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Owner Management
CHAIN REACTION
Technology has a fundamental role to play in enabling manufacturers to manage their supply chains more effectively than ever before. Anthony Harrington reports
Getting smarter about driving costs out of manufacturing is now a fundamental requirement for staying in business, no matter where in the world a business is located.
As Grant Thornton partner Paul Melville observes, manufacturers are pushing more and more of the tasks they used to do internally onto their tier one and tier two suppliers. Excellent communications and unimpeded data flows are crucial for everyone to stay synchronised so that stock and raw materials do not pile up inefficiently or cause outages in this extended system.
"Today, supply chain management is an integral part of any successful manufacturing operation. You are either doing it to your suppliers or having it done to you," says Melville. The internet and various open initiatives such as XML, which makes it easy for electronic documents and data to move between incompatible systems, make supply chain management much easier to achieve.
It is now possible for a manufacturer, for example, to give any company that has a PC with a browser and access to the internet a direct route into key internal data, while still managing this access in a controlled, secure way. This in turn has speeded up the process of devolving component manufacture out to key suppliers.
The consequences of this quiet revolution in manufacturing can be absolutely devastating for companies that do not adapt in time. "If one takes the automotive industry for example, which has been one of the leading exponents of supply chain management, technology is now used to operate 24 hour design centres to dramatically shorten new model and new product time scales," says Melville.
Global design efforts now exist that begin, say, in Australia, then shift 12 hours later to the United States and then are handed back to Europe, with true 24 hour teaming on design. "European manufacturers now have to compete with this kind of operation and if they haven't got the skills to manage this kind of global play, then they won't be in the game for very much longer," comments Melville.
This ability to manage supply and component manufacture at a distance is greatly facilitating one of the most dramatic trends in manufacture at the present time, namely the flight of lower grade jobs to low wage economies.
"What we are seeing more and more, to the point where it is now an irreversible trend, is manufacture moving to China, India and the lower wage East European countries, while design and development is done in the high wage economies of the West," says Melville.
Chris Hibbs, a partner at Grant Thornton and automotive leader for the UK, warns that companies need to know exactly what their business processes are, in fine detail, before they can implement supply chain management effectively. "You can paper over the cracks and do work-arounds, but you will have to revamp certain core processes to reap real advantage from implementing this," he says.
Where the giant manufacturers have really reaped rewards they have inevitably gone through a huge process in rethinking their entire production process, divesting themselves of huge areas of responsibility and pushing this down to the next level of supplier.
However, Hibbs argues that companies should not get stuck on the idea that implementing supply chain management necessarily involves millions being spent on installing big enterprise wide systems. "This process is essentially all about understanding what needs to be done to get the right stock in the right place at the right time, and at the right price. The mobile phone can be a great communications channel to get much of this sorted out - and if you add a data flow capability to it, as many companies are now doing with wireless data networks, you have a very powerful set of tools indeed," he says.
Hibbs points out that a number of businesses are now turning to methodologies such as kanban, a supply chain management methodology that is technology neutral, to solve supply chain issues. "Kanban and methodologies like it are just a process for identifying who is responsible for what when an order is taken. A lot of businesses are looking to move back to this kind of grass roots approach," he says.
Another approach to improving the flow of goods, components and raw materials through the supply chain is to move processes away from scheduling type systems towards a smoother flow. "The essence of this sort of approach is to say, our average order for the period is X, but we want our suppliers to build in sufficient flexibility to be able to accommodate an agreed deviation from this in either direction," says Hibbs.
The net result of this kind of approach is that while the manufacturer ends up with a perfectly smooth just-in-time manufacturing process, the tier one and tier two suppliers have to hold higher stock levels than they had historically in order to enable this new flexibility.
"Basically, the manufacturer wants predictability while the market wants total freedom of choice. But the pressures of modern manufacturing mean that both sides are now much more aware that compromises are in everyone's interest," says Hibbs. Where there is an opportunity for a company to sell its goods and to achieve significant profits, any process can be flexed. "Ultimately, these all come down to commercial rather than to systems decisions," he says.
While supply chain management is all about building relationships and adopting an integrated approach, one modern trend, namely electronic auctions, seems to go in a totally different direction. By their nature, electronic auctions are all about manufacturers looking to get a number of suppliers to compete head to head, so that the manufacturer can get the keenest possible price. Except in certain circumstances, for example when a supplier is trying to shift surplus stock, they are anathema to good supplier/manufacturer relations.
