of components. Having different parts for each model only added to the complication, increased costs and lead times, however this was required because each vehicle had to be modified for each national market accordingly (Canoy et al, 2007), the product was be passed on one function at a time e.g. engineering, manufacturing etc. In this period Fiat like many other automobile producers had many first tier and direct suppliers which led not only to great deal of time delays and cost, but also a deficiency in quality.

4.2.1 SERVICE LEVELS

Fiat service levels were poor at this time as were many other competitors (other than the Japanese) nonetheless improvements were being made. The delivery time for cars sold from the inventory to

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the consumer was in between two four weeks. Delivery times for cars made to customer orders were 10 15 weeks, with little reliability on receiving it on time (Taylor 1997).

4.2.2 SALES AND DISTRIBUTION

The sales structure was in a way centralised to each brand (Fiat, Lancia and Alfa Romeo). Each brand had a sales manager in each market (a country or an area within Italy); reporting to the general manager of each brand, in this case Fiat. The role of a sales manager in each market was to agree upon a set of objectives with the headquarters (in terms of volume, inventory holding warehouses, profitability and turnover) and to translate them into objectives for area managers. The area managers role was to co-ordinate the zone managers; the area manager had to translate the objectives of the area into objectives for each zone, and also to monitor the zone managers activities in terms of sales etc. The zone manager was the interface with dealership with regards to the sales of new cars (Taylor, 1997). Each market had a distribution centre; cars predominantly made in the Italy plants would go to the distribution centre. The activities that took place within in the distribution centre at any given time are listed below: Receiving of cars from plants Storage of cars Shipment of cars to dealerships Preparation of special series Repair of transportation damages Periodic maintenance of stored cars.

Fiat spa was represented by 3000 dealerships for their three brands and a 1000 of them were in Italy. The zone manager handled the responsibility of anywhere in-between 10-20 dealerships, and an area manager was in charge of 10-15 zone managers. Sales volume varied depending on the market. In Italy sales of 600 cars per year could be achieved by a dealership in Italy per dealership, where as Germany the average was around 50 cars per dealership.

4.2.3 LOGISTICS PROCESS/STRATEGY

In terms of sale strategy and logistics it is fair to say Fiat have adopted a push strategy, it was based much more around forecasts. A sales manager of a market is to create a monthly forecast with up to a six month time horizon of deliveries to dealers and final customers. Forecasts are used to see how many cars a dealership will gain from the production in that allotted time, also a certain amount of 17 | P a g e

inventory (by model/version) was required by each dealership to satisfy consumer demand and push the sale (Taylor, 1997). This activity was centralised however did complicate things in terms of potential sales and production capacity within that period. A great deal of planning was required in order to achieve sales targets and meet consumer demands. The use of the weight matrix to statistically identify the relative weight of each body, colour and model based on the sales history of a particular market. Difficulties were found by the zone managers trying to convince the dealers outside of Italy to subscribe to the decision list. Fiat noticed that dealers outside of Italy had more bargaining power to influence the list, this was due to: Different regulations in certain countries The presence of powerful dealer associations, which dramatically influences the plan The lower market share of Fiat outside Italy (4-7%, as opposite to about 50% in Italy) making Fiat dealerships less attractive. (Taylor, 1997) The cars that were not subscribed were collected in the markets distribution centre, which were sold using heavy promotions. The period before 1993 Fiat had adopted a MRP ii (Manufacturing resource planning) approach. It required the effective planning of all resources/sectors within the business. Fiat believed that theyre planning and scheduling was state of the art. However the dealerships did not see eye to eye with this approach. They felt that the sales proposals did not fit their needs and they were unaware of when the car would be received until it leaves the production plant.

4.3

FIAT SUPPLY CHAIN SYSTEM AFTER 1993

With a somewhat high degree of vertical integration which was affecting profit margins, an outdated product line and too heavy reliance on its domestic market that was affecting sales and profit margins, sales abroad required higher logistic costs and aggressive marketing policies (lower prices, more advertising, etc.) domestic sales had to finance abroad expansion. All these issues required Fiat to launch an immense reorganisation process which involved all the groups activities, the relationship with its suppliers and the dealers network (Camuffo et al, 1998)

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4.3.1 SERVICE LEVELS

Fiat realised that they key competitive tool for the future was to have outstanding customer service, for the old and newer models that were being released. In this period of change delivery times for a car in inventory to customer went down to one week an delivery times for cars specifically made to customer requirements, went down to six weeks for 90% of the cars to eight weeks for 100% of cars. This was a much greater improvement from what is before the SEM.

