Catering to customer demand
Adept, Airbus experience different degrees of success with demand-driven model
By Malcolm Wheatley, senior contributing editor -- Manufacturing Business Technology, 8/1/2006 12:00:00 AM MDT
Adept Technology makes industrial robots, but its business revolves around customer service, which explains policies like its pledge to resolve any problems with its robots within 24 hours.
"If one of our products fails, the customer's production line stops," says Robert Bucher, CEO of the Livermore, Calif.-based company. "We have to get them back online as quickly as possible—at any cost."
Adept actually devised a set of supply chain strategies that enables quick resolution of customer problems at minimal cost. The central tenet is pegging all supply chain decisions—from the number and types of spare parts built, to their placement at facilities around the world—to actual customer demand.
As well as this demand-driven approach works on the service side of the business, it proved to be just as effective—if not more so—when used to support the manufacturing and selling of new products.
Boston-based AMR Research, which has been preaching the virtues of the demand-driven model for several years, has solid numbers to validate its value. Typically, going demand-driven yields a 10-percent boost in revenues, and a 5-percent to 7-percent jump in profits, says Lora Cecere, an AMR director.
For metrics lovers, Cecere says try these: the most advanced demanddriven companies typically hold 15 percent less inventory than their peers, have 17-percent better perfect order performance, and boast a 35-percent shorter ordertocash cycle time.
It seems the only caveat to the demand-driven approach is that it can be difficult to implement, particularly for complex product makers. "It's like wanting to lose weight: just going to Weight Watchers isn't going to cut it," says Cecere. "You must change some fundamental behavior."
Cecere says the primary behavior required of demand-driven companies is learning to understand—and anticipate—how their performance impacts their customers' businesses. Then they must act on that knowledge, which is where information technology can help.
"Ultimately, it's about building agility and responsiveness into production processes and supply chains: being better at postponement, for example, or building additional capacity into supply chains," Cecere says.
A failure to communicate
Airbus, a commercial aircraft manufacturer based Toulouse, France, offers an example of how difficult it can be to execute a demand-driven business model. At the recent Farnborough International Air Show in England, Airbus acknowledged that production of its new flagship jet, the A380, was at least six months behind schedule, and the problems causing the delay would not be easily fixed.
An Airbus executive told journalists at the show that engineers working at different locations made changes to the design to accommodate individual customers, without always updating each other on those changes. As a result, production workers have not been able to properly wire large sections of the plane's fuselage.
It's somewhat surprising that Airbus would find itself in this situation, considering its efforts at resolving problems that had caused production delays—and stiff penalty payments—in the rest of its product line.
Those problems, caused largely by unruly material procurement processes, were addressed by a program called Sup@irWorld, launched in 2003. The intention, according to Sven Kaesser, head of supply chain and logistics, was to create a harmonized set of corporate processes for procuring all goods and services. "This was not just a procurement project, or an e-commerce project," Kaesser says. "It was designed to create a new way for the entire company to deal with suppliers."
Supply chain and supplier relationship management applications from i2 Technologies were key pieces of technology chosen to support the project. But Darci Pelton, an i2 executive assigned to the European Aerospace and Defense sector, says Airbus succeeded with this initiative because its senior management viewed it as more than just another IT project. "They saw it as a people, processes, and procurement practices project," she says.
Instead of Airbus' 16 locations each managing its own relationship with a given supplier, for example, the company moved to a "lead buyer" business model, Pelton explains. Under this model, all Airbus purchase orders emanate from a central location, with items delivered to facilities as appropriate.
The i2 applications simplify this job by melding forecast and order requirements from across Airbus—and across various aircraft programs—into a single requirements list that's transmitted to suppliers weekly. The i2 system also parses the list by supplier, sending orders directly to their ERP systems.
A host of options
This new process drastically changed the manner in which Airbus receives material. The forecasting applications allow some suppliers as much as two-year advanced notice of some Airbus parts requirements.
When it's time for parts to be delivered, a range of options can be employed. Components can be shipped to an Airbus warehouse and held in stock, or they can be shipped direct to the point of use. Components also can be made available to the factory floor through vendor managed inventory techniques, with a weekly parts requirement list to optimally manage the inventory levels.
