Closer than ever
Internet-based technologies drive tighter supply chain relationships for companies such as Delphi Automotive
By Marty Weil, Contributing Editor -- Manufacturing Business Technology, 3/1/2001 12:00:00 AM
Among the vertical manufacturing sectors, the automotive industry has long been recognized as the most advanced-and most rigorous-in terms of managing its supply chain to control inventory, streamline production, and prevent process inefficiencies. In this effort, original equipment manufacturers (OEMs) have put an enormous amount of effort into building electronic data interchange (EDI) communications with Tier 1 and other suppliers, in part to alleviate the OEM's burden of carrying inventory.
The advent of the Internet and the subsequent rise of collaborative commerce have given impetus to several new developments that directly affect communication between automotive suppliers and their customers:
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Rising consumer demand for customized products has increased the importance of EDI functionality as sequencing processes (i.e., sequence to ship, sequence to assemble, sequence to manufacture) have become more critical to operational efficiencies.
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The synchronization empowered by EDI at the OEM/Tier 1 nexus has not taken hold between Tier 1 suppliers and those on the lower tiers. Internet-based service is rapidly emerging as a powerful tool to help Tier 1 suppliers better manage relationships with their suppliers.
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Both public and private trading exchanges are being established to help automotive companies and their suppliers reduce costs within their supply chains and bring new efficiencies to business operations.
Sequencing opportunity
What's the thread running between these developments? Simply put, the Internet is promising to tighten the automotive supply chain more completely than ever before. It's a trend that's being supported by a growing number of solution vendors, and that already is being undertaken by manufacturers such as Delphi Automotive Systems.
Among the leaders providing EDI-based functionality for sequencing are enterprise resources planning (ERP) vendors with a strong foothold in the automotive market. These include Carpenteria, Calif.-based QAD, and Grand Rapids, Mich.-based Brain North America -both of which have a strong presence among automotive suppliers. While these ERP players have identified sequencing functionality as an important element in maintaining and extending their presence in the automotive sector, providers have emerged in other areas, such as manufacturing execution, to help support the industry's just-in-time materials management strategies.
According to Mike Nelson, Automotive Development Group manager, QAD's sequence-to-ship functionality brings in industry-standard transactions from OEMs for production sequence schedules (e.g., American National Standards Institute x12, 866 documents) via QAD's EDI/e-commerce capabilities, to allow a supplier to build customer sequence schedules that are used in conjunction with planning and shipping schedules.
"Once these are brought into our ERP system functionality, the user has the option to see those requirements in either MRP [material requirements planning] runs or shipping instructions," says Nelson. "It also provides the capability to create pick lists, pack lists-forward or reverse-and also do auditing and tracking. So when a new sequence schedule comes in from the OEM, the customer can easily identify whether this schedule has already been executed."
QAD developed this functionality in collaboration with Tier 1 supplier Johnson Controls. Johnson's Interiors Group receives sequences for headliners from OEMs in the form of 866 documents, and use QAD's EDI/e-commerce tool for sequence-to-ship tasks.
"As interiors are built, they go on racks in reverse order-first on, last out," says Nelson. "As they are shipped, both Johnson and the OEM can track the sequence, assuring that a gray headliner is matched with a gray interior, and so on."
With the trend toward mass customization, sequencing functionality is paramount to smooth production of vehicles. "They're supplied in order as they come down the assembly line," says Nelson. "The rack goes right into the car; the trucks are unloaded right at the assembly point, with product in the proper sequence."
Michael J. Bradford, automotive industry consulting manager at Brain North America, says that Brain is differentiated in that it supports all three types of sequencing-sequence to ship, sequence to assemble, and sequence to manufacture.
"The functionality we provide takes an EDI document, reads it into the enterprise system, and calculates what the sequence needs to be for loading the truck-a sequence that's also based on the customer-supplied rack," he says. "Once this is done, the system provides the sequence, the rack to load, and rack labels."
According to Bradford, as the EDI solution was developed by Brain, it is better integrated to the enterprise system than many sequencing systems that involve third-party EDI functions.
Says Bradford, "For example, General Motors will tell you always to ship in packs of 100, but its releases won't come in multiples of 100. Many EDI systems require manual adjustment to accommodate this variance, but ours does this automatically."
Execution important
Autoliv, a Stockholm-based automotive supplier and inventor of the world's first side-impact airbag, services the industry from more than 60 subsidiaries and joint ventures in 29 countries worldwide. The company recently implemented Rochester, Mich.-based VIA Information Tools' Man-IT (Manufacturing Information Tool) in conjunction with EDI technology to synchronize assembly of its new airbag/steering-wheel system for the new Ford Escape sports utility vehicle.
"Autoliv has utilized VIA's Man-IT system to send us sequenced parts with quality integrity," says Bob Fish, an in-line vehicle sequencing planning/support manager with Ford Motor Co., Dearborn, Mich. "The system has been in place for more than 18 months. It receives electronically requested packing orders to build, pack, and ship in the requested sequence. The dependability we have experienced is very important, because the sequenced orders allow us to reduce the amount of floor space needed to assemble steering wheels, and to minimize the amount of variability within the process."
Cascade Engineering, a leading provider of plastic molded injection assemblies based in Bend, Ore., has used QAD's specialized EDI e-commerce functionality to align its information technology strategy with strategic business objectives. "We were attracted to QAD's ability to handle automotive requirements-such as EDI release management, containerization, and bar-code integration," says Lowell Johannsen, ERP project manager for Cascade. "We also knew that, in addition to available third-party products, QAD was in the process of developing its own EDI gateways and maps. This was an important consideration."