4.3.2 SUPPLIER DEVELOPMENT

Fiat revolutionised its relationships with its parts manufacturers. The objective was to vertically integrate by merging, acquiring business or creating partnerships which it did by acquiring Magneti Marelli a component manufacturer. Fiat decided to reduce the number of first tier and direct suppliers in a hope to improve the quality and reduce the cost of cars. Long-term relationships were being set with greater emphasis on collaboration, trust, assistance and JIT. Fiat traditionally was known have a high degree of vertical integration compared to any of its rivals however; Internal sourcing has been increasingly regarded as a rigidity factor which hinders the quality and efficiency improvements. Fiat strategies changed from internal sourcing to outsourcing complex and high tech parts, these would majorly come from the suppliers of Fiat who were in partnership with (Camuffo et al, 1998). Fiat was focused on developing a lean production system; these characteristics were passed on to the suppliers. Fiat was keen on developing homogenised components and keen to integrate it on a worldwide basis, this was achieved when the suppliers acquired ISO 9000 certification (Volpato, 2002).

4.3.3 PRODUCTION AND DISTRIBUTION

The establishment of the Greenfield factory plant in Melfi (Italy) was a great advantage, this area was dedicated for the suppliers to produce the components required for Fiat cars. The greatest advantage to this place was that bordering this component plant was assembly plant; lead times were dramatically reduced thus meeting JIT requirements. This design of plant was replicated in other countries such as Brazil and Argentina for Fiat (Volpato, 2002). The change to a platform based organisational structure; it was an integrated expertise of all the departments involved in the development: Purchasing, Technology, Product Planning and Design and administrative control. Using this method Fiat was capable of producing a family of models to suit the needs of economies. Fiat realised in order to add value and to adopt a more lean production strategy it would need to centralise product design in adherence to market needs of the consumers, 19 | P a g e

standardisation of components, the cars would share chassis and other components, involve a selected amount of suppliers. The new Melfi plant, suppliers managed the assembly line of the new models (Fiat Punto) with a synchronous Kanban system. For Fiat Synchronous Kanban means that the delivery of parts must arrive in the same sequence of the bodies processed by the assembly line, the supplier has only twothree hours to the order of delivery. The synchronous kanban is applied at the moment to 42% (in value) of the supplied components (Camuffo et al, 1998).

4.3.4 LEAN PRODUCTION DEVELOPMENT WITH DEALERSHIPS

Previous to 1993, dealerships were seen as an external aspect with limited bargaining power, past incentives were dependant on sales. However the late 1990s Fiat made progress in developing a Customer Satisfaction Index, Fiat targeted customer satisfaction as a key variable, this meant that dealer incentive schemes were linked to customer satisfaction, they would develop systematic interviews of customers at different stages of their car life cycle and in different situations e.g. before and after sale, repair services, etc. (Camuffo et al, 1998). This allowed Fiat to understand the needs of customers more accurately and also developing better ties with the dealerships. Fiat realised that Dealerships did not feel at ease with the process of the decision plan made by managers, it was too rigid and did not meet demand at the right time. In response Fiat decided to: Increase in deliveries and a reduction of stock, Reduce order processing time by having internet and telecommunications system in place, and also the use of ad hoc improvement programs.

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4.4

SWOT ANALYSIS OF FIAT

4.4.1 STRENGTHS
Know how Fiat has had a long experience of the auto industry and contributed to the development of the industry. Control and strategic Partnerships - With acquisitions and mergers with the likes of Ferrari, Alfa Romeo, Jeep, Chrysler and Iveco allows control over their markets. Not to mention there many industrial partnerships and joint Ventures with suppliers and logistics distributors (TNT). Very Lean structure- It has allowed them to reduce waste, become more environmentally friendly, reduces cost and improves overall customer value. Supplier Relationship - with the reduction and increased collaboration with suppliers Fiat has been able to produce quality, low cost components whilst receiving the product with use of Kanban and JIT. Management Team A highly motivated and a dedicated management team that works well within the centralised hierarchical structure of the firm, to reach target improve organisational performance. Brand name and Reliability With acquisitions such as Ferrari and Chrysler, Fiat has been able to develop better quality and more reliable cars, according to the Reliability Index (2009) Fiat cars are above the industry average. Small cars Fiats range of small economical, reliable cars has been a success story especially with the reintroduction of the award winning fiat 500. Environmental Commitment fiat has abided and exceeded all environmental regulations, from efficient plants to efficient cars.