"Initially manufacturers rushed into electronic auctions as a way of driving down costs. Now we are seeing much more focused buying on electronic auctions, and their main role seems to be to provide a benchmark for prices," says Hibbs.
Companies are now once again prepared to recognise that more than price needs to go into the equation. Guarantee of supply can be more critical than buying at the lowest price, as can quality. This change of attitude is also helping to reinvigorate the spread of end to end supply chain management practices.
However, as Julian Thomas, a partner in the consulting practice of Deloitte in Birmingham observes, end-to-end projects tend to be very complex. They can take several years to complete and demand a sophisticated mix of process, IT and financial skills, involving people at every level in the affected organisations.
Not every implementation, however, needs to be quite this thorough to achieve benefits for the participants. Thomas argues that with the right support an organisation can achieve a major turnaround of its supply chain in a very short space of time. "In one client company, we laid the foundations of a wholesale supply chain improvement in only six months," he says.
Thomas says that Deloitte was able to demonstrate to the client that it would achieve a return on investment of 175 per cent over two years, with the project being self funding in six months. The design was done in such a way that even an aggressive growth through acquisition strategy by the company could be accommodated within the supply chain system.
"What this company found was that its market, the supply of medical devices, was becoming much more demanding. Its competitors were raising their game and this highlighted shortfalls in its own performance," Thomas comments.
The problem the company faced was that its growth through acquisition strategy had brought it benefits, but had also left it with fragmented processes. This was compounded by a tendency to treat every product as a mini line of business in its own right.
This made it difficult to get an overall picture of the customer, or to coordinate customer handling. Using this approach was also expensive as it was difficult to take costs out of the process by sharing back office systems between these mini lines of business.
One of the shortcomings the company highlighted was that despite carrying more inventory than its competitors, it was still repeatedly missing delivery targets. Without the ability to look across the whole division as well as at product level, little progress could be made.
This company made the sound decision to first analyse the shortcomings in its existing systems before making any capital investment in technology to solve the problem. "We carried out root cause analysis of acknowledged delays and problems along both the internal and external supply chain," says Thomas.
The emphasis on local solutions meant that no-one had previously considered the entire sequence of activities, from market intelligence right the way through planning, sourcing, manufacturing, delivery and servicing.
Deloitte examined the entire operation across four European countries and the United States. A team of seventeen Deloitte people worked with a similar number from the client company. Deloitte analysis showed a range of potential improvements. Better planning and forecasting, for example, would allow sea freight to replace expensive air freight while still achieving better on time delivery rates.
The study has now moved onto the preparation of a business case for a wider project. This will involve examining the feasibility of sharing services across the organisation, as well as scoping a supporting enterprise requirement planning implementation.
One of the challenges facing companies that shift their factories to different regions is getting a view of which factories are operating better than others. This kind of corporate performance management is only possible with good visibility up and down the supply chain, so that group headquarters can see which manufacturing plants are performing to a high level.
Some of the key performance indicators that companies will be focusing on are comparing plant performance on such factors as general yields, raw materials to finished goods, and how much the plant has actually made with its particular work force versus how much it was predicted to make.
So, what is clear is that supply chain management is a demanding and challenging process when moving abroad. It can take a company a few years to get its supply chain sorted out in a particular low wage economy, with all the systems working perfectly. And by the time it reaches this stage, most of the company's key competitors might already have jumped to another, even lower wage economy.
Melville points out that one of the real benefits excellent supply chain management and planning can bring is the ability to take advantage of cheaper modes of transport to move goods from the factory to market.
"Anyone can air freight out supplies, but when you turn to air freight your profit shrinks dramatically or vanishes. It is a crisis only mode. What you really need to be able to do is to plan your production, with the help of good supply chain management, so that you can accommodate lengthy sea journeys and plan them into your production and delivery cycles," he says.
Companies that get this right make substantial profits. Those which get it wrong find that their shipment of toys, for example, arrives in port after Christmas. "If you miss your market window you end up trying to sell last year's fad and that is a hopeless position to be in. Supply chain management, properly implemented and executed, helps to ensure that this kind of blunder does not happen," he concludes
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Technology has a fundamental role to play in enabling manufacturers to manage their supply chains more effectively than ever before. Anthony Harrington reports
Getting smarter about driving costs out of manufacturing is now a fundamental requirement for staying in business, no matter where in the world a business is located.
