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Supply Chain Research Project Kone Corporation Marketing Essay

Abstract

In this research project we analyse the source string of KONÉ Organization who will be the 4th largest companies of elevators worldwide. We examine their market position, sales and map their physical flows, information flows of the resource chain. We look at the way they align their competitive strategy using their supply chain strategy. We also analyse the different individuals of inventory, transport, information, sourcing and charges in KONÉ's source chain. Within this statement we also sketch attention to the risks which impact KONÉ and offer recommendations to overall efficiency.

Introduction

The objective of this project is to use the idea learnt during our resource string management course to the Koné's current resource chain.

Generalities about Koné

Koné Company is a Finish company. It had been founded in 1910 which is the 4th largest manufacturer of elevators (after Schindler, OTIS and ThysenKrupp), escalators and also provides maintenance services and modernization solutions worldwide. Furthermore, Koné also produce and service automatic entry doors and gates. In France they will be the 3rd largest maker of elevators (14% of the marketplace), after OTIS (48%), Schindler (19%) and before ThysenKrupp (10%)

Koné Corporation stocks and shares are quoted on the Helsinki stock market since 1967. In 2010 2010, Koné's net income was 4. 1 billion euros (180 Mil euros of revenue) plus they got 32 500 employees.

Since 1924, Koné has been managed and controlled by one of Finland's wealthiest people, the Herlin family. The current Chairman of Koné's Plank of Directors from 2003 onwards is AnttiHerlin.

The company faced several problems scheduled to an urgent slowdown in the elevator industry. Furthermore, worldwide monetary downturn reduced construction activity, and modernization of elevators in ageing buildings has been slower than forecasted.

Unlike the elevator business, the computerized building door service business has not yet experienced such problems. Koné made a few strategic acquisitions and alliances and soon became the leading company in the field.

In 2004 the Koné Panel of Directors presented a plan to split the company into two different companies. One company would consist of Koné's existing elevator, escalator & building door services and continue steadily to operate under the name Koné Corporation. The other company would include KonéCargotec's business area and operate under the name Cargotec Company.

In 2007, it was announced that Koné experienced received part of the largest fine ever before handed out by the EU Commission for large and comprehensive price repairing. the cartel activity focussed on maintance which was related to protection of elevatoe users. This is made mandatory by law. Koné faced an excellent of total of1 billion EUR for cartel activity across Belgium, Germany, Luxembourg and holland.

Finally, this year 2010, Koné released that they would stop production of hydraulic elevators, due to their inefficient energy utilization, contamination concerns about the use of hydraulic petrol and buried cylinders, and other environmental concerns. Therefore, Koné is just about the first major brand elevator company to make only grip elevators.

Koné locations

Koné has a worldwide presence all around the globe. The company provides local service for builders, coders, building owners, designers and architects in 50 different countries where they own 8 production products in Hyvinkää, Finland; Pero and Cadrezzate, Italy; Ústí nad Labem, Czech Republic; Essen, Germany; Kunshan, China; Chennai, India; Torreón, Mexico; and Coal Valley and McKinney, USA and 7 R&D centres. Koné hq is located in Espoo (Finland). They have around 800 services centres. Koné splits the earth in three areas: Europe, America and Asia/Pacific. Practically 3, 000 people work with KONÉ anatomist and production operations worldwide.

Koné production

Each year they produce around 30, 000 news lifts and escalators and provide maintenance for more than 570, 000 devices and 270, 000 programmed doors.

They have 3 different businesses:

Installation

Modernization

Maintenance / Service

In 3 different business:

Elevators :

Koné MonoSpace, the first lift without engine room

Koné MaxiSpace, which offer between 30 to 90% more space

Koné GuideOn, computerized people management.

Escalators

KonéInnoTrack, rolling sidewalk

Doors/Training video :

Koné Vauban, a portal

Koné market position

The lift up market for unit installation, maintenance, reparation and modernization was around 33 billion euros this year 2010. The equivalent escalators market was around 2 billion euros. And finally the market for automated building door service amounted to around 5 billion.

Sales 2010

Koné market share was 12% on the market of elevators and escalators. The repartition in percentage with their sales is:

45% about new equipment (set up and modernisation)

55% about service (maintenance). They maintain approximately 650 000 elevators and escalators.

