Ducati: riding on the lean road

Lean thinking is spreading throughout the supply chain at motorcycling legend Ducati, assisted by the Oracle E-Business ERP suite. The company, which has been embracing lean principles at its Bologna, Italy production site since 1999, is now using the system to further cut waste and costs, while improving efficiencies, by building an electronic demand-driven supply network that responds as rapidly as humanly possible to customer orders. It's effectively Phase Two of what's been a major operational revolution at Ducati following the purchase of the company by US-based private equity firm TPG (Texas Pacific Group) in 1996. And Giovanni Contino and Filippo Pellerey, now joint managing directors of Ducati Consulting, but formerly purchasing and logistics director, and lean improvement manager respectively, reckon that it could match Phase One (lean production) which resulted in production costs down 25%, throughput time cut 50% and build quality improved 70%. Phase One, dubbed Operation Turnaround, was about improving return on investment for the new management - by filling its newly rebuilt dealer network with motorcycles. The first goal was to increase production volumes from 12,000 bikes a year to 40,000 within five years - but within the existing factory space, and without increasing employee numbers. Ducati's solution was to outsource as many non-core activities as possible and focus efforts on assembly and R&D. Says Pellerey: "We wanted to eliminate all non-value-adding activity, eliminate waste and improve quality, all without any major new investment. We decided that outsourcing and embracing lean principles were the keys." The team adopted Kaizen and Just-In-Time principles, starting with analysis of its production, which revealed the usual issues like unnecessarily long and tortuous component flows through machining operations, push-based purchasing and production and so on. "So we improved the material flow and the factory ergonomics and devised a TPM [Total Productive Maintenance] approach to improve machine reliability," says Pellerey. "Some of the most significant results included an increase of 12% in machine reliability and a reduction of 23% in hourly costs." Next came the move from 'push' to 'pull' logic on the production lines, using assembly kits from kanban-fed 'supermarkets' carrying the materials needed for only one engine or one vehicle. That reduced inventory, obsolescence and error rates and, equally important, improved flexibility. "As we worked through all these changes, we found that we could cut the cost of our product by 25%, which was a great start," says Pellerey. Supply chain fast lane However, he adds: "Since only 8% of the product cost was produced internally, it was necessary to extend, develop and implement the Kaizen philosophy and JIT methodology to the supply chain." Contino explains: "We had 380 suppliers, and lean was new to most of them. We had to select only those suppliers who could follow our new approach, and so we ended up cutting back from 380 to just 175. "To get them on board, we introduced an integration programme that involved Ducati people and supplier staff working in teams. We wanted to consider our suppliers as extensions of Ducati, and that meant connecting them via the web so we could exchange and accelerate the flow of information, like production planning, parts price lists, invoices, quality reports and so on." With the requirement clear, in 2003 the company decided it needed to tackle its ERP. "We needed to improve our visibility into suppliers and dealers and we couldn't do that with our existing AS/400-based system," says Contino. "So we employed IBM Global Services to help us with the selection of a replacement system, which had to be able to work with our existing successful lean structure." Each department was consulted and presented its requirements in terms of current needs and future potential, and that led ultimately to Oracle. "We did a deep investigation and chose Oracle for a number of reasons. It might seem strange, but we saw them as a young, very aggressive organisation like ourselves. But it was also very open and flexible," says Contino. "Today, it is possible to create the conditions to compete effectively in the market only with an IT system that is entirely Internet-enabled," says Enrico Pirrone, IT director. "The policy we have pursued involves a complex project that has ambitious implementation objectives, which could only be addressed with a technological partner that is reliable, competent and a market leader. That is why, after having assessed various solutions, we chose Oracle." Ducati initially deployed Oracle E-Business Suite in two phases, starting with Ducati North America in 2004, with the support of Oracle Consulting, and then moving onto its Bologna HQ with financials, production, manufacturing and the supply chain. Lean on IT "Oracle gives us the tools to make lean work," asserts Contino. "The system is extremely fast, it integrates very well with our suppliers and delivers excellent business intelligence... Next we will roll the system out to all the main dealerships around the world - in Japan, Benelux, France, Germany and the UK. That should be finished by the end of this year." When the implementation is complete, more than 1,000 Ducati employees will be connected.