Category Archives: Manufacturing

The Value of Visibility: It’s More Than You Think

When someone mentions supply chain visibility, the first thought that probably jumps into your head is a foundation for resiliency, which it is, as we discussed in our last post on the value of visibility in your supply chain. The potential to prevent a major supply chain disruption that could cost an organization an average of 10% against potential revenue on the affected product lines for two years running and reduce that loss to 2%, or less, is huge. But it’s not the only savings enabled by good supply chain visibility.

In addition to per-event savings associated with disruption avoidance and crisis containment, there are ongoing savings associated with spend under management. Even if your organization employs advanced sourcing methodologies that include spend analysis and decision optimization, the value of multi-tier visibility goes well beyond what traditional advanced sourcing models can deliver.

For example, a 2012 FERMA4 study found that the majority of firms with advanced risk management practices, built on good end-to-end supply chain visibility, had EBITDA growth over 10% and revenue growth over 10%. The EBITDA growth came from lower costs. The lower costs resulted from better sourcing decisions enabled by better multi-tier supply chain visibility and total cost-of-ownership models. That’s a double digit savings! Up until this point, only spend analysis and decision optimization could consistently deliver that level of savings.

The observant among you might be thinking that this study is just one data point and maybe these savings aren’t obtainable by everyone because it’s statistical, but the proof doesn’t end there. In 2011, Haitao Li and Mehdi Amini undertook a comprehensive computational study on a five-tier multi-echelon supply chain for PC assembly that analyzed over 2,000 scenario variations and found that multi-tier visibility drives cost savings of 15% on average. This study, which built in the impacts of potential, and likely, supply chain disruptions at various levels of the supply chain, demonstrated that most optimal awards that only consider the first tier are highly dependent on the input assumptions and extremely susceptible to disruptions, which can increase the cost by up to 60%! Even the tiniest of perturbations was found to increase the total cost by over 5%. But when multiple tiers were considered and awards were made that were disruption resistant, the average cost savings came out to 15%! This is huge! (Especially given that, according to research conducted by IBM referenced in our last post, emergency re-sourcing efforts often increase costs by up to 30% over the optimum solution.)

This means that, even if your organization is lucky enough to be among the 14% that don’t experience a major disruption within the next year, the ROI from better sourcing decisions alone will pay for a supply chain visibility solution many times over. How much will you save? Up to 1.7% of revenue every year. (An average manufacturer will spend 59% of revenue on direct materials and services and 89% of this spend under management. Assuming that at least 1/3rd is sourced annually, and that the savings are only 10%, as per the FERMA4 study, that’s savings opportunity of 0.10 * 0.33 * 0.89 * 0.59 = 0.017 = 1.7%) So, if your organization does 1 B in revenue, it can expect a savings opportunity of up to 17 M a year from disruption-resistant awards to the supply base (which will, by their very nature, minimize the number of small disruptions the organization experiences).

And this is only one aspect of the year-over-year recurring savings that Supply Chain Visibility can bring your organization! For a deeper insight into the other ways in which Supply Chain Visibility can bring your organization recurring year-over-year savings, download SI’s latest white-paper on The ROI of Supply Chain Resiliency: It’s More Than You Think (Registration Required), sponsored by Resilinc. You might be surprised at just how much hidden value you can extract from your Supply Management operations with good visibility and resiliency.

The Manufacturing Labour Shortage Isn’t That Big of an Issue

when compared to the logistics labour shortage in the trucking industry.

The SCIDigest Editorial staff might have painted a grim picture in their recent article on how the labor shortage in manufacturing really is getting worse, but SI believes this grim picture is only temporary, whereas the logistics labour shortage is poised to continue getting worse for some time. Before SI explains why, let’s examine the current situation.

The SCDigest Editorial quoted a recent Fortune magazine article that said that companies that make tangible products are struggling to find candidates for about 237,000 job openings — a number that is 89,000 more than the total number of jobs created by the U.S. Economy in September. To make matters worse, nearly 80% of the manufacturing workforce is over the age of 45, and over 33% are over 55 and not far away from retirement — and the number of young workers (under 30) entering the sector is shrinking significantly, with one study reporting that only 5% are 25 or younger.

Basically, the majority of young people just don’t see manufacturing work as an attractive option — which it isn’t if you are talking about old-school 1980’s shop floor manufacturing which was hard work for low blue-collar pay.

Turning our attention to logistics and trucking, new estimates put the driver shortage at 240,000 drivers, as SI reported back in March. With 100+% turnover a year, one third of drivers reaching retirement age this decade, and an average graduate age from driver training schools of 54, the trucking industry is in dire straits!

