Category Archives: Manufacturing

Manufacturing Strategies for Controlling Costs

These days, manufacturers are purchasing more and more goods from global suppliers. As a result, manufacturers have to become more sophisticated in their analysis, more accurate in their demand forecasting, and more knowledgeable about the global marketplace and the changes it is undergoing. To this effect, a recent Industry Week article titled “Sources of Strength” attempted to outline the next generation sourcing strategy that manufacturers need to use to remain competitive.

According to the article, the first thing a manufacturer needs to do is insure that it’s processes are appropriate, that it’s goals are aligned with organizational needs, and that it’s people have the necessary skill sets.

The next thing it needs to do, as per the article, is select an e-Sourcing suite. This is not the first step because technology by itself doesn’t do anything unless you understand how to use it and how to organize and take advantage of the data it acts on. What technology does is simplify the process of sustaining benefits because it automates the process and captures decisions and data for future use.

Then, once an organization has streamlined and simplified its sourcing processes, the article indicates that it has to start collaborating with its suppliers. This is because a good relationship provides a manufacturer the opportunity to create flexibility with its suppliers and creates a means to reduce costs at each stage of the supply chain. According to Bob Derocher of Archstone Consulting, this requires selecting providers that will sit down with you and work together on continual process improvement to reduce the total cost of each purchase.

According to Bob, one of the things you see being done between manufacturers and some of their major supply partners is a focus on supply relationship management, creating a collaboration … that way, manufacturers don’t have to just demand a lower price from the supplier. If they can reduce the friction between the two companies and the effort it takes to do business together, the supplier can keep a good margin and give you a good price. Then they’re both better off, which is important because in many ways, their fates are tied together.

Furthermore, as noted by Sanjay Argawal at Deloitte Consulting, when collaboration is done right it addresses one of the biggest challenges companies have today — not having very much visibility beyond their Tier One supply base. When you form a strategic partnership with your supplier, you also get visibility into the supply chain beyond that supplier. And the more visibility you have in the supply chain, the more influence and control you’re able to have to prepare for supply disruptions“. Also, as noted by Bob, the specifications process is not just about the engineering aspects of the components, it’s also about the business relationship between the buyer and the supplier. How will the supplier deliver the product? When do you take financial ownership? How will the supplier know when to ship another batch? If you have a collaborative planning and forecasting process with the supplier, you’ll know all of that up front“.

So, re-engineer and align your processes, obtain a good e-Sourcing suite, collaborate, increase your visibility, look at the total cost – including logistics, and be lean. That’s a pretty good start. Throw in a pinch of six sigma, a pound of scrap and waste management, better energy utilization, and some smart price forecasting to insure that the contract term chosen is the right one, and a manufacturer would be ready to enter the twenty-first century in their sourcing operations.

Strategies to Design For Supply

Even though it’s a topic the doctor mentions regularly (see “AMR’s 7 Supply Chain Best Practices”, and Procurement Lead Time Optimization, and The Benefits and Risks of Global Product Development, for example), it’s something that he rarely dedicates a post to. However, since, Supply and Demand Chain Executive recently published an article by Heather E. Domin, James Wisner, and Matthew Marks on nine strategies you an apply when you “Design for Supply Chain”, now seems like a good time to dedicate a post.

Design for Supply Chain, or, Design for Supply, is the process of optimizing the fit between supply chain capabilities, product designs, costs, and expected revenues. It is the application of supply chain management processes, techniques, and innovations that aim to simultaneously increase customer satisfaction, minimize total costs, mitigate risks, and maximize the flexibility to adapt to unexpected events.

The authors are right when they note that, “efficient product design is not just a way of squeezing out cost savings, but a competitive weapon to be leveraged for strategic advantage” (especially since good design for supply uses TRIZ). Furthermore, as the article notes, “applying a product life-cycle management mentality as early on as the conceptual design stage, a product can be developed from the ground up to be a truly supply-chain-efficient creation.

