Supply Chain Management of Renault Logan

[pic 1]

RENAULT LOGAN Case (Part 1)

Hatem Bani

Martin Kepe Ndumbe

Shiwangi Parashar

Cheng Wang

1. What motivated Renault to develop a new strategic plan?

The new strategic plan was feasible since both the partners (Renault and Nissan) were looking for a major strategic change. As evident from the Financial Results 2002 through 2006 from the case, the operating activities at Renault were facing a low as their operating margin was deteriorating, although having a rise in the total revenues. This means that the resource utilization at Renault was inefficient despite the fact that the revenues were increasing.

[pic 2][pic 3]

Contract 2009 program was created to increase the deteriorating the operating margin and expand globally. It was desirable that their strength lies in positioning Renault internationally with high technological competencies (for product, process and methods) and manufacturing capabilities.

Focussing on Renault’s strategic overall motivation behind this contract, the motive was to increase their efficiency in operations with a long-term view of global expansion.

1. What was the strategy adopted by Renault with the LOGAN car to support the Contract 2009?

Alfred Chandler once defined strategy by saying “the determination of the long-run goals and objectives of an enterprise and the adoption of courses of action and the allocation of resource necessary for carrying out these goals”.  In order to support the Contract 2009, Renault needed to set and update its long-term direction. In order to go deeper in this point, strategies will be divided and presented in their three levels.

Corporate level strategy

The corporate level strategy is about the overall scope and how value is added. Renault’s strategy was Internationalization. In 2006, the CEO Carlos Ghosn unveiled the contract 2009 which called for world-wide expansion and being present in many new markets around the globe by 2009. The Logan was designed for markets with high potential growth like Maghreb Region and Romania and also for so many others markets in Africa and South America.

Business Level Strategy:

At the business level, Renault went for a cost-leadership since the competitive scope is broad and the competitive advantage is lower costs.

The Logan targets customers who would drive a car about 20,000 kilometers per year and keep it for an average of five to eight years. It was designed to be a car with high robustness and that can adapt in several environment. Indeed, Renault adapted hybrid strategies since the Logan has a high perceived benefits and a relatively low price regarding its characteristics and robustness; prices starting from a little less than €9,000.

[pic 4]

Operational Level Strategy:

• Effective and efficient management of customs operations: Renault had its customs consulting group planning responsible for the planning of operations and plants as a way to achieve cost efficiency. The group had basically two functions: coordination between customs regulations/supply chain and understanding the global customs environment.
• Different level of local assembly contents: Renault used different level of assembly in order to keep operations costs and transportation to their minimum:
• CBU: completely built up unit
• CKD: completely knocked down unit
• IPO: Identify parts order
• Different supplying strategies based on the competitiveness of local suppliers.
• The implementation of a trade compliance system.
• Cost efficiency in infrastructures: Parts production and assembly in Romania and assembly plants in Colombia, Morocco and Russia.
• Cost efficiency in logistics

1. A. How did they implement it from the supply chain perspective? 

[pic 5]

[pic 6]

Data Recourse: Bloomberg

[pic 7]

Data Recourse: Bloomberg

• For the corporate level strategy,

Renault chose internationalization as corporate level strategy, which can be seen by the increase in SGA expenses from 7380 million euros to 8112 euros during 2004 to 2006, which was caused by entering new markets. And the increase in commercial results of Americas and Euromed prove that they expand markets globally, which increased 12,7% and 12,8%.

• For the business level strategy,  

cost-leadership played a main role, which can be seen from net income climbing 14,35% in 2004 by reducing tax cost and transportation cost when implementing this strategy

• For the operational level strategy

In order to implement the differentiation strategy, Renault needed to provide different level of assembly contents to different markets according to the economic factors, competitiveness of local suppliers, policy (tax, tariffs and other regulations) and cost. From the financial data analysis, the ROA increased to 5.17 in 2005 but decrease constantly.  We can find that Renault reduced their cost of goods sold by reducing purchasing materials in 2005 and increase sales by 7.37% in 2004 and 3.60% in 2005.

On the other hand, the inventory turnover, as well as net cash flow, increased in 2004 but decreased after, resulting in working capital behaved as same as them. Renault slowed down the speed of increasing working capital from 11.6% to 3.7% in order to improve supply chain design. For the total asset, it decreased since 2005 even negative in the later financial years, which means Renault performer better with fewer assets.

Moreover, implement efficiency strategy by making technological improvement, which is a trade compliance system from its software partner named Trade Beam, and optimize the logistics by cutting down the tax and tariffs. As we analysis the tax and tariff policies in different country, Renault chose to ship different level of local assembly contents to the new markets in order to minimize cost of tax and it decreased from 561 million euros to 255 million euros.