In comparison, manufacturing has it easy. Young professionals enter an industry in which they see opportunity, typically defined as a mix of growth potential in their career and their salary, and given two equal options, many will choose the industry with the higher starting salary. Taking this into account, we see that manufacturing is in much better shape.

First of all, factory jobs are not what they were in the old days. Most of the tedious, menial labour has been replaced by automation and the only manual labour done by shop floor workers are high-end speciality tasks as most of the work on the shop floor is focussed on maintaining the robots on the automated assembly lines. In comparison, in trucking, you’re still driving a truck. The only difference is instead of driving an old pollution producing rig, you might get to drive a new hybrid that uses electricity and biofuel or clean diesel and is equipped with enhanced catalytic converters.

Secondly, the opportunity for advancement is great. Factories need senior engineers for each task, floor managers, and plant managers — there is a career path for a bright engineer. In comparison, in trucking, unless you can be a dispatcher, you’re still driving that truck in 20 years.

Thirdly, due to the sophisticated high-end nature of the work in manufacturing, most of the jobs are for skilled engineers who will often start at 50K to 60K a year, and have the potential to climb to 100K a year or more as an engineer progresses, whereas the trucking jobs require one skill — the ability to drive a truck — and salaries, adjusting for inflation, have not increased and typically don’t increase much more than inflation on an annual basis (if the driver is lucky).

Manufacturing can easily solve their labour shortage by

  1. enhancing their image and
    which could be as easy as the NAM producing the right PR campaign (with prime-time airings on traditional and online media); a
    manufacturing equivalent of the “Got Milk” campaign could rejuvenate the industry
  2. implementing their own apprentice-type programs
    which take community college graduates (for the more traditional jobs in welding, machining, etc) and even university graduates (for the newer jobs in robot maintenance, etc.) and teach them the skills that colleges and universities don’t

In comparison, logistics is out of the frying pan and into the fire between a rock and a hard place. With little advancement opportunity and limited earning potential, how do you make trucking advantage to anyone who has other options? Unless you’re targeting fast food workers (tired of asking “would you like fries with that”), interest is going to continue to wane.

Arena – Taking PLM Deep Into the Supply Chain Part II

In Part I we noted that Arena, since we last covered The Arena Solution in 2007, extended their PLM solution that was built around BOM (Bill-of-Material) Management, Item Management, and Change Management to support (better) Document Management, Quality Management, and Compliance Management. We also noted that they added more enterprise integration capabilities to ensure that their PLM solution integrated with all of the major ERP and MRP solutions on the market. We briefly covered these solutions before noting that, on top of these additions, they just released four new capabilities on top of their existing platform that we are going to cover in depth today.

Arena Projects
Arena Projects is a fully-functional project management solution that is fully integrated with the rest of the Arena suite which adds the dimension of product data to Project Management and allows for product-level production schedules to be defined and integrated with the master project schedule. Like every other project management solution, every project can be attached to a program, given a manager, assigned a start date, given milestones (composed of tasks) and target dates, and updated when a task is completed or milestone is reached. In addition, as it was developed on top of a PLM solution to support NPD/NPI (New Product Development / New Product Introduction), projects can be broken down into the conception, planning, development, manufacturing release, and launch phases. Statements of work and other supporting documents, can be attached and participants can leave notes on projects and issues as the project progresses. And, most importantly, all of the schedules associated with all of the projects in a program can be rolled up to provide a program manager a master view of status. In addition, there is a user view that allows a user to see all of her assignments across projects, recent notifications, documents she has access to, and actions she has to complete.

The solution was also designed to support CAPA (Corrective and Preventive Action) projects and has a built-in understanding of the process that consists of team establishment, problem definition, interim containment actions, root cause identification, corrective action identification, corrective action implementation, best practices to prevent recurrence, and project closure (with the recognition of team efforts). This built-in template makes setting up a new CAPA project, which can be linked to products already in the system, a breeze. The Project module is also integrated with their new Reporting module that can access any and all data in the system, so it is easy for a manager to get a handle on all projects under her purview or for an engineer to see the status of all projects on which he is assigned tasks and prioritize his work appropriately.

Arena Demand
Arena Demand is their demand management solution. Like other demand solutions, it allows a user to enter a forecast against multiple BOMs, aggregates the total demand for required parts or materials against multiple products, and presents the user with the total demand for each part or raw material along with any cost and sourcing information in the system. It’s an obvious feature that, for the longest time, was missing from many PLM systems. And while basic demand management capability will often exist in the MRP that the PLM provider will assume the organization has, the PRM provider is actually making two assumptions here that aren’t always true. The first assumption is that the organization has a higher-end MRP (which isn’t always the case for mid-sized manufacturers with limited IT budgets) and the second assumption is that the customer can easily get the relevant PLM data in the relevant format out of the PLM solution and into the MRP (which can require IT expertise the manufacturing organization does not have). Plus, sourcing doesn’t want to deal with an MRP — they just want a report that, for each product or raw material, presents them with total aggregated demand for the relevant time period, historical cost data, and known sources of supply.

