Industrial revolution II

Nicholas Scheele, chairman of Ford Europe and also chair of the Department of Trade and Industry’s Manufacturing 2020, speaks to Brian Tinham about “the most important item [boards of directors] have got to worry about for the next 10 years” “I believe we’re standing on the brink of a fundamental change in manufacturing. The Internet is the catalyst and prime enabler for the most radical change in manufacturing since the industrial revolution.” So says Nicholas Sheele, chairman of Ford Europe and also chair of the Department of Trade and Industry’s Manufacturing 2020 panel, part of its ‘Foresight’ initiative which aims to focus investment in research and development on technologies most likely to benefit UK plc in the long term. He expects that change to touch everything from customer ordering processes to internal business and engineering/manufacturing, and on to the way manufacturers interact with their material suppliers, partners and the rest. And the drivers, he says, will be the potential for “massive reductions in working capital”, alongside competitive pressures for huge cuts in order fulfilment time scales and equally huge improvements in customer service – all enabled by the changing face of IT and, specifically, “the ‘transparency’ that the Web provides.” Sheele should know: he is among thought leaders in manufacturing IT strategy for the automotive industry, with 35 years devoted to it. Having completed his degree at Durham, he started with Ford in 1966, looking after purchasing, and covering material planning, production control and logistics across Ford’s British and European operations. He moved to the US in 1978, and became president of Ford Mexico in 1988, returning to the UK in 1992 to run Jaguar – and doubling its world-wide sales to 1999 before moving to the top Ford job in Cologne. So what does ‘massive reductions’ in working capital mean to Sheele? “Take the automotive industry,” he says – and he believes that it’s model extends to many others – “we sell $280bn of vehicles in Europe per year. But we have five or six months of inventory.” He explains this as 70 to 80 days worth of finished goods and three months of committed materials. “That’s $140bn of stock at 11% cost of capital – $900 per unit.” Sheele accepts that these figures are rounded up, but notes that even if working capital is only $100bn, “that’s still $750 per unit” – a huge price for stock and supply chain inefficiencies. So how much could this be chopped? Sheele says average physical delivery time in Europe for a car is eight days; and it takes one to two days from time of committing a body to the vehicle rolling off the end of the line. “Suppose,” he says, “you have Just In Time and sequenced line-side material delivery; suppose your suppliers have transparency of planning and scheduling, and add four more days. That’s 14 days, not six months.” And that’s $75 per unit, not $750: yes, that’s pretty massive. How do you do it? Warming to his theme, Sheele points to today’s sequential batch systems and hugely wasteful, departmental, and error-, delay- and excess stock-ridden manufacturing processes, which stem from a heredity of mass production and build-to-stock – because there was no other economically or technologically viable way. He says manufacturing has to rethink the way it operates all the way from the customer order. “When a customer orders a car, that order will be transmitted in real time over the Web, and the system will seek for the first feasible ‘bucket’ for it to be built.” But that’s certainly not all: in Sheele’s vision, suppliers and their supply chains will also see the order immediately, and know what’s required where and when – as it’s committed. Equally, the customer will receive a delivery date promise – reflected to the delivery company. Meanwhile, Sheele says reducing the cost while simultaneously accelerating the design side is analogous to manufacturing. And he points to the emerging Web-based trading exchanges where component prices and data, including electronic drawings, will be available for movement “up, down and sideways across the supply chain.” In short, the Web is the path to interactive, collaborative design. Sheele accepts that manufacturing has a long way to go. “Ford, in common with many others,” he says, “is just starting. We’re putting systems in line to do this.” What’s required, he believes, is an “IT makeover of significant proportions.” And that has to cover everything from engineering, to manufacturing, the logistics and supply chain infrastructure – and the people. “Everybody needs to be in the loop,” he says. So what sort of investment are we talking about? “I haven’t a clue,” says Sheele; “it’s not going to be cheap: everybody’s legacy systems will have to change.” But specifically, he says, “most complex organisations don’t run a single bill of materials (BoM) today.” They haven’t had to with the sequential systems operated to date. And he points to the separate levels of BoM across the different departments – engineering, manufacturing, sales, purchasing, accounting – different views of the current situation. “A single BoM will have to have everything in place,” he says, “so that all changes are live and real time and can cut in and cut out at every level. We need to treat it as one contiguous view.” Packaged scheduling systems just don’t have that level of sophistication at the moment, he opines. “You can see how today’s different packaged systems [like Web-enabled PDM (product data management) and APS (advanced planning and scheduling)] have elements of what’s needed. The trick will be to tie it all together.” How important is this? “It’s the most important item [boards of directors] have got to worry about for the next 10 years. It’s all about manufacturers transforming themselves into 24/7 businesses: logistics will be critical, people skills will be critical. Manufacturers will have to get far closer to customers and to their suppliers.”