But what the doctor really liked about this article was that all of the the nine strategies outlined in the article were sound. They were:

  1. Optimize Levels of Product Integration
    Determine the optimal level of pre-assembly at upstream suppliers. Balance flexibility (the ability to configure parts in different ways, replace parts, or use parts in alternate products) with assembly time (as assembling all of the parts yourself can take time and add labor cost).
  2. Leverage Industry Standards
    Whenever possible, use industry standard parts unless the proprietary part creates a competitive advantage.
  3. Minimize Premium Freight
    Thanks to continuously rising fuel costs, increased regulatory requirements, and continuously shrinking free capacities, freight costs are no longer an insignificant part of the total cost of any buy. Sometimes, they are a majority cost – especially when you have to ship express. Be sure to design the chain with acceptable lead times and sufficient safety stock of common components or alternate components.
  4. Design for Life Cycle
    The product design should be amicable to potential component or configuration changes throughout its intended life-cycle.
  5. Configure the Selected Supply Chain
    Make sure the supply chains are designed in accordance with the company’s strategic network plans, at the category group level and not the individual product level.
  6. Design for Demand & Supply Planning
    Good designs include commonality, modular design, universal function, and final configuration postponement to allow for pooling of demand and labor.
  7. Minimize Inventory Costs
    Design your supply chain to maximize velocity and minimize lead times as much as possible to reduce the amount of stock and safety stock you have to keep on hand.
  8. Optimize Order Management
    Products should be designed to provide the maximum amount of flexibility to the customer with little or no additional internal cost.
  9. Minimize Warranty / Service Costs
    Create a reliable, high-quality product with easy to diagnose faults and customer replaceable parts that have a high warranty redemption value.

And this is a good start.

Some 2008 Manufacturing Predictions

Supply and Demand Chain Executive recently ran an article on some “2008 Global Trade and Supply Chain Predictions” that are worth restating. It’s predictions were as follows:

  • Green continues to grow
    Thanks to Al Gore and the China fiascos of 2007, this is a guarantee.
  • Manufacturers Lag in Environmental Compliance
    The article notes that despite the number of environmental regulations introduced globally over the past year, a large number of manufacturers are still in non-compliance with the new trade laws.
  • Sourcing Shifts from Asia to the Americas
    The article notes that the falling U.S. dollar, limited free trade agreements, high energy costs and rising production costs in Asia will all contribute to companies reevaluating extended supply chains and moving sources closer to their home markets. Uh, yeah! I’ve been pushing what I call home country sourcing for close to a year now. Glad to see that it might finally catch on.
  • Import Safety Initiatives Increase Burden for U.S. Importers
    After the huge number of recalls last year related to imports, and China imports in particular, it’s a guarantee that a number of new requirements are going to be introduced in the US over the next one to three years.
  • Supply Chain Security Initiatives Gain “Teeth”
    This is the year the global AEO (Authorized Economic Operator) security program is launched – and even though, like C-TPAT, it is not mandatory, because it’s being pushed strongly in Europe, this will be the year that even smaller importers and exporters start to demand compliance.
  • Trade Compliance Further Scrutinized
    This pretty much follows from the first five predictions.

This was followed by an article in Industry that stated “Large Manufacturing Will Move Toward a Globally Integrated Business Model”, based on “Manufacturing Insights Top 10 Predictions for 2008” (registration or login required). Most of the MI predictions were also pretty good. They were:

  • Innovation management will be a prominent topic and garner attention … but industry will be slow to adopt innovation.
    I certainly hope that it becomes a prominent topic because innovation, which I’ve been pushing for since day one, is sorely needed. And although I do expect industry to be slow in adoption, recognizing the need is the first step.
  • Business models will migrate from multinational to globally integrated enterprises.
    Maybe. It’s coming, but I’m not sure if this is the year.
  • Collaborative decision environments will amplify the value of product life-cycle management and emerge as the next big IT investment area.
    They’ll definitely amplify the value of PLM – but whether or not it’s the next big investment area remains to be seen. Decision optimization, true spend analysis, and regulatory compliance – given the dire need, may take off first.
  • PLM will evolve from an application category of loosely coupled tools to an enterprise strategy.
    … and the technology to support it, SLM, has already appeared.
  • Renewed interest in knowledge management practices.
    Again, I certainly hope so.
  • Information democratization takes place, but in moderation.
    This may be the year that organizations recognize the need for information sharing and inter- and intra- organizational decision collaboration, but as to whether or not the information gets democratized, we’ll just have to wait and see.
  • Organizations cannot keep up with data proliferation; a new generation of analytics and search tools will emerge.
    A new generation of analytics tools is already available – and they’ll keep getting better. As for search – progress on contextual-based indexing has been going much slower than initially predicted, so I wouldn’t hold my breath for better search.
  • New business models will leverage remote service and machine-to-machine communication technology to create new revenue opportunities.
    From a remote service perspective, definitely. As for machine-to-machine communication technology – we’ve had that for years. It’s called EDI – and it was replaced by XML.
  • More software will bring more challenges.
    Unless you go SaaS.
  • With [the need for] compliance across the value chain, your suppliers’ and partners’ problems will be yours.
    Definitely.