The next frontier
For all the success that EDI has provided between OEMs and Tier 1 suppliers, its inability to duplicate that success between Tier 1 and lower-tier providers has been a constant source of frustration.
"Tier 1 firms spend an excessive amount of time and money managing and directing their suppliers-which in turn results in a business with unreliable parts availability, high inventory levels, and labor-intensive work processes," says Martin Piszczalski, an analyst at Ann Arbor, Mich.-based Sextant Research.
Every manufacturer that purchases parts has the same simple set of goals: to have parts in the right quantity, at the right time, and in the right place. These production parts should flow into the manufacturer's facility without errors and without significant clerical and management overhead. At the same time, like the OEM, the Tier 1 manufacturer aims to minimize inbound inventory-desiring the mix and timing of incoming parts to precisely match customer demand and production schedules. Any mismatch disrupts production and raises costs, and the impact to Tier 2 suppliers is no less dramatic, because they must scramble to keep up with ever-changing customer schedules.
According to Sextant, supplier-management inefficiencies go directly to the Tier 1 manufacturer's bottom line, because purchased parts are its largest cost driver. For example, says Piszczalski, Troy, Mich.-based Delphi Automotive Systems has annual sales of $29 billion and purchases about $15 billion in materials per year.
"As far as I'm concerned, the EDI infrastructure has been in place and operational for a number of years," says Stephen Bell, chairman and founder of Southfield, Mich.-based SupplySolution. "That technology didn't go past Tier 1-Tier 2s not being able to bear the costs of building that infrastructure-and so Tier 1s are stuck because of the lack of sequencing with Tier 2s."
According to Bell, the answer to this dilemma is what Sextant calls collaborative inventory management-a practice now enabled by Internet-based service such as that provided by SupplySolution. "In this approach, the Tier 1 firm no longer produces vendor delivery schedules for its suppliers, but rather posts on a Web site the minimum/maximum levels for each part it purchases," says Piszczalski.
The Tier 2 firm checks this site throughout each day for its customer's current inventory levels, and then decides when and how many parts to ship to keep inventory within acceptable limits. The Tier 2 company also checks the Web site for its customers' longer-range, rolling forecasts.
This is the principle behind SupplySolution's iSupply, a Web-based "dashboard" into customer operations. "iSupply gives the Tier 1 a way to provide real-time information flow to Tier 2 suppliers," says Bell. "When a Tier 1 ships to an OEM, the Tier 2 knows it immediately."
To implement iSupply, SupplySolution installs a data collection process at the Tier 1, which provides information to its suppliers in browsers. This single unified system eliminates the complexity of Tier 1/Tier 2communications, and already is drawing users. SupplySolution's iSupply customer base has grown from 12 in 1999 to 625 by the end of 2000. Among its users are Tier 1 giants Tower Automotive Systems, Novi, Mich., and Delphi Automotive Systems.
"Tower gets sequence broadcasts from its OEM customers, then uses iSupply to provide its Tier 2 providers with visibility into that activity," says Bell. "This way, suppliers can see what to build and what to ship without EDI."
Delphi has identified the implementation of iSupply as one of its three key e-Business initiatives. According to Bell, Delphi has cut inventory by 26 percent and premium freight costs by 79 percent; it also has reduced downtime by 75 percent since the implementation of iSupply.
"These results are consistent across Tier 1 suppliers," Bell says. "In eight to 12 weeks, inventories drop by 25 percent to 70 percent, and administrative costs are significantly reduced, so personnel can be moved to take on value-added positions. Downtime is virtually eliminated, as are premium freight costs."
Add to this the fact that Tier 2 companies incur no hardware or software costs, and the case for adoption is compelling. Users access iSupply for a small subscription fee. If the return-on-investment isn't fast and significant, they can simply drop the service.
The ultimate push
Bell describes the Web-based service model as a pull system-more responsive to real demand than push-based systems, but never adopted at the OEM/Tier 1 connection because the technology didn't exist.
The Internet, of course, has changed all that.
Automotive OEMs have launched the most ambitious application of Internet technology in Covisint -the Detroit-based e-Business exchange started by DaimlerChrysler, Ford, and General Motors, and subsequently joined by Renault/Nissan. The "push" that all automotive suppliers will get to participate in Covisint will be profound indeed.
While Covisint has talked about driving supply chain execution functionality into the lower supply tiers, this talk has yet to be realized, says Bell. Other vendor experts point out that one huge consortium-based exchange is unlikely to meet all needs.
"The interesting thing about trade exchanges is that their focus is still on MRO [maintenance, repair, and operations] and commodity-based purchases," adds Bradford. "The fact is that both public and private networks are needed. Private networks are needed to tighten Tier 1/Tier 2 trade, since Tier 2 suppliers can't afford EDI. Specialized, engineered items also lend themselves to exposure over a private network. AMR Research and other analyst firms have said that in three to five years, public networks will still be doing only 15 percent of transaction volume in the industry-so there's a compelling case for participation on both fronts."
Nonetheless, Covisint continues to gather momentum. Commerce One, Pleasanton, Calif., has signed an agreement to furnish the core e-marketplace infrastructure for Covisint-providing the e-marketplace transaction engine, e-procurement application, and auction and catalog content solutions. According to Mark Hoffman, chairman and CEO of Commerce One, the agreement with Covisint promises, "to deliver a global e-marketplace platform for the automotive industry."
While the exchange's early performance is still being assessed, the clout it carries at its foundation continues to cast a long shadow over all solutions designed for the automotive marketplace.
