From the mundane to the magnificent
Mega-projects are out, but bolstering critical processes yields supply chain gains at Webasto, Sara Lee
By Malcolm Wheatley, contributing editor -- Manufacturing Business Technology, 6/1/2003 12:00:00 AM
At Webasto Roof Systems, a new supply chain management solution is credited with reducing inventories by 15 percent, generating $1.5 million of cash flow, and reducing annual inventory carrying costs by $180,000—and the system is still only 30-percent implemented, says CIO Mike Thibideau. Better still, it's improving the Rochester Hills, Mich.-based company's responsiveness, which is no trivial task in the auto industry, where despite billions of dollars of inventory, filling a customer's special order can still take weeks or months.
Webasto, part of a privately held German company, produces automobile sunroofs and convertible tops for major vehicle manufacturers such as General Motors, Ford, and DaimlerChrysler. The company also is an early adopter of the Supply Visualization package from Carpinteria, Calif.-based enterprise suite vendor QAD.
On a "self-service" basis, suppliers of parts as diverse as glass, motors, and plastic injection-molded components log directly onto Webasto's Supply Visualization portal to download the information they need to keep Webasto's assembly operations running. Previously, says Thibideau, Webasto used a combination of faxes and electronic data interchange (EDI) to communicate its requirements to its 150 suppliers of direct materials, of which roughly half were EDI-capable, while the remaining relied on more traditional means of communication.
EDI-capable suppliers received electronic notification, while suppliers without EDI received what Thibideau terms "rip-and-read faxes," forwarded to them by a major EDI network service. It worked, but clumsily: faxes were easily lost, there wasn't a simple way to acknowledge receipt of the order and confirm the expected delivery date, and—worst of all—it lacked responsiveness, as the faxes were only sent out once a week.
Under Supply Visualization, things are different. To start with, the information that the suppliers that were formerly on EDI see is more than just an order requirement and requested delivery date. Instead, they see a much broader picture, including Webasto-specified minimum and maximum stock levels for each part that the supplier provides, the actual inventory on-hand, and Webasto's production schedule for the top-level item into which that part goes—providing suppliers with advance notification of changes in demand. Plus, says Thibideau, it's as near real time as makes no difference: the information on the portal is updated every five minutes.
The real beauty of the system, Thibideau adds, is that it provides everything that a supplier needs to know to keep Webasto supplied on a vendor managed inventory basis. "Suppliers see our production schedule and our current inventory status compared to min/max targets, and decide for themselves when and how much to ship of a particular part," he says.
Efficiency and better supply-side information translates into bottom-line savings, Thibideau confirms. "This is what has transformed more than $1.5 million in inventory into cash for us, and at the same time reduced our required effort," he explains. "The supplier now knows what needs to be done, and they send us the ASN [advance shipment notification] to confirm it is being done. We don't have to instruct them or ask them unless there is a problem. This allows the materials managers to manage by exception."
Supply Visualization also transforms the business of doing business with the non-EDI suppliers, for whom the portal transmits a schedule-based delivery instruction. "These parts do not have a min/max process, but simply leverage the portal to deliver the requirements, and to receive back the ASN," says Thibideau. "We never got ASNs from non-EDI suppliers, and we were always asking: Did you ship this? When is it coming? In other words, the visibility goes both ways," says Thibideau.
Writ large, what's happening at Webasto mirrors the broader mood in manufacturing. The idea of implementing large suites of supply chain management software may have fallen into disfavor, but gaining improvements from more narrow solutions has not. "In this economy, companies are looking for real-time visibility and intelligent execution," says Singh Mecker, founder and CEO of supply chain execution vendor Valdero Corp., Palo Alto, Calif. "They want to leverage their existing investments in ERP and planning, and generate a fast return-on-investment."
In the process, it's clear that change is underway in the supply chain management space. Interest in some once-fashionable applications is cooling, while interest in other areas is heating up—although the degree of heat is relative. "To be honest, the word 'hot' is very difficult to apply in the enterprise application market right now," says Jerry McNerney, a senior analyst with Boston-based AMR Research.
Additionally, interest in new applications doesn't always translate into hard sales, McNerney cautions. "Profit optimization and dynamic pricing are certainly hot in the sense that people are talking about them, but how many businesses are actually buying them? That's the real test of what's hot," he says.
Even so, says Simon Bragg, a research director with analyst firm ARC Advisory Group, Dedham, Mass., it's possible to point to niche areas where buyers will reach for their wallets: business analytics, supply chain performance management, and wireless tracking, for example. But forget grand visions, he says: today's economy is driving a very different supply chain management agenda. "At the moment, much of supply chain management is about doing the simple stuff—getting processes right, and getting visibility of data."
Simple, but core
At Webasto, getting the simple stuff right includes making Supply Visualization easy to use for suppliers. Says Thibideau, "Because all they need is a Web browser, it's much less intrusive than EDI, and also much less expensive. Instead of receiving a telefax once a week, suppliers can now review the information they need as frequently as needed, without requesting any delivery or action by Webasto."