Manufacturing Insights From Motorola

Last week, Manufacturing Insights hosted a Webinar called Supply Chain Innovation with Perspective from Motorola that caught my attention. Since this blog revolves around innovation, and since Motorola has historically been pretty innovative, especially for a company of their size (and one of the first companies to aggressively pursue decision optimization, which helped them win the Edelman Award), I was intrigued.

The focus of the seminar was to announce some of the preliminary results of Manufacturing Insights’ recent global supply chain survey (which should be available to members by now) of 823 manufacturers, retailers, and wholesalers across Europe, Asia Pacific (which includes China), and North America to identify motivation and IT investment in supply chain and relate it to the corporation’s overall business strategy.

Surprisingly, despite the fact that there’s never been a better time to be innovative with all of the great new technologies and strategies available to you, the survey uncovered that there was not much focus on innovation at all, with the majority of respondents focussed on reducing costs. Although this suggests that the supply chain is still not very strategic, the reasoning offered for this reality was that many of these companies rely on financing and regular access to capital, which is determined by their valuation, which is determined by Wall Street, which bases their valuation on numbers based on how well they control cost. So cost is king. And then there’s the added pressure of rising material costs across the board, which makes cost a double whammy in the forefront of one’s mind.

However, I would argue that this is precisely the reason you have to stop focussing on cost and start focussing on supply chain optimization, including award optimization, supply network optimization, inventory optimization, investment optimization, financing optimization, and working capital optimization. (The former three are good examples of sourcing decision optimization problems and the latter three are good examples of supply chain finance optimization.) But I digress.

The webinar also included an overview of Motorola’s current strategic plan for their supply chain and an overview of their progress to date which includes a 40% reduction in their manufacturing and logistics operation footprint, a 2X reduction in parts-per-million (PPM) defects, and consolidation of 91% of their top 150 suppliers. These are impressive goals for a company the size of Motorola only two years into a massive project to consolidate their four separate supply chains into one single supply chain.

Motorola is accomplishing this goal through strategic investments in critical IT systems that will give everyone on their team the ability to get the information they need when they need it. More specifically, 90% of their IT spend is targeted towards leveraged systems and visibility tools for business planning. This provides a solid foundation for good supply chain management.

For those looking to copy Motorola’s success, they are attributing part of that success to defining their top priorities and maintaining a sharp focus on those priorities. For Motorola, the top 6 priorities are:

  • Execution Excellence
    Meet commitments and numbers. Accomplish this by way of improved IT infrastructure and information visibility.
  • Deep Supplier Relationships
    Leverage the whole of Motorola in fact-based negotiations. Use supplier scorecards and cost management systems.
  • Manufacturing and Logistics Optimization
    Optimize the footprint, product flow, and lean best practice implementation across all sites. Integrate with partners and use advanced planning systems.
  • Quality Renewal
    Go back to the basics and ensure consistent deployment across all business units. Ensure product traceability and capture early returns indicators.
  • Common Leveraged IT Solutions
    Invest in common systems, drive efficiencies, and maximize the value of IT spend. Enhance software development processes and portfolio management.
  • Organization Efficiency
    Optimize the support structure and develop a (metric-based) culture to further growth and performance. Create a culture of doers, not talkers, and drive commonality and reuse worldwide.

In addition, Motorola is increasing their focus on market-based segmentation within the single supply chain, process simplification, and supplier collaboration. What’s great about this is that there’s nothing you haven’t heard about before as most of this is what leading bloggers, analysts, and vendors have been preaching for a few years now. This means that they key to success is to develop a good strategic plan, adopt the technology that is now available, and just do it. Couldn’t be simpler, right?