As Grant Thornton partner Paul Melville observes, manufacturers are pushing more and more of the tasks they used to do internally onto their tier one and tier two suppliers. Excellent communications and unimpeded data flows are crucial for everyone to stay synchronised so that stock and raw materials do not pile up inefficiently or cause outages in this extended system.
"Today, supply chain management is an integral part of any successful manufacturing operation. You are either doing it to your suppliers or having it done to you," says Melville. The internet and various open initiatives such as XML, which makes it easy for electronic documents and data to move between incompatible systems, make supply chain management much easier to achieve.
It is now possible for a manufacturer, for example, to give any company that has a PC with a browser and access to the internet a direct route into key internal data, while still managing this access in a controlled, secure way. This in turn has speeded up the process of devolving component manufacture out to key suppliers.
The consequences of this quiet revolution in manufacturing can be absolutely devastating for companies that do not adapt in time. "If one takes the automotive industry for example, which has been one of the leading exponents of supply chain management, technology is now used to operate 24 hour design centres to dramatically shorten new model and new product time scales," says Melville.
Global design efforts now exist that begin, say, in Australia, then shift 12 hours later to the United States and then are handed back to Europe, with true 24 hour teaming on design. "European manufacturers now have to compete with this kind of operation and if they haven't got the skills to manage this kind of global play, then they won't be in the game for very much longer," comments Melville.
This ability to manage supply and component manufacture at a distance is greatly facilitating one of the most dramatic trends in manufacture at the present time, namely the flight of lower grade jobs to low wage economies.
"What we are seeing more and more, to the point where it is now an irreversible trend, is manufacture moving to China, India and the lower wage East European countries, while design and development is done in the high wage economies of the West," says Melville.
Chris Hibbs, a partner at Grant Thornton and automotive leader for the UK, warns that companies need to know exactly what their business processes are, in fine detail, before they can implement supply chain management effectively. "You can paper over the cracks and do work-arounds, but you will have to revamp certain core processes to reap real advantage from implementing this," he says.
Where the giant manufacturers have really reaped rewards they have inevitably gone through a huge process in rethinking their entire production process, divesting themselves of huge areas of responsibility and pushing this down to the next level of supplier.
However, Hibbs argues that companies should not get stuck on the idea that implementing supply chain management necessarily involves millions being spent on installing big enterprise wide systems. "This process is essentially all about understanding what needs to be done to get the right stock in the right place at the right time, and at the right price. The mobile phone can be a great communications channel to get much of this sorted out - and if you add a data flow capability to it, as many companies are now doing with wireless data networks, you have a very powerful set of tools indeed," he says.
Hibbs points out that a number of businesses are now turning to methodologies such as kanban, a supply chain management methodology that is technology neutral, to solve supply chain issues. "Kanban and methodologies like it are just a process for identifying who is responsible for what when an order is taken. A lot of businesses are looking to move back to this kind of grass roots approach," he says.
Another approach to improving the flow of goods, components and raw materials through the supply chain is to move processes away from scheduling type systems towards a smoother flow. "The essence of this sort of approach is to say, our average order for the period is X, but we want our suppliers to build in sufficient flexibility to be able to accommodate an agreed deviation from this in either direction," says Hibbs.
The net result of this kind of approach is that while the manufacturer ends up with a perfectly smooth just-in-time manufacturing process, the tier one and tier two suppliers have to hold higher stock levels than they had historically in order to enable this new flexibility.
"Basically, the manufacturer wants predictability while the market wants total freedom of choice. But the pressures of modern manufacturing mean that both sides are now much more aware that compromises are in everyone's interest," says Hibbs. Where there is an opportunity for a company to sell its goods and to achieve significant profits, any process can be flexed. "Ultimately, these all come down to commercial rather than to systems decisions," he says.
While supply chain management is all about building relationships and adopting an integrated approach, one modern trend, namely electronic auctions, seems to go in a totally different direction. By their nature, electronic auctions are all about manufacturers looking to get a number of suppliers to compete head to head, so that the manufacturer can get the keenest possible price. Except in certain circumstances, for example when a supplier is trying to shift surplus stock, they are anathema to good supplier/manufacturer relations.
