Yours, mine, and ours
Integrating demand into the supply chain requires technology that supports a clear view of—and for—every customer and every tier
By Malcolm Wheatley, senior contributing editor -- Manufacturing Business Technology, 8/1/2005 6:00:00 AM
Dell Computer ships laptops, desktops, and servers throughout Europe, the Middle East, and Africa from its manufacturing facility in Limerick, Ireland. Dell's is a "build-to-order" business model—in other words, it's as demand-driven as possible.
Dell's expertise in demand-driven supply networks needs little introduction. The concept—first defined by Boston-based AMR Research in 2003—underpins Dell's entire business, tying together suppliers, plants, and logistics networks. But for thousands of other manufacturers, integrating demand into the supply chain remains an intractable problem—and one not likely to lend itself to a one-off solution.
Unlike projects with soft, intangible returns, the benefits from demand-driven supply networks show up unambiguously in the bottom line. Typically, notes AMR Research Director Lora Cecere, the most advanced demand-driven companies hold 15-percent less inventory, have a 17-percent better perfect order performance, and achieve a 35-percent shorter cash-to-cash cycle time. Overall, this equates to a 10-percent improvement in revenue, and a 5-percent to 7-percent improvement in profitability.
According to Cecere, companies wanting to move toward a demand-driven supply network are prone to suffer from several misconceptions. Becoming demand-driven certainly isn't just a technology project, she emphasizes. "Demand-driven companies understand their customers and their markets," she says. "They build processes from the outside in, based on a clear view of what is important to the customer, and the requirements for account profitability."
How it's done by Dell
When a customer places an order, says Sean Corkery, Dell's VP of manufacturing, a carefully choreographed sequence of events springs to life. The first stage involves establishing that the required parts are in stock in the just-in-time (JIT) hubs of its suppliers, most of which share the same campus. Yet Corkery points out it's a more complex job than might be imagined. Despite Dell's commitment to continually improve its products, its corporate customers often prefer to standardize on a known configuration, and an order received for 50 or 100 computers might involve exactly replicating computers last shipped to the customer weeks or months ago.
To establish component availability, Dell uses i2 Technologies' Factory Planner solution, augmented by Dell-written code intended to more tightly integrate Factory Planner-generated queries with suppliers' own systems. Suppliers' replies are fed back to Factory Planner to initiate a schedule. Under normal circumstances, notes Corkery, the components required to build an order get delivered to the Limerick assembly line within four hours of the order being received by Dell.
Litehouse Foods—a Sandpoint, Idaho-based manufacturer of refrigerated dressings, dips and sauces—was faced with demand forecasts deemed unacceptably poor, with variances of up to 60 percent, according to Director of Information Technology John Shaw. The most obvious source of better demand information—namely, supermarket customers' point-of-sale data—was likely to remain out of reach.
"Wal-Mart apart, grocery stores as a sector have been very reluctant to share point-of-sale information," notes Shaw. "The majority of midmarket manufacturers like us are forced to rely on spreadsheets and [Microsoft] Access databases to make forecasts."
Litehouse Foods decided on a different approach by implementing a demand-planning tool from its enterprise system vendor, Ross Systems. Historic sales information is analyzed and manipulated using a series of algorithms to produce a cleaner and more accurate picture of demand. Instead of forecasting at category level on a monthly basis, each of Litehouse's 1,000+ product SKUs is now forecast weekly, which has resulted in forecast variances declining from 60 percent to less than 10 percent, while simultaneously shrinking finished-goods inventory by 6 percent.
MasterBrand Cabinets, Jasper, Ind., also made the push to become more demand-driven, which involved some basic replumbing of its IT processes. The company's 6,000 employees and $1.15 billion in sales revenues represent the culmination of several years on the acquisition trail, says Dave Mewes, CIO and VP of information technology, leaving MasterBrand with a legacy of disparate systems.
As a result, Mewes explains, giving customers a single view of the business—when they want to order products from more than one operating division, for example—involved customer service representatives accessing separate applications at each division to complete the transaction. Even the time taken to respond to a simple order status query was unacceptable—while back-order situations took two days to resolve, thanks to creaky, batch-oriented processes.