4.4.2 WEAKNESSES
Too Italian Even though has gained more market share in other states since SEM, it still remains to lie on the Italian market, especially when majority of the components and plants are based there.

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Lack of Economies of Scale In comparison to some of its rival, the scale of production is low. With the limited financial power its hard for fiat to sustain economies of scale thus the company focuses more on quantity rather than quality. Marketing Even with the implementation of the Customer satisfaction index, Fiat is struggling to find the balance of consumer needs within the market and their idea of engineering brilliance. Fiat culture is too far to represent the dealers and customers of the market. Outsourcing Has been wrongly implemented, the firm is dependent on key components from its suppliers thus too much power is given to suppliers.

4.4.3 OPPURTUNITIES
Form alliances with key companies such as PSA, with similar products. This will allow them to expand further into European markets. Expanding operations in emerging markets such as India and China. Exploit more opportunities in Eastern Countries in terms of cheap labour etc. 4.4.4 THREATS

Volatility of the Exchange rate is becoming a problem for the EU and the rest of the world due to the economic crisis. The Strength of competition coming from Japan and Korea is becoming more prominent in the automotive industry Loyalty of customers within Italy The downturn in the market has dramatically slowed down the sales of new cars

The impact of regulations on the value chain. With the constant reconfiguration in the automotive value chain due to changes in preferences and technology, its increasing costs and difficulty.

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STRENGTHS Know How Control Strategic Partnerships Supplier Relationship Lean Structure Management Team Brand Name & Reliability Small Cars Environmental Commitment OPPURTUNITIES Creating Alliances Expanding operations to emerging markets Exploit opportunities

WEAKNESSES Too Italian Lack of Economies of Scale Marketing Outsourcing Strategy

THREATS Volatility of the Exchange Rate Strength of Competition Customer Loyalty Downturn in the market Regulations

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4.5

PORTERS VALUE CHAIN

4.5.1 PRIMARY ACTIVITIES

1) Research and Development R & D is carried out in two centres: Centro Stile and CRF both located in Italy. These centres have won several awards showing their level of quality. The purpose of this R & D is for: (i) The optimisation and further development of fuel-efficient conventional powertrain technologies including the investments in machinery and tooling for the launch of a new family of more efficient transmissions, mainly for smaller vehicles application; and (ii) the development of new more fuelefficient exhaust systems, powertrain and electronic components, aiming mainly at CO2 reduction (EIB 2009). 2) Suppliers & Components Fiat has adopted an outsourcing policy that splits the operative and productive life cycle into many segments. However the implementation of the outsourcing can create some difficulties, it increases complexity and as a consequence Fiat have lost control over the value chain itself (Vincenzo et al, 2006). However the relationship between Magneti Marelli the components manufacturer (subsidiary of fiat) and Fiat have showed an ability to keep costs low, it also sells to third parties thus increasing profit to spend and improve fiat components (Fiat S.p.A, 2007) 3) Manufacturing and Final Assembly Comau, the global industry leader, assembles most of the finished components to complete the manufacturing process. Even with Comaus reputation Fiat have struggle to improve quality, this 24 | P a g e

could be due to the fact that they are trying to achieve economies of scale but are failing due to high level inventory costs (Vincenzo et al, 2006). 4) Marketing Marketing has not great relevance in the Fiat value chain. As many analysts have pointed out, Marketing is not considered as a way to improve products by understanding customers needs, but rather as a way to convince people to buy something which is far from their expectations. This trend can only bring the customer far from the FIAT product. There is no partnership between Marketing and Engineering and what is of huge concern is that the supremacy of Engineering over Marketing is very strong. The result is the FIATs attempt to build something which is perfect from an Engineering perspective but absolutely far from customers needs and tastes (Vincenzo et al, 2006). However with the introduction of the new CEO Mario Marchionne, the company has developed its brand image a great deal. 5) Dealers & Service The dealers of Fiat present both positive and negative implications. The amount of dealerships will always customers will easily find a dealer. However the culture is of great concern because it does not consider customer requirements in terms of reaching their required needs.