"Initially manufacturers rushed into electronic auctions as a way of driving down costs. Now we are seeing much more focused buying on electronic auctions, and their main role seems to be to provide a benchmark for prices," says Hibbs.
Companies are now once again prepared to recognise that more than price needs to go into the equation. Guarantee of supply can be more critical than buying at the lowest price, as can quality. This change of attitude is also helping to reinvigorate the spread of end to end supply chain management practices.
However, as Julian Thomas, a partner in the consulting practice of Deloitte in Birmingham observes, end-to-end projects tend to be very complex. They can take several years to complete and demand a sophisticated mix of process, IT and financial skills, involving people at every level in the affected organisations.
Not every implementation, however, needs to be quite this thorough to achieve benefits for the participants. Thomas argues that with the right support an organisation can achieve a major turnaround of its supply chain in a very short space of time. "In one client company, we laid the foundations of a wholesale supply chain improvement in only six months," he says.
Thomas says that Deloitte was able to demonstrate to the client that it would achieve a return on investment of 175 per cent over two years, with the project being self funding in six months. The design was done in such a way that even an aggressive growth through acquisition strategy by the company could be accommodated within the supply chain system.
"What this company found was that its market, the supply of medical devices, was becoming much more demanding. Its competitors were raising their game and this highlighted shortfalls in its own performance," Thomas comments.
The problem the company faced was that its growth through acquisition strategy had brought it benefits, but had also left it with fragmented processes. This was compounded by a tendency to treat every product as a mini line of business in its own right.
This made it difficult to get an overall picture of the customer, or to coordinate customer handling. Using this approach was also expensive as it was difficult to take costs out of the process by sharing back office systems between these mini lines of business.
One of the shortcomings the company highlighted was that despite carrying more inventory than its competitors, it was still repeatedly missing delivery targets. Without the ability to look across the whole division as well as at product level, little progress could be made.
This company made the sound decision to first analyse the shortcomings in its existing systems before making any capital investment in technology to solve the problem. "We carried out root cause analysis of acknowledged delays and problems along both the internal and external supply chain," says Thomas.
The emphasis on local solutions meant that no-one had previously considered the entire sequence of activities, from market intelligence right the way through planning, sourcing, manufacturing, delivery and servicing.
Deloitte examined the entire operation across four European countries and the United States. A team of seventeen Deloitte people worked with a similar number from the client company. Deloitte analysis showed a range of potential improvements. Better planning and forecasting, for example, would allow sea freight to replace expensive air freight while still achieving better on time delivery rates.
The study has now moved onto the preparation of a business case for a wider project. This will involve examining the feasibility of sharing services across the organisation, as well as scoping a supporting enterprise requirement planning implementation.
One of the challenges facing companies that shift their factories to different regions is getting a view of which factories are operating better than others. This kind of corporate performance management is only possible with good visibility up and down the supply chain, so that group headquarters can see which manufacturing plants are performing to a high level.
Some of the key performance indicators that companies will be focusing on are comparing plant performance on such factors as general yields, raw materials to finished goods, and how much the plant has actually made with its particular work force versus how much it was predicted to make.
So, what is clear is that supply chain management is a demanding and challenging process when moving abroad. It can take a company a few years to get its supply chain sorted out in a particular low wage economy, with all the systems working perfectly. And by the time it reaches this stage, most of the company's key competitors might already have jumped to another, even lower wage economy.
Melville points out that one of the real benefits excellent supply chain management and planning can bring is the ability to take advantage of cheaper modes of transport to move goods from the factory to market.
"Anyone can air freight out supplies, but when you turn to air freight your profit shrinks dramatically or vanishes. It is a crisis only mode. What you really need to be able to do is to plan your production, with the help of good supply chain management, so that you can accommodate lengthy sea journeys and plan them into your production and delivery cycles," he says.
Companies that get this right make substantial profits. Those which get it wrong find that their shipment of toys, for example, arrives in port after Christmas. "If you miss your market window you end up trying to sell last year's fad and that is a hopeless position to be in. Supply chain management, properly implemented and executed, helps to ensure that this kind of blunder does not happen," he concludes
For the fuller picture,
subscribe to Insider
every month.