A single order management application, built around technology from Vitria, provided a solution. Order-entry errors have been reduced, duplication of effort virtually eliminated, and customer response times improved. Better still, back-order resolution time has been cut in half, says Mewes, resulting in improved cash flow due to faster shipping and invoicing.
IT for the common processes
Echoing AMR's Cecere, Mewes emphasizes that the secret of success at MasterBrand has been to leverage processes, not just technology.
"What we've done is identify and automate common business processes—even when we're jumping between divisions with disparate systems," he says. It was a deliberate decision, Mewes adds, "to work with the customer-facing piece of the puzzle first. The next step will be to apply the technology to certain aspects of the business, such as purchasing."
And not every business follows a "sell one, order up its replacement" business model. Fashion goods, for example, typically are bulk-ordered for a season months in advance, and when they're sold, they're sold. Consequently, for Ontario-based adidas-Salomon, demand-driven means providing its customers—the retail shoe stores—with online visibility into adidas-Salomon's inventory and logistics systems.
Using a solution from business integration vendor Magic Software Enterprises, adidas-Salomon "allows customers to communicate directly with our enterprise systems in real time," says CIO Paul Leone. "We don't want to get into issues of off-line synchronization: it's one version of the truth."
But while establishing the "demand" in demand-driven can prove problematic, disseminating it through the supply network can prove doubly tricky—even in the automotive industry, where Japanese-style manufacturing practices like JIT have been widely deployed for years. Partly, it's a problem of perspective.
The just-in-time ideal—an order lot quantity of one—isn't always a practical proposition, points out Yves Wullaert, manufacturing operations IT director for the Burscheid, Germany-based European operations of Johnson Controls, which has pooled its JIT expertise with enterprise systems vendor QAD to codevelop QAD's JIT Sequencing software.
"While Tier 1 and Tier 2 suppliers manufacture and ship in lot sizes of one, Tier 3 and Tier 4 suppliers manufacture in batch mode, and then pack and ship in containers," notes Wullaert. Inevitably, a clear picture of a sequence of demand on the vehicle assembly line becomes blurred by the time it is seen by the Tier 3 supplier.
The trick, according to Greg Clark, chief executive of collaborative supply chain integration vendor E2open, lies in what he terms "multitier visibility"—links in the supply chain that collectively share, in real time, the demand they are seeing here and now. Think point-of-sale data—but for manufacturers not in the grocery supply chains: real time information from which demand signals can be harvested, allowing forecast and trend information to be supplemented by hot information on what's selling now.
It's a capability that E2open has developed, in part, due to Dell Computer—not directly, but through Dell's first-tier supplier and E2open customer, Scotts Valley, Calif.-based Seagate Technology. "Forecasts are notoriously unreliable," says Clark. "What's so much more valuable is the information, such as knowing that Dell shipped 4,000 of a particular device yesterday."
Since applying E2open's technology—in essence, a collaborative portal—to its 180-supplier, 10-country, 66-million parts-per-day supply chain, Clark says Seagate has more than doubled its inventory turns and reduced its supply chain inventory to under five weeks.
The technology's multitier efficacy is affirmed by E2open customer Agere Systems, Allenstown, Pa. According to Chief Procurement Officer Tom Linton, seeing the E2open multitier solution as part of Seagate's supply chain convinced Agere to adopt E2open itself. "Every time we experience a demand, we disaggregate it via a bill of material, and publish it to suppliers," says Linton. "If it changes, it changes in real time, and everyone sees it."
In addition, the E2open hub enables real-time inventory visibility, allowing suppliers to see the rate at which Agere is consuming consignment inventory stocked in the warehouses of Agere's manufacturing plants—almost all of which are located in Asia, as is Linton himself, who keeps in close in touch with both suppliers and Agere's manufacturing operations from his base in Singapore.
The combination of the E2open technology and Agere's Asian location—time zones ahead of the U.S.—provides a very definite competitive edge, maintains Linton.
"I can spend all day talking to suppliers before the U.S. gets to work," concludes Linton." From the perspective of a demand-driven supply network, it's an undeniably enviable position to be in.
