Reaching out far beyond the four walls?

OK, where are your biggest business management headaches today? Dig beneath the inevitable top line financial ‘challenges’, and chances are they’ll be issues around materials and production costs, efficiencies and on-time delivery performance, engineering time to market and rationalisation, people and managing change. They should also include your supply chain – inbound and outbound, depending on where you figure – because today it’s unlikely to be working well for you. And it’s worth worrying about because it almost certainly could be considerably better and delivering real competitive advantage. Fact is, improving the management of your supply chains is where some of the greatest and swiftest returns can now be realised. Why? Because most of us have got ERP already (or something that passes for it), and we’ve, quite rightly, been implementing the add-ons that made internal sense – but, crudely, if our manufacturing cycle times are now significantly shorter than our suppliers’ (variable) lead times, we’re into diminishing returns. That’s not to say we shouldn’t still be pursuing continuous improvement with lean thinking and the rest but, bluntly, modern alternatives to the conventional tools for dealing with the difficulties of the supplier side – safety stock and the big stick – are available, and the cost/benefits can be compelling. Which is fine, but where do you start? What’s hype and what’s reality? What are the preconditions? What are the likely real gains? What the costs? What new ‘collaborative’ web-enabled processes should you consider? What are the pitfalls to avoid? What are the people and business culture implications? And those for the IT infrastructure? Indeed, who do you turn to for consultancy and then implementation? Perhaps most of all, who do you believe, and how do you prioritise initiatives and technologies? Last month we gathered a dozen senior manufacturing business managers (operations directors, production managers, IT directors from across industry), some software vendors and consultants round a table for our seventh MCS Forum, and put these questions to them. The result was a salutary learning experience for us all, not just because it underlined the importance of that well used phrase ‘it depends’, but because it illustrated how little many know about relevant applications and acronyms. A quick straw poll revealed that while ERP and umbrella supply chain management (SCM) are well understood, there’s a way to go for available to promise (ATP, 64%), advanced planning and scheduling (APS, 53%), supply chain event/exception management (SCEM, 44%) and supply chain planning and optimisation (SCO, 42%). As for capable to promise (CTP), profitable to promise (PTP) and the analysts’ darling ‘supplier relationship management’ (SRM), less than 40% of our managers knew what they meant. Interestingly, much the same number were aware of web portals. At the end of the session, when users were asked to prioritise their supply chain IT investments, the picture was clearer. Most rated going for SCEM extensions from their existing ERP vendors (68%), closely followed by buying and implementing portal and web exchange software – both to enable low cost, interactive planning and event and exception management with their suppliers (collaborative forecasting and replenishment, CFR). Then, getting managed services for SCEM/CFR ranked slightly ahead of investing in ATP technology (33% and 29% respectively), which was in turn rated just above CTP, PTP, APS and supply chain planning and optimisation software. So why the vote for extended ERP and day-to-day supply chain support in terms of CFR and SCEM systems? Because Forum demonstrated that when we’re given the opportunity to understand in detail what can now be achieved, warts and all, through IT founded on web technologies to transform the bit we haven’t readily been able to control – suppliers and customers – it makes operational and business sense. One without the other? It’s also fair to say that frustration with incremental internal progress in production adds to its apparent appeal. Graham Leake, systems director with Britax Aerospace, was typical when he spoke of the limits on the shop floor for manufacturers making complex configured- or engineered-to-order assemblies – in his case executive airline seats, aircraft toilet modules and the like. Not only are production runs often short, so optimising cells and set-ups and improving efficiency aren’t trivial, but, for some, they’re further complicated by design changes during production. For him, these can be daily, for others several times a day. Steve Read, production manager at Meggitt Aerospace, was one in the latter boat, and both alluded to the obvious havoc it can play with shop floor and engineering schedules and their internal improvement programmes. But a note of caution: Forum agreed that if that’s the picture, improving the supply chain could be problematic too and, at the very least, limited. Because it absolutely is the case that unless your internal processes are rationalised, well controlled and reasonably stable (at least understood and properly catered for, with appropriate automation, balancing, event management, consistent data and workflow), you’re going to have a problem setting up very much that’s consistent and worthwhile with your suppliers. And looking simply to commodity suppliers for improvement is not what web-based SCEM/CFR is about: kanbans, vendor-managed inventory (VMI) and the like are more than enough for them. That said, it’s worth airing other barriers to supply chain initiatives. First, some supplier rationalisation is a requirement. As Leake said: “We need to resolve and stabilise that and then work with the suppliers we’ve got left to choose the mechanisms … that give us best value for money.” Second, be aware of your suppliers’ limitations. Again Leake: “We’ve been wrestling with what we can do … but we’ve got some fairly unsophisticated suppliers.” And third, your own limitations. In his case, the ERP isn’t configured to provide schedules externally, which is why the firm’s been generating schedule reports and then, like so many, resorting to fax and email. “We don’t have the authorised extension so we can’t produce schedules straight off the system.” So caveat emptor: there are bound to be process, business and IT hurdles to overcome – and investments to make. But round the table, users agreed it’s worth the candle if you accept that phone, fax and email are no way to attack the long lead times, excess inventory and errors that are the inevitable product of conventional supply chain communications’ latency and adversarial business relations. It depends on the company, the products, the industry and the supply chain, but the business case for reducing them to a level