The new rules for global supply chain management
By Sidney Hill, Jr., Executive Editor -- Manufacturing Business Technology, 4/1/2007 6:00:00 AM
Andy Joyner remembers when manufacturing was a simple business. “We used to build a circuit board and ship it to the customer,” says Joyner, operations planning manager for Jabil Circuit, a St. Petersburg, Fla.-based company that designs and builds high-tech electronics for other manufacturers. “Now we build a circuit board at one of our plants and ship it to another plant, where they [assemble the finished product] and ship it to our customer's customer.”
In many cases, these items—both the components and finished goods—are traveling across continents. And Jabil is not the only manufacturer routinely moving goods around the world.
Complex, global supply chains have become the norm, and managing them has forced manufacturers to reexamine their business processes—as well as the technologies that support them. These days, manufacturers seeking a competitive edge typically want tools and techniques with these capabilities:
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The ability to track and manage all supply chain activities in real time from a central location. In industry parlance, this is known as end-to-end visibility;
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A means of analyzing the potential impact of unplanned events, and making quick decisions to head off any problems such events might trigger; and
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Methods for collaborating with customers and suppliers in both the planning and execution of supply chain processes.
Companies like Jabil and Milpitas, Calif.-based Solectron—both of which perform the full gamut of supply chain activities, including designing, building, and delivering products on behalf of customers—are at the forefront of the movement to identify the best ways of managing global supply chains.
Roughly three years ago, Solectron formed a special group within its business to concentrate on solving supply chain management issues. “The intent is to constantly drive supply chain improvements for our customers,” says Chris Cookson, VP, Solectron Global Supply Chain Solutions.
Cookson says the group has increased service-level metrics such as on-time delivery rates for numerous customers, while also lowering metrics that directly affect supply chain costs, such as order lead times and inventory held.
Supply chain configuration
The first step to achieving these improvements, according to Cookson, was forming strong collaborative relationships with the customers, which fostered a thorough understanding of the nuances of each customer's business.
Solectron, for instance, knows how the demand for products varies from customer to customer, how long it takes to receive and assemble all the components that make up a particular customer's products, and how much it costs to ship goods to every country in which a particular customer does business. That allows Solectron to determine if the customer can consistently ship the right products when its customers want them, and at a reasonable cost.
Cookson says the big question Solectron seeks to answer when working with customers is “how to minimize the [financial] liability associated with holding the amount of inventory that is required to meet specific customer-service levels, while maintaining the flexibility to adjust to unforeseen events like sudden shifts in demand. This gets to configuring global supply chains to meet customers' specific requirements.”
After working through these issues with several customers, Solectron developed a set of tools and methodologies that Cookson claims makes it easier to both configure and manage the optimal supply chain for each of its customers.
Solectron customer Asyst Technologies is benefiting from deployment of several of these solutions. A Fremont, Calif.-based supplier of material-handling equipment for companies that build semiconductor fabs, Asyst outsources all of its manufacturing to Solectron.
After the two companies had been working together awhile, Cookson says Solectron approached Asyst about looking for ways to improve supply chain performance.
“We found that the rate of delivering goods when customers requested them was less than ideal,” Cookson recalls. “We also learned that our record of delivering when we had committed to deliver was in the 85-percent to 90-percent region.”
Further analysis revealed these conditions could not change, unless something in the supply chain changed first.
A new business model
The most glaring problem was the demand-management process. Solectron and Asyst had agreed that all items on a customer forecast would be delivered within six weeks after an actual order was placed, while any item not on a forecast would be delivered within eight weeks of the order being placed. But a review of the actual orders showed that at least 50 percent of the time, customers were requesting delivery in less than six weeks.
“We had configured a supply chain that delivered to a certain set of requirements, and the market had shifted,” Cookson says. “Lead time from Asyst's customers had gone down. We had to find a way of driving down our lead times to them.”
The answer was shifting from a build-to-forecast model to a demand-pull, build-to-order model. This was not an easy shift, considering the size and complexity of Asyst's products.
