Category Archives: Manufacturing

aPriori, rationi viam ad sumptus! Caput I

When we last covered aPriori in 2007 and 2008 in aPriori and The Sourcing Maniacs 2008 Vendor Tour Part III, they were very focussed on Enterprise Cost Management (ECM) and taking cost out of the design phase. Fast-forward six years later, and nothing has changed, except, of course, the depth, breadth, and usability of their platform — which has grown in leaps and bounds.

Unlike traditional sourcing applications, including advanced spend analysis and decision optimization, that are limited to component cost-based should-cost models, aPriori can also factor in design and production factors to model the full production cycle of the part you are buying (if it’s metal, plastic, or, in some cases, electronics-based) and give you a true understanding of what the part should cost to make. The reality is that the cost of a part is dependent not only on its design, but on the production process employed. As noted in our first post, a supplier that’s always made a certain part a certain way might not realize that new technology or materials would allow them to make that part significantly cheaper if they used a different process. Since the aPriori application instantly and directly interfaces with your CAD program and interrogates the solid model to extract the geometric cost drivers, the aPriori application can automatically determine all the process routings that can be used to make the part, compute the costs associated with each step based upon standard machine, material, and labor costs, and compute the total cost of each part on a per unit basis by factoring non-geometric cost-drivers such as production volumes, the selected supplier or factory set-up selected, and the exact routing and machines used. This is because the aPriori application currently supports over 200 out-of-the-box process models in over 12 major process groups (including, but not limited to, Bar & Tube Fabrication, Casting, Forging, Machining, Plastic Moulding, Powder Metal, Roto & Blow Moulding, Sheet Metal Sheet Plastic, Stock Machining and Rapid Prototyping.

In addition, because the application supports the creation of complete VPEs (Virtual Production Environments) that encapsulate the production processes, a customer can fully model the production and overhead costs associated with each production process supported by a factory in question, including local labour, power, maintenance, and other overhead costs to create a fully accurate should-cost production model, which can be compared to alternate production processes in the factory and other factories modeled with an appropriate VPE. This allows for the true identification of the lowest cost because, as the Sourcing Maniacs documented in their vendor tour post, the COGS is a combination of raw material costs, labor costs, production overhead costs, and margin and these costs not only vary by locale and production process, but in their interaction. For example, just because you identify three ways to make a part and each requires three steps, this doesn’t mean that each process is going to be roughly equal in cost. Not only do different processes require different amounts of manpower or energy (for energy-intensive equipment like lasers, etc.), but reordering the steps can change the manpower or energy required in subsequent steps.

Let’s take, for example, the production of the main Frame sides and door for a piece of heavy machinery construction equipment. An aPriori customer was cutting the entire frame using a laser process. While this seemed efficient, as only one piece of machinery was required, cutting the entire frame and door using a laser cost them 75.54 per frame and door combination, and they required over 14,000 of these combinations a year. That’s over a million dollars on just one part! If, however, as discovered by aPriori who analyzed the geometry and ran it through every possible production process that was available to the manufacturer, they switched to a two-stage production process that involved an initial laser cutting of the frame and door followed by an NC Punch process to punch out the internal cavities, the time required to produce a single frame and door combination decreased by 14 minutes and the cost decreased by 56% to 33.29 (as laser cutting is expensive compared to NC punch).

So what’s new with aPriori? Come back for Part II.

The Future of Packaging is All About Labelling … At Least For Now

DC Velocity recently ran a short article on the “10 global trends that are shaping the future of packaging” that was quite interesting, but for the near future, not that relevant — especially to Procurement and Logistics.

For example,

Big Science will continue to discover lighter and stronger substrates, which will eventually allow packaging to be reduced, but the time it takes between the time a new substrate is discovered until it is mass produced at a competitive cost is typically a decade. No big changes are coming in the next few years.

The eco agenda has been pushing environmental concerns for a couple of decades now. The eco agenda is not going away, but, unless your corporation is damaging the environment more than the competition, it’s not going to change its behaviour until it is more cost effective to do so with near-term results. In other words, until someone invents a significantly more environmentally packaging alternative that is stronger and cheaper than what is currently in use, no changes are expected as a result of the eco agenda.

Developments in Neuroscience will allow for the design of more enticing packaging, but that design will predominantly revolve around the graphics, colours, and messaging on the packaging, as you can’t securely ship a square item in an oversized round sphere without padding and adding undue cost to the process. As a result, regardless of what the still inexact science of neuroscience tells us, there will be no change to the packaging in the near future, just what is printed on it.

Demanding Consumers will always want more, but now that every smartphone has a free barcode scanning app, all you have to do is slap on a q-code or a barcode and, voila, they user can be taken to a dedicated web-page. Again, no changes to the packaging, just what is printed on it.

Unless your packaging contains dangerous chemicals, which should have been taken out years ago with the introduction of RoHS and similar acts around the world, More Legislative Oversight is only going to add more labelling requirements in the short term, especially in F&B and CPG. The oversight is not going to fundamentally change the nature of packaging for most products in most industries (unless a new chemical is deemed harmful and restricted for use in packaging).

SI could go on, but packaging is not likely to change much in the next few years, just like it hasn’t changed much in the last decade. Emerging markets, the rise of the BRIC, and new retail models will eventually spur a packaging renaissance, but not until there is a crisis or radical new breakthrough to drive it. In the interim, the focus will be on labelling — exceeding the legislative concerns to appease the more demanding consumer and doing so in a way that is attractive and calming.

Anyone have any good counter-arguments?

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.