MEI cashes in on supply chain transformation

MEI (Mars Electronics), which makes cash machine readers and systems for vending and games machines around the world, has identified $150,000 worth of inventory reductions and total savings of $500,000 within the first six months of moving up to advanced planning and scheduling (APS) on its production floor at Winnersh. Beyond that, the firm says it has massively improved customer responsiveness and order promising, with 100% due date delivery performance, while also getting ‘what if’ facilities for decision support in everything from production scheduling to sales and pricing. And MEI reckons its extended the life of the existing ERP system as far as manufacturing management is concerned for the foreseeable future. It’s a catalogue of success. MEI at Winnersh has a turnover of about $100 million and some 500 people on the site, of which 200 are in the factory. In brief detail there are four main production areas, each with its own manager and planners. There’s: a PCB manufacturing area with four SMD (surface mount device machines); an automated robotic assembly line for the common discriminator modules; calibration cells (for functional programming); final assembly; acceptor; changer and T&G (“all the odd balls that don’t fit into the rest of manufacturing”). Back in 1997, pretty well all of the business was managed by a Manman enterprise system (now under the SSA GT umbrella) – handling financials, sales order processing, engineering and manufacturing, the latter with MRP/MPS and conventional forecasting, purchase orders, works orders, material release, stock control and the rest. Robert Gee, MEI’s then project manager, takes up the story. “We’d gone through process re-engineering to cut costs: we’d decentralised our production planning teams and broken them into customer supply teams to focus right down on markets and customers. It was working and it’s fair to say we were getting better performance and factory effectiveness – and better at delivering products on time to customers. “But it was being achieved by long hours and lots of spreadsheets – and that was with what at the time was a relatively stable order book! We knew that when demand went up it would all fall apart. So we wanted to cement that and integrate it into our production management processes. We needed some sort of scheduling system: it was all about ensuring good, reliable, robust delivery performance, shorter lead times and more on time delivery.” Gee concedes that, like many in manufacturing, he and his team weren’t entirely sure what level of sophistication they needed. He turned to APS consultantcy Synchronised Manufacturing which, quickly developed an ITT that “helped us to get a very objective focus for a specification”. Following shortlisting, Gee says, “We looked at ST Point (then from STG, now from Manugistics), Rhythm (i2) and systems from Synquest and Red Pepper (now part of PeopleSoft). Synchronised set up a day of presentations with their systems using our data (“it just took a day of our time to load out some of our BoM data as flat files”). STG was not only the cheapest, it seemed the closest fit for our needs.” But having selected ST Point, now Manugistics Networks Production Scheduler, Gee found himself straight into the culture and the people problems – and they’re worth outlining. “When I was presenting the power of this system, it soon became clear that our management just didn’t understand how our current system worked – its limitations and deficiencies and what they meant to the business and to production efficiency, sales and so on. Their expectations of what we currently had were way to high.” Why should they? Up and down the land the detail of production management is the fifedom of manufacturing managers. But the fact is that unless you flesh out the real world and can then demonstrate the real benefits across all functions concerned by what is a fairly radically different approach, you’re going nowhere. “I had to lobby people to get their support,” says Gee. And there was fear. Senior factory planner Serhat Sonkur says: “An APS exposes all the issues – it’s very unforgiving; you get total visibility. There’s no place to hide and nobody likes the finger pointed at them. With this system it’s going to show you all the orders that are late and what’s restraining them, whether that’s the commercial department, the factory, which part of the factory, whatever.” The trick, he says, was to set up processes so that issues could be resolved quickly and properly. There was also project cost justification. Gee says that although there was soon broad management commitment from, for example, manufacturing and sales, it didn’t amount to measurable hard cash. “Sales were keen on the idea of better, faster order promising, but we couldn’t get them to commit to more sales from it. Manufacturing agreed that the efficiency benefits would be there, but they weren’t prepared to fund the development.” In the end, justification was based on inventory reduction, some factory efficiency improvements and headcount reductions. MEI bought its APS in December 1997, started piloting and implementation in January 1998 and went live, following training and the rest, a little over nine months later in October 1998. It’s now responsible for production scheduling direct, with full integration into sales, procurement and the rest. The Order Promiser module sits between the customer/call centre and the production scheduler itself, which in turn links back into the Manman ERP. “We could have implemented in six months,” says Gee – but again people and processes got in the way. Gee: “First, we used a part time project team. At first I was the only full time member … others were giving 10—40%: people were being pulled out to deal with business issues, so we kept on losing momentum. And there were too many clever people,” he