“We did an analysis at the component level to determine what inventory buffers we should hold to accommodate the variability in how Asyst received orders,” Cookson recalls. “We used that data to implement demand-pull reorder points with our suppliers. We now only send orders to suppliers as the material we hold is consumed. Other than for planning purposes, we have disengaged the supply chain from the forecast, which in this case has proved phenomenally successful.”
Target lead times for fulfilling orders have gone from six weeks to four weeks, but Cookson says most products are delivered within two weeks.
Selectron's rate of delivering when it has committed to do so is now 100 percent, and it meets customers' requested delivery dates 98 percent of the time. “That is a very responsive supply chain,” Cookson says. “The biggest benefit is satisfying customers 100 percent of the time. That's extremely important in such a competitive market.”
Jabil also has a responsive supply chain, and it too works closely with customers to analyze—and respond to—shifts in demand. Jabil makes circuit boards for—and then assembles—cell phones, network routers, laser jet printers, and other high-tech products. Its supply chain centers around a series of hubs, which are warehouses scattered around the world in which third-party logistics providers hold inventory in anticipation of customer orders.
“For their own customer-service reasons, our customers require us to have a certain amount of inventory at various hubs,” says Joyner, the Jabil operations planning manager. “Our production planning is based on that.”
Jabil's planning process starts with analyzing customer demand. “We don't take a customer's forecast as is,” Joyner says. “The customers themselves recognize that their forecasts are not always accurate.”
Time is money
Jabil compares each customer forecast with the history of actual orders shipped. “That might cause us to alter the forecast,” Joyner says, “with the customer's permission, of course.”
When a new forecast is generated, Jabil examines the material it has on hand, along with its production capacity, to create monthly and weekly production schedules. Currently, Jabil does its demand planning—analyzing and revising customer forecasts—in a homegrown application. Its material and capacity planning are done in Microsoft Excel. Data from these processes is loaded into the SAP ERP system to generate production schedules.
Jabil also uses the Rapid Response engine from Kinaxis to perform “what-if?” analysis as new orders come in. “We can load new demand into Rapid Response, and in a matter of minutes know things like how much we would have to spend expediting orders to meet that demand,” Joyner says. “It's much quicker than putting all this information into SAP and waiting 30 minutes or more to get results.”
That time is essential, Joyner says, because Jabil routinely contacts its customers for advice on how to respond to changes in demand. “Collaboration can happen either after we analyze the demand, or after we have looked at material and capacity constraints,” Joyner says. “At that point, we can go to the customer and say, 'This new schedule shows we will have $1 million in expedite costs.' Then the customer can tell us what they want to do. We are helping customers mitigate losses by giving them information to make better decisions about what to do with their demand.”
Jabil is in the midst of a pilot project that could make this process of analyzing demand even faster—and perhaps more effective—by doing its demand and capacity planning in Rapid Response. “We actually bought Rapid Response with the idea of rolling demand and capacity planning into it,” Joyner says. “That would allow our planners to do away with the spreadsheets and homegrown tools, giving them one place to look at everything from a customer's forecast to past demand, and material and capacity constraints.”
Moving all these tasks to Rapid Response would save Jabil considerable time in moving data between applications, and Joyner believes that alone would pay major benefits. “Anything we can do to speed up our processes improves reaction time—the speed at which we can respond to our customers,” Joyner says. “That boils down to money.”
Performance improvements to date
| Historic | Today | Goal | |
| Source: Solectron |
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| Lead time | 8-10 weeks | 4 weeks | 4 weeks |
| On time to commit | 70% | 100% | 100% |
| On time to request | 50% | 90% | 98% |
| Inventory turns | 8 | 11 | 12 |
| Reschedules per week | 330 | 0 | 0 |
| PO lines per day | 40 | 18 | NA |
| Vendors on pull | 0 | 51 | 51 |
| Stock-outs per day | 13 | &1 | 0 |
