Thursday, April 9, 2020
South Korea to Apply 'Milk Run' Procurement System to U.S. and EU
To Prevent Another Wiring Harness Fiasco
South Korea to Apply 'Milk Run' Procurement System to U.S. and EU
  • By Michael Herh
  • March 20, 2020, 12:03
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A milk run procurement system

The South Korean government decided to apply the Quick Parts Procurement System, which was introduced in the wake of the COVID-19 outbreak, to the United States and the European Union (EU). The decision was made to prevent another fiasco in parts and material procurement that Corporate Korea recently experienced.

The Ministry of Trade, Industry and Energy plans to expand the application of the “milk run” procurement system, a joint parts collection and delivery system in which a demand company visits parts suppliers to collect parts and transport them collectively. It originated from the practice of milk companies that collect milk by visiting dairy farms. This approach can significantly reduce the time and cost for procurement compared with a system where parts producers supply parts to a demand company separately.

Among companies in Korea, Renault Samsung introduced the milk run procurement system in 2917, helping its parts suppliers increase sales by more than 11 percent.

Initially, the Ministry of Trade, Industry and Energy applied the system only to China. The measure was devised when Korean automakers' plant operations were suspended due to disruptions in the supply of wiring harnesses from China following the novel coronavirus outbreak.

More lately, the rapid spread of the virus to the European Union and the United States has put on edge many Korean manufacturing companies that procure parts from those countries and regions. The Big 4 European carmakers — Volkswagen, the Fiat and Chrysler Automotive Group (FCA), Renault, and PSA — have declared temporary shutdowns of their factories due to difficulties in parts procurement and a drop in demand.