Sales by Market, 2010

Mapping of the resource chain

This is the summary of the Koné's overall source chain

Map of physical flows

As we have seen previously they may have 3 different businesses:

Installation

Modernisation

Maintenance / Service

In 3 different industries:

Elevators, divided in 2 different kind of market :

standard building A Process

architect dedicated order (big effect on their reputation) C Process

Escalators

Doors/Video

The elavator market is the key emphasis of KONÉ. Because of the likeness between your processes of assembly and modernization we will focus mainly on the modernization supply chain of an elevator.

There are 2 varieties of processes:

1. Process A

a) Quotation to customer without verification.

In this technique they don't make correct quotation nonetheless they do consider their margin of error while stating the price.

The major challenges they face in this process are:

Sometimes the quotation made as process A eventually ends up being process C.

Technicians are required to come back several times before they can find the right product.

As per legislation in France, average life cycle of an element is twenty years. The laws and regulations are radical and higher level of safety requested by law.

b) Order - the technician decides which parts will be required.

2. Process C

a) Quotation made On-site visit

In this process the technicians are required to go site to obtain the specification on measurements etc to make quotation.

b) Order- They are required to use the engineering parts.

In both process A and process C:

Salesmen and technicians mix check the merchandise. 99% of that time period the technician checks the material to make use of and order (order review, to make sure not to ignore something to fulfill customer).

Administrative and engineer department gets control and translate the needs of the order to the various vendors in their resource chain and with the external distributors.

To deliver the ultimate product it requires around 10 months. This is divided into 3 different phases as shown below.

Customer order

Purchase Order

Installation

4 to 25 weeks

8 to 15 weeks

2 to 4 weeks

The main difficulty of the purchased order management is to give the global picture to everybody. Actually each actor of the source chain is important to its overall success.

The beginning of the assembly step has very often to be readjusted

Map of information flows

The procedure for ordering and putting in a new elevator (or modernizing an old one) includes several employees of Koné through these different steps:

The vendor, gives the price to the customer

The design office, but only for non-standard product (C-Process)

The Professional specialist (order review, site relationships, technicians supervising, planning, financing). It's the technicians' supervisor.

The Central source manager, who handles the procurement and invoice the production

The manufacturer (production) and subcontractors (outsourced parts)

Technicians on the site.

The adjuster who finalize and check the merchandise.

2) Competitive and offer chain strategy

a) Competitive situation and competitive strategy

We can summarize Koné competitive situation in 3 tips:

Koné's key customers are heterogeneous and also have a huge range of different needs: from builders, building owners, center managers and designers to architects and consultants which are all key functions in the decision-making process regarding elevators and escalators.

Koné has segmented the markets according to the reason for the building. The main segments are classified as domestic, office and retail, as well as open public transportation and international airports. In addition, KONÉ serves hospitals, leisure centres, hotels and commercial properties.

Koné has about 250, 000 customers globally, of which the majority are maintenance customers. Maintenance contracts change from one-elevator residential structures with yearly deals to large international accounts with long-term service contracts.

Because of the situation and the constraints of the elevator/escalator/doorways market they choose as competitive strategy to focus on variety and adaptability. They have got highly customizable products with the opportunity to conform or design new one on demand. They choose also to focus on hi-tech, quality and maintenance quality level never to be overtaken by their competition. So if we position their competitive strategy, Koné reaches a midsection price (in the same range as its immediate rivals) with a high value added for its customers.

To follow this competitive strategy, its source chain is targeted on responsiveness (especially for maintenance) and flexibility. They have a dedicated product their ultimate goal is to transport no stock. It's typically a taken process, the clients drive the demand plus they produce to orders to respond separately with their needs:

Challenge to plan the livery and lead time

Give the earliest possible visibility to their suppliers

But currently they don't really really have advantages against challengers:

Not enough differentiate with the major rival (same level of service)

Business is changing a lot currently.

They share the market but aren't very aggressive against their opponents.

Nevertheless they are really in a pretty good position with the innovating gearless lift up (copied by their competition now) and the latest technologies in the elevator field.