 

Informance: Manufacturing Performance Management in Disguise

Last week I re-introduced you to Aravo, a hidden gem in the supply chain space with their mastery of Supplier Information Management (SIM) that goes so far above and beyond what you get with traditional packaged e-Sourcing suites that even Oracle, one of the few companies that not only eats its own dog food and drinks its own champagne but also tries fervently to have it for every meal, and Google, one of the few powerhouse research labs left in existence thanks to the short-sighted venture craze and short-term return strategies of the last decade that saw the likes of some of the greatest labs (like Xerox Park, Bell Labs, etc) more-or-less disappear from existence, have decided to adopt the solution.

This week I’m going to introduce you to another hidden gem in the supply chain space that you might not notice otherwise – and it goes by the name of Informance (acquired by Epicor). Although I did introduce them to you back in this post in January, I doubt you took much notice as I didn’t go too much beyond the press release and web-site in my introduction as I was still struggling to understand where the true value of their solution lies.

However, thanks to a concerted effort by their new Chief Marketing Officer, the infamous Sudy Bharadwaj (who temporarily replaced Tim “Mr. Perfect” Minahan at Aberdeen before the arrival of Vance Checketts after market-making stints at MindFlow and i2), their messaging (and website) has been considerably cleaned up and clarified and their knowledge center has exploded. (Their recent series of benchmark studies, reminiscent of Sudy’s record-breaking research performance at Aberdeen of 5 studies in 7 months, is particularly enlightening as to the importance of the type of solution they offer.) After reviewing the cleaned up messaging, the new materials, and a few discussions with Sudy, I’ve finally figured out what Informance really does and how it goes beyond traditional manufacturing solutions to allow centralized operations and contract manufacturing customers to improve their distributed and outsourced manufacturing processes.

In a nutshell, even though they are currently advertising their solution as Enterprise Manufacturing Intelligence (EMI, not to be confused with the EMI Group), what they are really doing is Manufacturing Performance Management (MPM) – which could be explained as next generation Supplier Performance Management (SPM). In Supplier Performance Management (as promoted by Ariba (acquired by SAP), Emptoris (acquired by IBM and sunset in 2017), and Ketera (acquired by Deem), among others), you collect, analyze, and disseminate relevant supplier performance metrics to determine where your suppliers are performing well and where they are performing poorly. You then use this information to optimize your supply base, identify your strategic suppliers, and collaborate with them to root out identified performance issues and develop processes for improvement.

Manufacturing Performance Management (MPM) takes supplier performance management to the next level by not only identifying where performance is lacking (relative to best-in-class) at the plant level but also by providing actionable information upon which you can base performance improvements. By tapping into bi-directional information flows, what-if scenario analytic capabilities, six sigma, lean, and TPM knowledge bases, and heuristic improvement strategies, the system can not only tell you that production is down, but it can pinpoint the specific manufacturing line within the specific manufacturing plant that is not producing its fair share of units, determine the reason for the decreased production (breakdown, lack-of-inventory shutdown, labor shortage, etc), and provide you with a solution to fix the problem (increase safety stock, redesign your transportation network to prevent delays, increase staff levels, etc).

The importance of being able to go beyond identifying a problem to identifying one or more potential solutions in your manufacturing and contract manufacturing operations cannot be over-stressed. Just one of the benchmark studies I referenced above serves to highlight the drastic performance gaps between laggards and best-in-class performers. The Food and Beverage benchmark study found that best-in-class performers have 6,800% fewer process failures (0.25% vs 17%), 828% fewer equipment failures (1.69% vs 14%), and 33,333% fewer shutdowns (0.03% vs 10%). In addition, best-in-class have 10,909% fewer changeovers (0.11% vs 12%), 1,145% less operational downtime (0.96% vs 11%), and over 60,000% fewer production adjustments (0.01%, rounded up, vs 6%).

In addition to the bi-directional information flows, what-if scenario analysis, and actionable insight, Informance also offers real-time performance monitoring, proactive before-the-fact notifications, and multi-level dashboard monitoring that starts at the plant floor manager and goes all the way up to the COO. This is not to downplay their plant solution, which I’d still consider labelling EMI (Enterprise Manufacturing Intelligence), since contract manufacturers can also proactively use this solution to improve their operations and become supplier of choice to their customers, but merely to note the extent to which their enterprise solution goes beyond traditional EMI into the beginnings of true MPM. So be sure to check them out, and their expanding knowledge center in particular.