Category Archives: Manufacturing

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.

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?