quips. Just as important, he says that allowing the four production area teams to model their own systems in their own way, in the hope of knitting them together at the end, was not good. Gee: “We should have standardised on the modelling and also some of the processes – like kanbans, which are the same in the different areas but managed differently.” The lesson: where processes are not documented or well understood they must be, or complexity and slippage will result. On routing structures, for example, MEI was meticulous, but it took three months to get them formalised because, as Sonkur says, “We had no routing structure other than that through the SMD machines… We were driving manufacturing from the BoM structures, mostly because the routing was obvious.” But after the pain, ‘go live’ was eventually forced. “In the end we went live with some of the managers still wavering. We had one guy who managed the automation and cal area who was saying ‘this makes sense – let’s just do it’, and he was key in making it work because he insisted on sticking only to the schedule,” says Sonkur. “You need that strength of character,” adds Gee, “to drive the system to work.” And Gee observes that, after ‘go live’ there are several critical aspects to any successful ASP implementation. You need: a good understanding of the big manufacturing, procurement, sales, materials management picture; absolutely no work-arounds; commitment to the schedule; reliable and disciplined lean manufacturing machinery and processes; and “a leap of faith”. Other points to be sure of include the old classic, MRP data accuracy, and maintaining stability and production in the face of leaner operations and tighter stocks. Says Gee: “Stock accuracy wasn’t a real problem for us, but purchase orders were soon moving around a lot. To be fair, commercial always worked on the basis that POs had to reflect reality, so if a tool or a machine broke down they’d push out orders and de-commit. But with the APS, production would then be running around wondering why schedules had changed and material wasn’t available.” It had never been an issue under MRP, partly because of its stability, partly the lack of feedback into purchasing and partly because of higher safety stocks. “The system was tightening it all up so there wasn’t much slack. We had to help them to understand. Now if a tool breaks, the rule is you wait till you know when it will be fixed and then act.” All that said, MEI professes itself delighted with its move to APS. It has transformed order promising across the board, with instant CTP (capable to promise) decisions based on real materials, capacity and constraints awareness. And examples abound of the power here. As Sonkur says: “It’s very responsive. Before, we were forecast only, so there was a six week lead time. Now, in a few seconds we’re able to get a real production schedule and real lead time of just two weeks.” Gee and Sonkur also believe that without it the firm would never have been able to turn round the hugely inflated demands it faced a couple of years ago on the run up to the introduction of euro coins across the EU. Sonkur: “Our order volumes tripled and at the same time factory space was halved as part of cost cutting measures. Because sales were driving procurement from forecast but orders peaked several months ahead of expectation, our lead times went from two weeks to seven months. Suppliers couldn’t react in time with the parts we wanted: there were 50 or 60 parts shortages for all our machines.” In fact, the firm turned to its Mexico plant, which is a high volume, low cost producer, and asked them for production capacity. Sonkur: “We agreed to ship materials with a five week lead time, let them do some local sourcing and accept the five week ship back of finished goods. But in the event they provided little more than the labels, and we had to move up to air freight to get the time periods down to meet demand.” And this, he says, shows the power of the scheduler even beyond the four walls. ST Point was used to manage all materials allocation and the remote factory planning, with stable long term production schedules and updates emailed as spreadsheets for the Mexico factory. In fact, the process was also used as a pilot for new products from MEI due out this year, which will be managed and produced in the same way using ship freight. Gee: “We just couldn’t have done it without our order promiser and scheduler. It meant we could promise on orders in a few seconds and deliver by far the majority on time, taking into account material supplies and capacity. And where we couldn’t, the system gave us visibility of what was going wrong – supplier problems, whatever. We could see lead times moving in and out all the time. There’s no doubt in my mind we did the right thing.” Sonkur agrees: “Without it, we couldn’t have coped with the euro. Rescheduling used to take a whole day to achieve, and then it was wrong because it was already out of date. Now it takes a few minutes – and it’s right.” How important is this kind of project? Gee: “All I can say is this system has delayed having to implement a better enterprise system [SAP] as far as manufacturing management is concerned. It was also much lower cost and much faster to implement. It improved customer service; it’s driven down costs, reduced inventory, improved our asset utilisation. And it was excellent value for money. We got our return on investment in six months. “We’ve been looking at some Internet-based supply chain software recently and I’m sure it would be good, but it would have cost £1 million and we couldn’t be certain it would deliver everything the vendor said it would. You have to get your supply chain companies involved as well – and you can’t make them. “APS was completely within our own control. I just can’t think of another project that could deliver that much so quickly.”