Category Archives: Manufacturing

Packaging – The Total Solution

A recent Spend Matters perspective asked a very important question: “Have You Got the Total Package?” This is important not only because packaging costs money and adds to total product costs, but also costs money by adding to transportation costs – twice, and, even more importantly, can cost sales by limiting how many units of a popular product you can have on the shelf at any one time, especially if poorly designed.

More importantly, as the perspective pointed out, you can save significantly if you attack the packaging category strategically, even when prices are rising across the board. Up to 20% savings are possible through better sourcing and requirements definition, and up to 50% are possible with re-design. The key, as with any other strategic category, is to understand what you’re buying, with whom, in what volume, and what you really need. Not only are there spend leverage opportunities, but there are often significant substitution capabilities simply by changing the specifications from “‘B Flute’ Cardboard box, 12″ by 6″ by 8″, Form Factor 2” to “Box: minimum 11″ by 5″ by 7″; maximum 13″ by 8″ by 12″; minimum weight capacity 15 lbs; maximum weight capacity 25 lbs;” … because this allows the supplier to offer you the product that is the most effective for them to make if multiple boxes will do equally well. No redesign necessary.

It also allows you to bypass the “crawl” phase of the “crawl – walk – run” maturation process for sourcing organizations presented in the perspective, which is important as this will significantly increase your chances of achieving big savings quickly, without requiring any significant involvement from engineering. All you are asking for is a specification of the requirements in a product neutral manner, which engineering would have defined before they selected the current standard packaging.

This allows you to get to the “run” phase faster, which is where significant savings opportunities are to be found, especially if you’re willing to go beyond simple material substitution and engage in a full packaging design process that will minimize package size, minimize raw material requirements and associated costs, maximize the number of units that can fit onto a pallet, and minimize the shipping requirements for the packaging itself. For example, just like a box generally allows for tighter packing than an odd shaped container, a tetrahedron often allows for denser packing than a cube while reducing the amount of packaging material required to achieve the same volume. Thus, just like tetrahedron containers make sense for certain liquids, they might also make sense for odd-shaped products (like pyramid-shaped ornaments) that would leave too much free space in a box (and increase the filling material requirement as well as waste).

And the sooner you’re running off to do package design optimization, which will could also help you get greener faster, the sooner you’re saving money on categories that would otherwise have price increases through the roof. So, Get Packing and save money!

(Manufacturing) Design For X

The April 1, 2008 issue of Theory and Practice from Manufacturing Insights had a great article on “Design For X” – the practice of incorporating different tangential factors into the design of a product that are intended to better integrate the new product with downstream activity. One of the more familiar DFX practices is, of course, DFM – Design For Manufacturing – where engineers strive to produce a product to be easier, safer and less costly to manufacture.

However, DFM is not the only DFX discipline that product companies need to consider. There is also DFSC – Design For Supply Chain, DFS – Design For Serviceability, DFC – Design For Compliance (& Sustainability), and DFW – Design For Warranty, and each of these is important. However, in today’s economy where costs are rising and discretionary spending is falling, probably the most important consideration in product design is the end cost of production. Since early interaction between design and supply chain is key to making the right build-versus-buy and material selection before design decisions, and associated costs, are locked in – I’d argue that DFSC should be on top of every company’s mind. Especially since, as the article points out, DFSC leads to further optimization and agility in the supply chain and reduces the impact of inevitable late changes and quality problems.

Of course, you cannot ignore DFS, DFC, and DFW. There are always going to be failures, and DFS evaluates design modularity and supply chain alternatives in order to maximize serviceability and enhance the customer ownership with inventory and reverse logistics operations in mind. A good design considers the complex dependencies between product design, reliability, service, inventory planning, and reverse logistics. The expected frequency of repairs and the type of parts that need to be replaced will determine the reverse logistics, depot repair, and part restocking requirements in the supply chain.

Similarly, if you actually want to be permitted to sell your products, you have to adhere to product compliance regulations such as RoHS and WEEE for the European electronics industry and the TREAD act for the American tire industry as well as corporate accounting regulations and overall social responsibility. Compliance cannot be an afterthought – it needs to be taken into account during design, manufacturing, shipment, servicing and decommissioning of products through a total life cycle approach. For example, in RoHS if even one separable component contains more than a minute trace of hazardous material, the entire assembly could be banned – leaving you with millions of dollars of inventory that cannot be sold.

Finally, you need to consider what reverse logistics and repair activities will exacerbate warranty costs and insure that tradeoffs are made to minimize those activities that will be most costly in the design process.