Also typical of the new realism is Sara Lee Household & Body Care, an Exton, Pa.-based producer of consumer brands as diverse as Sanex, Ambi-Pur, and Radox. Like many businesses, Sara Lee relies on a finely honed, 10-year-old sales & operations planning (S&OP) process to generate manufacturing schedules in anticipation of marketplace demand. S&OP initiatives have been around for years as a means of coordinating the business outlook with operations, but recently, software vendors have been adding applications to support S&OP, and demand planning and forecasting tools have long been supportive of the process.
"It might be considered old hat to some people, but S&OP is absolutely the way we run this business," says Gary Kahler, director of S&OP. "It's the highest-profile process in the company."
Sara Lee has bolstered its S&OP by investing in supply chain planning applications from Prescient Systems, West Chester, Pa. The objective: getting a better handle on likely demand. It's a commitment, believes Kahler, that distinguishes Sara Lee from its competitors. "Everybody estimates demand to some extent: the question is how disciplined and formal they are about it. Some do it on the back of a napkin, and some do it very formally, like us."
The physical embodiment of that discipline is a demand planning group, reporting to Kahler. It dates, he says, from a reorganization two years ago that recognized the need to wrest demand forecasting from marketing, which had previously owned the process, and place it at the center of the business.
The group comprises custodians of a carefully choreographed five-step process that begins on the first working day of each month, and culminates in a formal meeting with the management committee and company president wherein the forecasts are signed-off. "It's a very scripted meeting," Kahler says. "Category by category, we ask ourselves: How did we do last month? What was the variation from forecast? What do we attribute this to? What's this month's forecast? And how does this differ from last month's forecast?"
And although the company doesn't use Prescient's S&OP application—having long since decided that its own homegrown S&OP process was best-of-breed when it came to Sara Lee, two Prescient applications underpin the process.
The first is Demand Planning, which the company implemented in the summer of 2001. "Demand Planning is the platform for the whole process," says Kahler. "It's the repository for the demand data, and how we generate the statistical forecast." The second is more recent: Prescient's Enterprise forecast application, integrated with Demand Planning, which the field sales force uses to derive the four-month rolling forecasts that are fed into Demand Planning at the start of each month's S&OP cycle.
This approach, says Kahler, is popular with the salespeople, who can see at a glance past demand on a product-by-product and customer-by customer basis, and use this as the foundation for their estimates of demand. Better still, thanks to its integration with Demand Planning, they no longer have to enter their forecasts into Excel spreadsheets and e-mail them to headquarters.
On its own, the Demand Planning application is credited with making a major contribution to the improvements in Sara Lee's forecast accuracy and "on-time in full" metrics. Respectively, these were 68.7 percent and 84.1 percent in fiscal 2000, rising to 72.6 percent and 91 percent in 2002. The first nine months of fiscal 2003 have seen a further improvement, to 73.5 percent and 92.5 percent. The impact of the Enterprise Forecasting application is expected to see them rise even higher.
Upfront gains
Look closely, and that same focus on fixing processes can be seen at Lucent, the Murray Hill, N.J.-based manufacturer of telecommunications equipment. Lucent, of course, was spun out of telco AT&T, which was once so vertically integrated that it not only manufactured its own telephones and exchanges, but even produced the components that went into them. Although those days are gone, says director of engineering infrastructure Marc Benowitz, a two-year-old initiative christened Project Genesis is attempting to recreate some of those ties, but on a virtual basis—through collaborative applications sourced from Agile Software, a San Jose, Calif.-based provider of product life-cycle management (PLM) software.
"The objective is to define and develop a single collaborative structure across right Lucent, with a single part-numbering scheme and single change management system—and do it in a way that our suppliers and manufacturing partners will respect as best-of-breed," says Benowitz.
Recently, though, the focus has turned to leveraging this collaborative structure through the use of another Agile application called Product Cost Management. The application, explains Benowitz, aims to make available a single supply chain-wide bill of material for a product, with a single approved manufacturers list. Plus, by making the bills and supplier list available early enough in the design process so that sourcing can also be tied in, it becomes possible to maximize profit margins though smart buying.
"We've never been able to do this before," says Benowitz. "We've never been able to go from the bill of material to the approved manufacturers list, and then to the up-to-date contract pricing—and, where we don't have current contract pricing, issue an automated request for quotation at little more than the push of a button."
The return is said to be substantial, although Lucent won't say exactly how much. "The savings come from being able to proactively go to suppliers and negotiate deals, even though the product is in design. We have manufacturing, design, and procurement all looking at the same core kernel of information—and it's all there, and it's all in sync."
Given Lucent's recent financial woes, it's not too hard to see why the company chose to implement the application—or to see why Agile is so bullish about its prospects. At the moment, anything that moves dollars onto the bottom line is welcome news for any manufacturing company. And that, it seems, is what it takes to be a hot application in today's economy.
| Who's inside | ||
| Agile Software: www.agilesoft.com | Prescient Systems: www.prescientsystems.com | QAD: www.qad.com |
| Valdero Corp.: www.valdero.com | ||