where the customer-supplier relationship throughout the chain is better optimised is as clear as the reasons for their current existence. All that said, what do we want? Read’s view: “We want to get rid of all that. I’ve got all that information on a [ERP] screen in front of me, so why isn’t that in front of my suppliers?” Why indeed? Alan Smith operations director with PG Drives Technology: “What we really need is a supply chain system that’s reactive to change in demand.” Just so. Eugene Martinez, managing director of Chase Advanced Technologies: “We need something proactive that’s going to give you the opportunity, if your supplier’s going to be late, to maybe get materials from somewhere else; give you options.” And Stewart Angell, supply chain director at Horstmann Controls: “I’d like to post my six month forecast on the web and have my top 20 suppliers access that and feed back to me any issues they’ve got going forward.” Quite simply, there have to be better ways – as long as they don’t add bureaucracy of their own. What most of us want is something that links to our existing systems and deals with all this, while also improving our purchasing people’s ability to manage suppliers as opposed to placing orders – but without making things even more complex. And that’s what web SCEM/CFR systems purport to deliver with a real dose of pragmatism. Given that we cannot control the way people behave in different companies with different agendas, it provides a tool – an ERP-independent responsive, exception-based environment – that extracts and publishes system data in whatever format to reflect the reality of changing forecasts, call-offs, component designs, delivery problems and the rest, fast. It enables people to make their own decisions about how they manufacture, how they meet delivery dates, how they deal with change, obsolescence and so on, today, now, rather than tomorrow or next week. And since it’s web-based, ‘integration’ between relevant supply chain systems is loose – equals easy. As Nick Beck, marketing director of Swisslog, said: “Where you have very large powerful customers or large powerful suppliers you can agree the method of communication, XML, EDI, whatever. But the one big benefit that Internet solutions provide is, whether you deal with suppliers in a sophisticated way or simply have your system send them a fax, you have one standard you can deal with everyone on.” It’s all about providing what Martinez, calls ‘transparency’. There are plenty of definitions of that, but ultimately it’s whatever is appropriate to you. His: “Transparency is we manufacture to a bill of materials that has a cost associated with it. Those costs have to be acceptable to [everyone] as far as margins are concerned, otherwise we have penny pinching and the big stick. But it’s also the change note system… If we are managing our customer’s bill of materials, then as soon as they think of a change we can sit down with them and our suppliers and say ‘wouldn’t it be a good idea if you made the changes in a couple of months time. Because then we’ll have used all the inventory we’ve pulled in, or is in the pipeline’.” The point is we deal with three key business and manufacturing variables day in day out: with suppliers’ ability to supply to plan, with the manufacturing units’ own ability to produce to plan, and customers’ ability to honour their commitments. At the end of the day, we need to look outwards, because as Martinez says: “Without knowing what to manufacture and when, the whole supply chain falls over because components won’t be there.” And if you thought your existing ERP did that for you, think again. As Pat McCarthy, managing director of ERP vendor Information Engineering put it: “What does the ‘E’ in ERP stand for? ‘Enterprise’: better tools on the shop floor, better tools for marketing, sales, pre production, production.” ERP is internal-facing – which came as a shock to some. As one operations director said: “We have spent millions of euros developing an ERP system …and unless we have some form of exception management that allows us to do things a bit smarter we’ve pretty much wasted our money.” Another cynic suggested: “If you’ve spent millions putting in ERP, you’re not likely to come back and spend another £200,000 to make it work properly. So you’ll go away and buy another £200,000 of software which has the same effect but a different name.” Undeniable benefits OK, but the business benefits of SCEM, independent of ERP, are tangible and clear. Your own and your suppliers’ buffer inventories and obsolete stock exposure can readily be reduced as current information is instantly available for decision making. Then at goods in, keying errors, data inaccuracies in the ERP system which lead to it suggesting orders you don’t need, and delays in notifying suppliers of incomplete batches or those that fail inspection, can all be avoided. Not only will the SCEM system provide consistent documentation, its event management will mean instant electronic notification of inadequacies both internally to alert, say, production, and externally, to re-instruct suppliers. As Paul Heaven, managing director of SCEM managed service vendor Wesupply, put it: “If your BoM has 10 items, nine of which are on two days lead time, one on 10 days, your ERP system will order the longest lead time item 10 days before production needs it. Then it orders the remaining parts two days out – unless it’s been told that the first item is going to arrive three days late and the rest of the components are simply going to sit in goods-in as unnecessary inventory!” Peter Woodward, presales consulting manager at Oracle: “All anyone is interested in is what’s the change over the previous schedule and they need to know that quickly, before they run their own MRP because even if it’s only a day cycle, you overcome that by buffer. You take that day cycle out and make that change the second it occurs and you buy one or more of those days buffer at every member of the supply chain.” They’re simple examples, and there will be issues around just how sensitive we want such systems to be. Some will require safety stock no matter what; we may question key suppliers’ reliability, but as Brian Edmonds, materials manager with Carter Products, pointed out, if they’re Faberge, Proctor & Gamble and Unilever, and they’re the only companies making what you need, you’re a bit stuck! Again, it depends! How much would we be prepared to pay for a system that in this way could save money, improve our external and, as a result, our internal operations, and monitor supplier performance with connection into our ERP systems? Quite a lot. One user indiscreetly suggested £50,000, and the fact is organisations like Wesupply or, for that matter his own ERP supplier, could probably fulfil what he needs for substantially less.