To date, says Rodolphe Péricat, Airbus' head of supply chain planning, some 500 supplier sites are online, with around 18,000 transactions a day leading to some 100,000 components shipments to Airbus. Volume is growing quickly: by the end of 2006, some 800 supplier sites should be live, and the volume of procurement spend—currently [euro] three billion—should reach [euro] six billion. Airbus expects this to end delays in delivering all of its products—except for the engineering-challenged A380.
There are no such problems at Adept Technology, a robotics supplier to many of the world's largest consumer electronics, automotive, and pharmaceutical manufacturing companies. Adept's products automate such tasks as smallparts assembly or material handling. With each robotic device containing up to 300,000 parts—manufactured by a global list of suppliers—Adept's ability to quickly provide replacement parts is fundamental to its relationship with customers.
Adept's 24hour response time calls for logistics and transportation capabilities that are both costly and time-consuming for a company of its size—around 200 employees—to manage.
Adept chose to outsource its logistics and transportation management functions to D.W. Morgan, a specialist logistics supplier with a software application that connects directly to transportation providers, thus generating optimum delivery options.
A technology test bed
David Morgan, CEO of D.W. Morgan, says the application's effectiveness is enhanced by a recent partnership with Cisco Systems.
The partnership is billed as a formal comarketing relationship targeting supply chain applications. John Fontanella, a senior VP at Boston-based AberdeenGroup, says Cisco needed such a relationship to boost its credibility in the manufacturing sector. "While Cisco operates a very extensive and complex supply chain of it own, just talking about its own experiences doesn't come across as wholly credible," Fontanella says. "There is a perception that technology companies have a lot of money, and they can just throw money at their supply chain problems [rather than finding cost-effective solutions].
"D.W. Morgan is not only very credible in the areas of logistics and supply chain management, but it also has a many-to-many business model serving both manufacturers and transportation carriers, which makes for a great test bed to demonstrate what Cisco's technology can do."
That technology, points out Scott Westlake, Cisco's global director of manufacturing industry solutions, isn't necessarily supply chain-specific. "It's not that there are particular Cisco products made for supply chain applications," he stresses. "We are bundling standard Cisco products and technologies to meet the requirements of a demand-driven supply chain."
In particular, adds Morgan, it is Cisco's ability to extend the network wirelessly that makes a huge difference in a supply chain's ability to be demand-driven. RFID is an obvious part of this, he explains, but so too is the ability to connect with a wide range of devices. "Within the supply chain, a lot of the people who matter don't necessarily have PCs or even desks," he notes.
For warehouse operators, truck drivers—even people on the factory floor—the more you can connect them, stresses Morgan, the more effective the supply chain becomes, because everyone is working with more accurate and timely information.
"Connecting with a supplier in the next building is easy: across continents, across customers, across logistics partners—that's much more difficult," Morgan says. "You need one version of the truth—a single datum that everyone is working to."
Quick response
Westlake says specific Cisco technologies deployed by D.W. Morgan in supporting Adept Technology include Cisco Internet Protocol (IP) phones; wireless LANs that bring mobile connectivity to devices such as human machine interfaces on forklift trucks, and other handheld scanner/printer devices; and Cisco's IP Interoperability and Collaboration System, which enables communications interoperability between disparate radio devices such as walkie-talkies, IP phones, cell phones, and laptop computers.
As an example, an Adept service depot anywhere in the world can identify incoming goods and tie them to a customer, a warranty, and a service history even before they reach the loading dock using service ID codes managed by the D.W. Morgan software. Employees at Adept's manufacturing facilities and service depots, as well as at supplier locations, enter realtime data for every transaction directly into the network.
"The solution lets us converge worldwide resources to respond immediately to customer needs," says Lee Blake, VP and general manager of Adept's after-sales service function. "We might connect a customer in China to a service person in Germany, who could dispatch the part from a Singapore facility. We know what parts are available, where they are located, where they they are needed, and how to ship them fast and costeffectively."