Level of doubt and supply chain strategy

The uncertainty in the elevators/escalators/entry doors market originates from 2 different causes:

The impact of customers need

Need accurate planning for delivery: In structures job all parts are linked. So any wait will costs a whole lot because the other steps will be impacted.

Huge variety of products and customization: Each product is exclusive. Even if it is the same lift up, the constraints will vary.

Huge rate of creativity: Koné GuideOn, MaxiSpace and Mono space will be the three big improvements. One can't guess the demand level through the initiative stage.

High quality service level: Customer expect a higher level of adaptability and responsiveness in maintenance

Response time : even though customers are willing to wait several months to see their lift up build, this is a risk to Koné to be less reactive than their competitors

Implied popular uncertainty

In addition the demand for elevators is very seasonal for 2 main reasons:

Private market is cyclic. The syndic meeting happen in April-March purchases opt for in October-November.

Public market is cyclic: At the end of the entire year, if public finances are not completely spent, public administrations can spend money on this free budget in buying a fresh lift purchases choose in September-October.

In a fantasy situation the demand fluctuation would be flatten to secure a level delivery all along the entire year and avoid problem about the bullwhip effect. But it's too difficult presently so they keep fluctuations and also have to postpone their delivery. Currently the seasonality isn't really included. They have a view on their demand around 6-8 weeks.

The impact of resource source capability

Too a number of suppliers: 4000 to 5000 suppliers in France.

Lack of forecasting and exact opinions in materials for maintenance used. Whether or not Koné knows the amount of lifts that belongs with their customers and that must be modernized by the "loiurbanisme et habitat", it is impossible to forecast future years. Indeed they are not sure whether their customers will stay faithful to the brand. Even though they would forecast they wouldn't have the capacity to create enough.

Lack of partnerships: No strong romantic relationship with suppliers. Only agreements with local suppliers when the resource line doesn't have the components.

Implied average supply uncertainty

After blend of its demand doubt and its resource doubt we see that Koné has altogether a high doubt.

 

They have designed their responsiveness capability to match this doubt by adopting a very flexible supply string (they make the merchandise after receiving the order).

They have the ability to create a Supply Chain Strategy which fit with its Competitive Strategy.

Functional / Secure demand

Innovative / Uncertain demand

Efficient

Match

Don't match

Responsive

Don't match

Koné manage to adjust is Competitive Technique to its Supply Chain Strategy

 

Evolution in the future. May be the company able to achieve a proper fit between its competitive and SC strategy ?

In the current situation with the turmoil the main differences between Koné and its competitors:

Main criteria are the price.

By legislation: 3 different quotations.

Environmental aspect (electricity level/certification along supply chain)

Level of contract

Even if there is not really technology in the lift field but only advancements, like for example: gear less lift up, new signalisation or design, Koné commit a lot in R&D, around 50 million euros each year (which symbolizes 1. 2% of net sales). The test centre at Tytyri allows these to propose innovating and competitive solution for their customers compare to the marketplace.

About the near future they follow a new strategy since 2007

Based on the expected development of the metropolitan populace, new opportunities of development show up. They have to understand the customers' needs and create unique ways of solving the issues of people movement. Their genuine and future problems are:

More structures and more people in them

Congestion and crowding

Environmental issues

Successful urbanization is a prerequisite for monetary expansion

Today objective is to offer best people move experience by producing and delivering solutions that enable visitors to move smoothly, properly, perfectly and without hanging around in building in an significantly urbanizing environment.

Analysis of motorists of SC performance

In this part we will analyse the Koné composition in conditions of responsiveness and efficiency.

Facilities

Elevators

Escalators

Doors

3 Regional factories in Asia/Pacific, European countries and US

+1 for special instruments in Finland

1 manufacturing plant for elevator engine motor.

1 manufacturing plant in China to put together them.

2 factories in Italy and Tcheky

3 Warehouses: Singapore, Germany and US.

 

They also have 1 facility for French market (for rules purpose) which is Procodiss for materials not deliver by normal source chain device.

Inventory

In France they have more than 1 000 free components and more than 20 000 stock referrals in warehouse inventory. A few of them (especially very costly, uncommon) are just in the regional warehouse.