The Arena Demand solution is quite easy to use — for each product, the manufacturing (or marketing) organization can input the expected demand by month or quarter and the solution spits out a report of demand by component part or raw material for the same time period, augmented with known supplier part matches and historical costs, if desired. In addition, since the solution is also tightly integrated with the Reporting platform, the sourcing team can filter in to specific programs, categories, or parts, or even suppliers of interest (if the sourcing team is looking to potentially aggregate volume to preferred suppliers for additional savings).

Arena EI
Arena EI, short for Arena Enterprise Integration, as we noted yesterday, is a new Open RESTful API that can be used to push data into Arena from any system and pull any and all data out of the Arena solution that needs to be pushed into other organizational systems. Supporting JSON data transport over secure https with session ID authentication, the API is flexible, powerful, and secure. And since it has access to all of the data in the Arena platform, it is a powerful, complete solution for data interchange into and out of the Arena platform.

Arena Exchange
Arena Exchange, which is the most revolutionary of the new Arena offerings, introduces the ability for real-time supply chain collaboration to include all impacted parties across multiple tiers of the supply chain during new product introduction, and the solution does so with unprecedented ease. It paves the way for a paradigm shift in the way manufacturers can manage the design and development of new products in an inclusive, but still secured and controlled, fashion.

In the Arena Exchange solution, any one can invite supple representatives to view, comment on, and approve bid packages, sub-packages, or even individual components — as each user can limit the data that the invitee sees to only the data she needs to see. In addition, if the invitee doesn’t have all of the input required for her part of the bid-package, she can carve out a chunk and send that off to someone on her team or to her supplier representative if needed. The relevant parts of the PLM can go all the way down to the tier-3 supplier shop floor for rework if need be, and the business impact of this up-front visibility and collaboration will be better DFM (Design for Manufacturing), faster TTM (Time-to-Market) due to fewer errors, less scrap and rework, lower cost, and higher quality.

The platform, which can be put on top of any PLM solution (not just Arena’s) that stores its files in standard PDX (Product Data eXchange) format (an international electronics manufacturing initiative standard), has a very simple interface that allows the user to access the specifications, bill of materials, sourcing information attached files, and (change) history by item, manufacturer item, and vendor item. The user can then add comments, send (selected portions) of the BOM to an existing (or new) user, add reviewers, define due dates, submit approvals, and ask questions. Drill-down is easy, so the user can quickly get to the appropriate sub-assembly, component, part, or raw material. At any time, the user can see the (rolled-up) status of the raw materials, parts, components, sub-assemblies, and assemblies within her purview as well as which users didn’t respond. Arena Exchange is the solution the PLM industry has been missing and should be evaluated by any manufacturing organization wanting to take their NPD and NPI processes to the next level.

Arena – Taking PLM Deep Into the Supply Chain Part I

When we last covered The Arena Solution in 2007, we stated that Arena were the providers of an effective, on-demand, PLM solution that could manage the information associated with the entire lifecycle of a product from conception, through design and manufacture, to service and disposal, which, for a low margin manufacturing organization, could be the difference between costly inefficiency and profitable efficiency. One of the unique features of the solution was its support for collaboration between the buying organization and the supplying organization through an online portal.

Since the release of their first on-demand solution in 2007, which was focussed around BOM (Bill-of-Material) Management, Item Management and Change Management, over the last few years they added (better) Document Management, Quality Management, and Compliance Management. The Document Management capability, built on their change management and collaboration tools, streamlines the document management process, manages the revision process, supports privilege-based access for anyone who needs to access the document, be they employee or supplier representative, and supports the meta-data categorization required for advanced search and rapid retrieval.

The Quality Management capability supports your CAPA (Corrective and Preventive Action) process and allows the organization to track progress on quality improvement processes over the long term. The Quality Management capability allows for the creation of issues, corrective action requests, and tasks necessary to resolve the issues identified by the corrective action requests. It also associates the issues to requests, BOMs, and associated documents and allows the process to be managed from beginning to end and the entire history to be archived for the institutionalization of knowledge.

The Compliance Management capability was designed to allow an organization to meet regulatory requirements and track compliance information for products and processes with BOM-level control to allow an organization to comply with medical, environmental, regulatory, safety, and process standards and regulations. From import restrictions to quality standards to safety standards to reporting regulations, a manufacturing organization often has more regulations to adhere to than it has items in its largest BOM (which can be quite large, especially if it’s manufacturing automobiles, airplanes, or automated control systems for nuclear power plants). This is not an easy task when the organization often has to track the materials in every item in its BOM, the insurance certificates for each supplier, and the third party certifications for each product. But with a proper solution that allows the suppliers to upload the relevant documents, and manage them, the process is a lot easier.