4.5.2 SUPPORT ACTIVITIES:

1) Infrastructure

Good infrastructure within Europe due to the seven factories in Italy and the one in Poland. Improvement in distribution channels to America with the 35% stake of Chrysler. 2) Logistics Due to Fiats many suppliers, and production methods it is important for them to be efficient otherwise it will cause lags in production. The use of Intermodal transport within the EU and USA and partnerships with companies such as TNT and CEVA, who are known to be a reputable company, manage the inbound and outbound logistics. 1) Human Resources High quality management team and workforce with a centralised decision making process.

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4.6

PORTERS FIVE FORCES

The Porters five forces are used to identify industry attractiveness describe the Industry structure and evaluate the industry competition.

4.6.1 ENTRY BARRIERS HIGH

The initial costs to set up a new firm, with high completion levels all with mature economies of scale makes it difficult to enter the market, unless it was targeting a niche market. Other points to mention is that with Fiats Knowledge, Technology, Brand image, Distribution channels, Mergers all result to a less likely chance of entry especially with constantly changing Government regulations.

4.6.2 POWER OF BUYERS HIGH

A constant change in consumer preferences always makes it difficult to satisfy customer needs. Customers have also realised the power they have with dealership in negotiating, this results in a reduction of profits.

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4.6.3 POWER OF SUPPLIERS MEDIUM

Due to Fiats outsourcing methods it is clear to see suppliers will hold a degree of power of Fiat especially if there is no mutual respect between them. The subsidiaries companies on the other hand have resulted in better relationships thus lowering some supplier power.

4.6.4 THREAT OF SUBSTITUTES - HIGH

Because of the closeness of the rivalry with many competitors offering a similar product any price change from any of them could dramatically affect demand. This is why it is important for Fiat to flaunt its Italian passion and brand, making it unique against its competitors.

4.6.5 DEGREE OF RIVALRY - HIGH

Rivalry amongst competitors is high due its concentration of activities, minimal product differences and price wars. The new method of strategic licenses to reduce overheads also plays a crucial role in rivalry. With increasing competition coming from Asian countries Fiat must try and explore new markets to increase market share globally. Constantly changing consumer demand and increase power has resulted in a reduction in profits and constant development of products in order to meet this change in consumer which only results in higher costs.

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5.0 CONCLUSION
The research has explored in the deep matter of Business logistics supply chain Management in the relation to the Single European Market creation. The Investigation through various key concepts includes: logistics, supply chain functions and the influences and changes that were necessary to combat the changes that SEM brought along with it. In turbulent economic conditions, with an increasing amount of competition not only from European companies but also global has led European firms to integrate their supply chains more effectively in order to add value and gain a competitive advantage over potential threats. Mergers and Acquisitions taking occurring at a regular rate in order to maximise economies of scale and remain competitive seems to be the way forward for MNCs. The case study of Fiat S.p.A demonstrated the active modification of its Businesses Logistics and Supply Chain Management structure. Incorporating Just in time and Kanban helped not only their production process but also helped gain a competitive advantage in a competitive industry. Modifying product design to meet requirements and production plants all meeting regulations and standards was also a change they had to adopt. The changes brought about after 1993 affected all businesses not only in Europe in but around the world, these changes as well as giving them an opportunity to reach more consumers it also added complicated decision making and the introduction of new competition (Japan and Korean automobile industry. However recent economic conditions suggest that EU is going through a difficult time but as a whole the decision of Uniting Europe was most beneficial, it has led to the ability to compete against much larger nations and organisations around the world.