Their way of stocking:

They have a local warehouse Depots (proximity stock: heavy, expensive, delicate materials) Truck (they are simply mainly concentrate on it). Big customers also have often materials in stock: customer or Koné ownership. Their inventory level has 5% turnover of customer service.

Their main need is to acquire all the materials on site at the correct time (ex: 10 vendors, each product has a different lead time) loan consolidation centre at the region level. They may have different localisations for warehouse, in France loan consolidation happen in Paris they have the ability to obtain products at the previous time never to pay the stock Then 1 pick up truck deliver all the material for required for the modernization process.

Their usual lead time is around 1 to 2 2 years between the first decisions to the ultimate product. They can not be late (building not ready else). It is the same thing for installing a new lift up but the process is more accurate, more elaborated and older.

Their replenishment insurance policy is:

on request

Normally each material should be back ported when it's used, however, not really applicable because of a lack of back again porting by the worker currently.

So, they have no forecasting for free parts. Their stock vans are all different (standard template initially and then designed by the fitters). They want an accurate back again reporting to improve this field. Their goal is to possess less stock possible to increase their visibility:

order earlier they can

material later they can

Transportation

Their travelling network use mainly trucks and is subcontracted (outsourced). Nowadays Koné works together with Panopa within the former it was with TNT. In Paris, where transport for maintenance is sourced (previous miles travel), the one exceptions are:

Boat from china

Airplane for urgent components

They never use train due to cost and too expensive and the most import-ant level of planning required. Koné owns 3 000 automobiles in France and 13 000 all over the world.

Information

Their information network isn't so much developed. They use direct requests for materials with their suppliers:

Not quite definitely integrated Just an internet catalogue integrated set for their 30 mains suppliers. Even if they don't possess yet any kind of global and close partnerships using their suppliers they currently make an effort to improve this field by investing in place new deal with them. They focus of the "strategic" suppliers (which who can give them competitive advantages in expense, innovation, etc. . ) or with ones who've a huge importance on the quality of their products or services. Since 5 years back they have the ability to buy their supply more globally and less locally.

Commodities / car fleet management / insurance / etc are purchased only in a buyer/seller relationship with no partnerships.

About their customers they know the standard lead-time and until when their customers are able to change the date of beginning. The past time where in fact the day of starting must be set is the non-return point (NRP), based on lead-time (ex 10 calendar months). After this date your day of begin to assemble is definitively set (but involve issue of planning when NRP is too early). About their proper customers, they are being used to established partnership (ex: air port of Paris) who are included with specific deal.

It's also important for these to make their employees go directly to the global supply string process.

They also have an important computer system:

SAP

Salesforce. com, which provide them with more visibility on the vendor's activities. Which allows them to share customer information easily: the customer is a person of the company, not only a customer of your vendor.

a specific system to control their call centres

data basis of their materials and gadgets to help them for quotation.

Sourcing

Their current overall strategy is to go from local sourcing to global sourcing. In addition they outsourced a great deal the travelling.

Their goal is not to rely on recycleables price fluctuations that are why they used fixed price agreement with their suppliers. The chance is transferred to their suppliers.

Pricing

They don't possess special plan about their charges but only a fixed price during the whole year without almost any campaign or discount period.

The cost of a high end elevator is between 50 000 to at least one 1 M depending on its performance but also on the architect selections (materials, etc). A standard elevator is around 30 000

Conclusion and Recommendation

Based on our evaluation on the various sectors of the resource chain. We've come up with some suggestions that could help optimise their operations and impact on their overall source chain. On the procurement aspect we suggest that they build close partnership agreements with the suppliers and integrate them to their procurement process. They need to decrease the multi tier of suppliers they may have and focus on rationalization and globalization of their suppliers. They could aim on having fewer suppliers, but more global and better integrated. For the inventory area they can improve on their forecasting practises for his or her van inventory. In particular insurance agencies and applying a specific policy of backreporting about the materials found in maintenance.

According to the employees, during the quotation and site visit process, technicians should spend additional time estimating the right components to modernize the lift. There has to be stricter strategies to file administrative paperwork, data (way of measuring) and even more detrimental data. Having less doing so leads to repetition of the procedure which in turn causes delays. Employees (particularly technicians) must be engaged in the company's success in order to stimulate them to work well.

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