And, finally, they added more Enterprise Integration. A PLM solution that doesn’t integrate with your ERP/MRP solution has almost as many disadvantages as it has advantages. And those disadvantages revolve around data, and data entry. At some point, orders have to be placed, and those orders at some point have to flow through the ERP system that manages the payables, the inventory, and the demand tracking. If there is no integration, the BOMs for all of the existing products will have to be manually entered or loaded into the PLM solution and the BOMs for all of the New Product Introductions will have to be manually entered into the ERP. Not a pretty picture. That’s why Arena spent a lot of time integrating with all of the major ERP and MRP systems out there over the last few years. But Arena didn’t stop there. Realizing that, as they progressed up the supply chain capability curve, that demand needs to get into sourcing systems, that regular orders need to get into procurement systems, that compliance information needs to get into reporting systems, etc., they figured out that no matter how many systems you integrate with, it will never be enough so, in their current release that just came out this quarter (which contains a number of new capabilities on top of the capabilities discussed so far), they built a new Open RESTful API that can be used to push data into Arena from any system and pull any and all data out of the Arena solution that needs to be pushed into other organizational systems. We’ll discuss this more in Part II when we talk about the four new capabilities that were just released as part of the new Arena solution.

Reuse, Recycle, Remanufacture – Call It What You Want, But Just Do It!

Sourcing Innovation has been promoting sustainability since the beginning and design for recycle since the very early days, which is essentially what you are doing if you are designing for remanufacturing, which is finally starting to take hold in parts of the industrial sector, as per this recent article over on ThomasNet from the green & clean on “a solution that makes both economic and environmental sense”.

When you think about the average complexity of today’s consumer products, especially in electronics, it becomes clear that when a product breaks, it is typically only one component that is broken and a replacement of that component makes the product useable again. That’s why a lot of computer, tablet, and phone manufacturers have entered the refurbishment business – once the damaged or defective part in a product that was returned under warranty or reclaimed upon disposal by a customer, it can be reused and, more importantly, resold.

But the concept doesn’t end with electronics, and doesn’t end with refurbishment. Electronics can be designed more modularly with re-manufacture in mind, so that parts can be upgraded en-masse when the products are returned en-masse in a regular upgrade cycle. For example, if laptops were designed for easy replacement of not only memory and drives, but processors and peripheral connectors (in anticipation of USB 4, Thunderbolt 2, etc.), the previous generation models could become the next generation models and resold as either lower-end offerings in the same market or new offerings in a foreign, emerging market.

And automotive suppliers, who not only know that parts wear out, but when parts are likely to wear out, and which parts wear out together, could not only design their engines to make it easy to replace parts, such as spark plugs, batteries, belts, filters, and pumps that wear out quickly, but also the engine block as a whole, that is going to wear out in 7 to 15 years, depending on the average annual mileage. Given the choice, many people on a fixed income (who don’t live by the ocean and have rust to worry about) would rather replace the engine for 3,000 to 5,000 and keep the car for another 7-10 years if the frame is fine than pay 25,000 or 30,000 for a new car. And while this may not look as attractive from a bottom line perspective to a manufacturer, it significantly reduces the chance of the customer migrating to a different car company, which is very common if a competitor is offering a significantly better deal on a comparable car.

Plus, if the components are themselves designed for remanufacturing, it will be relatively easy for the manufacturer to reclaim the raw materials from the damaged or defective components, which is where a lot of the cost comes in, especially if we are talking rare earth metals. For example, the price of praseodymium-neodymium oxide exceed 1.25 an ounce and prices of terbium oxide (a semi-conductor that is used as an activator for green phospors in colour TV tubes) exceeded 12.00 an ounce this summer, and that’s cheap. Gold, a metal used in many electronics products, exceeded $1400 an ounce. And while there is not much gold in a single laptop, when you put fifty of them together, you’d likely get an ounce. And given that there are roughly 100 Million PC laptops and computers sold a year, that’s close to 2 Million ounces of gold that need to be reclaimed!

And, as per the green & clean article, remanufactured products offer cost savings in the 45% to 60% range! So if doing the right thing isn’t enough, that should be enough of a justification to invest in remanufacturing! This goes double if you are in electronics (for some of the reasons given above) or automotive, where the global market for remanufactured auto parts is projected to reach $122.8 Billion by 2018.

So, regardless of what you want to call it, it’s time to do it. It’s not just good environmental stewardship, it’s good economics.