In short, DFX is a total lifecycle design practice that takes into account the costs and benefits of each and every design decision in the different life-cycle phases of a product, considering both the short and long term ramifications, from a Manufacturing, Supply Chain, Serviceability, Compliance, and Warranty viewpoint.

Not Just A (Manufacturing) Litmus Test for Politicians! (CEOs and CSCOs, Take Note!)

Industry Week recently ran a good article called “Just In Time – A Manufacturer’s Litmus Test for Politicians” that had some very good questions that I doubt any of the current US presidential candidates would have good answers to.

However, they, or their equivalents, are questions that any CEO, and, more importantly, any CSCO should be able to answer. Specifically:

  • Vision
    What is your vision and mission for the supply chain department … and how does it sync up with the vision and mission of the company?
  • Relevant Experience
    Have you ever worked on a design team that made products similar to those being made by your company? If not, how do you plan to acquire the expertise needed to help the design team make the right decisions in the design stage before up to 80% of the product cost is locked in?
  • Customer Focus
    How have you improved the customer experience in the past? What can you do for your current customers?
  • Management Experience
    How do you plan to improve ROIC and contribute to overall company growth?
  • Competitiveness
    How are you going to increase overall competitiveness of the company supply chain compared to the industry average?
  • Environmental Stewardship
    How are you going to reduce the organization’s carbon footprint while reducing cost and increasing efficiency?
  • Trade Practices
    How are you going to achieve best-cost country sourcing while optimally determining what work to keep in house vs. what work to outsource?
  • Training & Education
    An educated employee is a productive employee. What is you plan to insure your team stays up to date on best practices, processes, and methodologies?
  • Research & Development
    Innovation should not be confined to R&D. What is your plan to insure that supply management contributes its fair share of innovation to corporate growth?

MCA Solutions – A Strategic Service Parts Management Platform

MCA Solutions (acquired by Marlin Equity Partners, merged with Servigistics, acquired by PTC) a Philadelphia, PA company, is not only one of the few companies I know of that has an advanced strategic service parts management solution, but one of the very few that only does service parts management. Recognizing that many large manufacturing, semiconductor, high-tech, aerospace and defense companies often have tens of millions, if not hundreds of millions, of dollars tied up in inventory, and that an inventory planning and optimization solution that is off even by a few percentage points can cost these companies millions, if not tens of millions, of dollars annually, the founder of MCA Solutions, Dr. Morris Cohen, who has worked with IBM, Cisco, Applied Materials, Intel, GM, Saturn, Teradyne, and the U.S. Navy, decided to focus the company on this problem alone.

Why? Because the problem is a lot harder than you think. Just like a product has a life-cycle, so does a service part. Not only do you have to accurately forecast how many replacement parts you’re going to need in your network (as well as where they need to be), you have to manage the return, repair, and re-introduction of the repaired part into your inventory. (Remember, many parts are sub-assemblies because it can be too time consuming to replace an individual part — so it needs to be repaired once it is replaced; just like your IT department doesn’t throw out the desktop they just replaced when only the hard-drive needs to be replaced.)

To accurately solve the problem, MCA Solutions allows you to model your entire multi-echelon parts demand network. What does this mean? You can model all of your primary (warehouse) locations, forward locations, forward-forward locations, etc. to as many levels as you need; you can define all of the production lines, aircraft, or other equipment at each location; define the required replacement parts and desired availability and / or target stock levels for each part; define any and all (performance-based) contractual commitments if you are in the business of servicing lines, aircraft, or other commitments for your customer; define historical demand, service requirements, or maintenance plans; and specify the best type of statistical model for the part in question (poisson, normal, or negative binomial – as low volume, high-volume, and sporadic demand parts need to be modeled differently), as well as any location or usage-specific criteria that influences demand.

Furthermore, MCA Solutions’ platform not only allows you to strategically plan cost-optimal inventory levels for target stock and availability levels, but also takes into account current network stock levels and will give you an executable tactical implementation plan which will tell you what needs to be shifted between locations, what needs to be ordered – and when, and which parts should be repaired (and when) and which parts should be retired. In other words, not only does their solution understand product life-cycles, but it also allows understands the entire part life-cycle.