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6.0 RECOMMENDATIONS
The over reliance on its domestic market is one of the biggest issue Fiat is facing right now, all the operation are based in Turin and theres not many plants outside of Europe other than Brazil. Production can be closely monitored but it also means that export costs will be higher and the ability of local responsiveness will be slow. This could be the reason why it is not performing well outside of its domestic market. To improve on this Fiat must develop plants of outside of Europe to target more consumers and benefit from, cheap labour force, material or whatever other benefit they may receive within that market. Another major problem with Fiat is its ability to consider the consumer preference; it is too busy focusing on what Fiat calls Engineering class. The ability to identify consumer needs and develop cars to what they require and also an improvement in customer support is also required to surpass their needs and to retain them. This is most important not only for sales but brand image. Alliance with either a Japanese company such as Honda or Toyota will benefit them greatly in terms of gaining local knowledge of local tastes and preferences to possibly expanding there. It will also give them valuable knowledge from the leaders in Supply Chain Management (Toyota); this will allow them to adopt these methods in any market they decide to enter giving them a competitive advantage by adding value on the production and distribution of cars.

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7.0 APPENDICES

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8.0 REFERENCES
Cammarata, V and Kurucz, V and Maj, V and Pavlovic, A and Portmann, K. (2006) The FIAT Case:a Therapeutical Crisis. Universit della Svizzera italiana, - Corporate Strategy Prof. Erik R. Larsen. [Online] [Accessed on the 10th February 2012] http://www.lulu.com/items/volume_30/470000/470624/1/print/470624.pdf

Camuffo, A and Volpato, G. (1998) Making manufacturing lean in the Italian automobile industry: the trajectory of fiat Venice, Italy: Department of Business economics and Management. [Online] [Accessed on the 10th February 2012] http://gerpisa.org/anciengerpisa/actes/10/10-2.pdf

Camuffo, A and Volpato, G. (1999) Global sourcing in the automotive supply chain: The case of Fiat Auto project 178 world car. Venice, Italy: International Motor Vehicle Program. *Online+ [Accessed on 9th February 2012] http://dspace.mit.edu/bitstream/handle/1721.1/729/camvolp1.pdf?sequence=1

Cooper, J., Browne, M. and Peters, M. (1994) European Logistics: Markets, Management and Strategy. 2nd ed., Oxford: Blackwell Publishers. Cousins, B., Lamming, R., Lawson, B., Squire, B. (2008) Strategic Supply chain ManagementPrinciples, Theories and Practise. 0 ed., Harlow: Pearson Education Limited. Done, K. 1990: Fiats Grand European design. Financial times, 9 July. Economist, the 1998: Europes Internal Market. 9 July Emmett, S. (2005) Supply chain in 90 minutes .Gloucestershire: Management Books 2000 ltd. (Fiat S.p.A, (2007), annual report: Consolidated and statutory financial statements, Turin.) Frasier, N. (2011) European Supply Chain Operations. Manchester: Manchester Metropolitan University. 41-page handout, distributed online 28th October 2011 on Moodle for Module Managing Business Logistics and Supply Chain Management

Howlegg, M.,Miemczyk, J. (2003) Delivering the 3 day car: the strategic implications for automotive logistics operations. Journal of Purchasing and Supply Management, Vol. 9, no.2, pp 63-71

Kopicki RJ, Berg MJ, Legg LL, Dasapp V, Maggioni C (1993). Reuseand Recycling Reverse Logistics Opportunities. Coun. Logist. Manage. Oak Brook, IL. Larsen-Skjoet, T. (2000) European logistics beyond 2000. Industrial Journal of physical distribution & Logistics management, Vol 30,no. 5, pp377-387

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Lee, hl, Padmanabhan, V. And whang, S. (1997), the bullwhip effect in supply chains, sloan management review, spring, pp. 93-102 Sharman, G. (1989) What 1992 means for Logistics. Mckinsey Quarterly, Spring, no.1, pp.104120 Taylor, D. (1997) Global cases in Logistics and Supply chain Management. 1st ed., London: International Thompson Business Press., pp99-118. Volpato, G. (2002) Fiat Auto: Toward Globalization Venice, Italy: International Motor Vehicle Program. [Online] [Accessed on 9th February 2012] http://dspace.mit.edu/bitstream/handle/1721.1/743/volpato1.pdf

Walther G, Spengler T (2006). Impact of WEEE-directive on reverse logistics in Germany. Int. J. Phys. Distrib. Log. Manage., 36(5): 337 361 Wynsta, F., von Corswant, Fredrik. Wetzels, Martin. (2010) In Chains? An Empirical study of Antecedents of Supplier Product development activity in the automotive trade industry. Journal of Product Innovation Management, Vol. 27, no.5, pp625-639

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