New Trend of Parts Supply System in Korean Automobile Industry; The Case of the Modular Production System at Hyundai Motor Company

Abstract

An automobile is said to be composed of about 20,000 components or parts (hereafter parts). Korean or

Japanese automobile companies are outsourcing up to 70% of these parts on the basis of production cost from

their outside parts suppliers. Therefore it is essential for an automobile company to establish an effective and

efficient supply chain of materials in order to be competitive.

Regarding the supply chain in the automobile industry, an issue which attracts our attention recently is the

modular production system. It is a parts supply system where a small number of first tier suppliers (module

suppliers) located at the same or very close site as the automobile assembly plant assemble modules of automobile

and supply them on the same sequence in the final assembly line of the automobile assembly plant.

Recently growing number of world automobile companies is adopting this system to enhance their competitive

edge. It was also introduced in Korea late in 1990s by Hyundai Motor Company.

In this paper the concept and the meaning of the modular production system is briefly introduced, and the case

of Hyundai Motor Company and its two module suppliers, Hyundai MOBIS and Duckyang is analyzed in terms

of the problems they encountered as they practiced the modular production system. The paper also presents with

some useful lessons which HMC got through the experience of practicing the system so far.