How well does it work? For their target industries, very well. It was chosen by the Navy, who spent almost a year exhaustively evaluating COTS (Commercial Off The Shelf) solutions against their own in-house solution, it’s used by KLA-Tencor and Cisco — who have some of the most extensive parts supply chains in the IT world, and their solution has been chosen by SAP as their preferred parts planning solution. Furthermore, it’s very well designed. You can work at the aggregate network, network (as it allows you to define different part networks if you have to meet different geographies, different environmental regulations, or just want to separate your internal service networks from those of your customers), forward location, location, equipment / contract, or part level, depending on your need; you can compare the current plan to various “what-if” plans that let you see how your altered stock levels / availability levels affect cost or how shifting forward locations (central warehouses) changes stock levels and affected costs; and you can do extensive reporting, graphing, and, if required, data export to Excel (and Power Point). Plus, you can export orders to your external procurement / ERP / MRP systems and import supplier response data. If the lead-times in the responses differ from what the plan expects, the system will automatically update and re-balance the plan.

If you’re in one of their target industries, it’s certainly worth an investigation. Not only is it designed well, but it appears to be very efficient. The average response time for an update even in a fairly sophisticated what-if network model (with hundreds of locations and thousands of parts) is under two seconds. That’s impressive where optimization is involved given the complexity of a multi-echelon network model.

Strategic Service Parts Management

Last year in my posts on Strategic Service Management and Tomorrow’s Strategic Service Management Today, I introduced you to service management, which is more than just outsourced services management. At a holistic level, it’s really a form of customer service management (where “customer” means your internal customers as well as your organization’s external customers) with the goals of making the customer efficient and satisfied while making a profit.

One possible definition of this, which I gave in my posts, was through a union of parts management, price management, and workforce management with the ultimate goal of optimizing the workforce to deliver the right part at the right time at the right price. If we analyze this closely, we see that the key is to first optimize the parts management. If the part is not there, it doesn’t matter what it costs, because either your customer is going to go to someone else, or you’re going to violate a performance contract, and whatever additional profit you might make through price optimization is going to disappear in lost sales or penalties. Furthermore, there’s no way to optimize a workforce if you don’t have the parts they need to do their jobs.

So what is service parts management? In my posts I originally defined it as the process of ensuring the right part is available at the right place at the right time. It is the alignment of planning, forecasting, and inventories to make sure you can respond to a customer need as it arises, without costly expedited shipping, unnecessary wait times, or financial losses (that can result from service level guarantees). And I think that’s still a good definition, but it doesn’t convey the complexity that is involved in certain industrial and medical equipment manufacturing, semiconductor, automotive, aerospace & defense operations. Nor does it convey the extremely high costs of doing parts planning poorly in these industries.

Consider aerospace. New commercial aircraft cost hundreds of millions of dollars, and it’s critical that a plane spend as many hours in the air as possible to recover that cost, and even more critical that it not miss a scheduled flight and that all maintenance and repairs are able to be completed during scheduled downtime. Without extremely good parts planning, a plane can be grounded for days and cost a company millions of dollars in losses.

Furthermore, not only are the planes expensive, but so are the parts. Many parts can cost thousands or tens of thousands of dollars. Therefore, you don’t want to be stocking more parts in inventory than you need to because, in a squadron of 15 fighter jets or a fleet of 25 commercial airliners, excess inventory can lock up sufficient funds to literally buy another plane!

Now consider automotive. Production lines cost hundreds of millions of dollars, if not billions of dollars, and an unscheduled line shutdown can easily cost a few million in lost labour, sales, and man-time required to get the line up again. More importantly, some of the equipment is very complicated and in order to get the line up again quickly when it does fail, you have to replace entire assemblies, which can cost hundreds of thousands of dollars. Therefore, it’s important that you not only carefully control your inventory levels, to avoid locking up tens of millions of dollars that could be part of the cash flow, but that you have a good process for servicing and repairing the replaced assembly so that it can be re-used next time the same type of sub-assembly, either in the same line or in a different line, breaks down.

In these industries, the importance of a solution that can model the expected need for each replacement part that may be required over the expected life of each major production line, vehicle, aircraft, or sophisticated high-tech system that has to be kept up and running, as well as the required inventory to statistically meet the target up-time requirements at any point in time, starts to become very clear. Furthermore, since you usually have multiple plants, and storage locations, some of which can quickly service other locations (and if you only expect to replace, on average, one instance of a $50,000 part each year, it’s much cheaper to spend $500 on an express delivery from a central warehouse than to stock the part at each location), you also need a solution that can look at these needs holistically, factor in lead times, and give you an optimal inventory level across your network. This is the only way to design a strategic service parts management plan that will give you a target up-time and / or part availability level at a minimum cost of ownership.

Tomorrow we’ll explore a solution that, depending on your industry, just might help you achieve this goal. Stay tuned.