In an industry
where cooperation is critical and supply chain efficiency determines success, an
e-business strategy based on lean techniques is the only way to stay
nearly a century, the focus in automotive manufacturing was on improving
assembly and inventory efficiencies. But times have changed. Today, distribution
bottlenecks are as feared as manufacturing bottlenecks were a decade ago. This
new focus on the supply chain has changed the way successful organizations do
staying competitive means staying lean, smart manufacturers are making the most
of e-business. Before long, everyone who wants to survive will have to do the
you may know, there’s more to e-Business than industry exchanges, selling over
the Internet, reverse auctions, and sourcing of indirect materials and supplies.
Effective e-Business is a spectrum of activities that touch every core
business process: marketing and sales, resource and capacity planning, inventory
replenishment, manufacturing process flow, billing and accounting, direct
material procurement, supplier relationships, engineering and supplier
collaboration. It’s the way to make the entire supply chain a competitive
the automotive industry is, in general, better prepared than many other
industries to take full advantage of e-Business potential. Even those suppliers not already involved in e-Business know
that closer customer/supplier collaboration is the future of the industry.
is the way the industry will do business tomorrow, and participation will not be
a matter of choice. How well each organization fares in this new environment
will depend on how it prepares, starting right now.
are some common sense pointers for making e-Business efforts pay off:
Collaborate to survive
foundation of e-Business is collaboration
-- up, down and across the supply chain. Those who get serious about
collaborating with their distribution channels, their suppliers, their
engineering partners and all the members of their extended supply chain, and who
are prepared to ensure profitability for all trading partners in the value
process, will reap the benefits of competitive advantage. Those who don't
will fall further and further behind.
vision of any company’s competitive future must
include successful partnerships and profitable supply chain partners.
Implement supply chain replenishment and delivery processes now -- not later.
who reap the rewards of larger market share and competitive advantage will be
those who think about their manufacturing, supply chain and delivery processes first
– before implementing new systems. One of the great
disappointments of the just-in-time revolution was that most companies focused
on just-in-time supply rather than just-in-time production.
The result: a shift of work-in-process inventory to the next tier
suppliers, and from that tier to the next.
But the anticipated benefits – better flow within each individual
enterprise, better flow across the entire supply chain, and massive inventory,
lead time, and cost reductions – have been elusive.
business case for lean manufacturing is proven. For those who have not begun to
implement lean manufacturing processes, now is the time. For those committed to
lean practices in their own factories but still working with suppliers operating
traditional “batch and queue” operations, it’s time to help those
suppliers see the light. In addition to continuous flow inside the four walls of
the factory and among trading partners, it’s essential to have continuous flow
between sites. Unless and until
everything is integrated, the lean, efficient areas are no more than islands of
flow in a sea of waste.
Create a Perfect Pull mechanism ACROSS the supply chain
In their book, Lean
Thinking, Womack and Jones ask, “How can you tie all the parts of a whole
value stream together when they can’t be conducted in one continuous-flow cell
in one room?” The answer, of
course, is to implement pull systems that can signal replenishment based on
“customer synchronous” demand. Back
across the supply chain, from process to process to process, the basic logic is:
“sell one, buy one” and “ship one, make one.”
It would be ideal to
implement visual signals across the entire supply chain. Within the four walls
of a plant, it’s possible to encourage lean manufacturing with mechanisms such
as KANBAN cards, KANBAN squares, containers that empty to signal need for
replenishment, and andon signaling. But for the purpose of signaling a distant
trading partner, such mechanisms may not be practical or even possible.
The good news is that
another kind of “visual signaling” across the supply chain is possible using
information systems with fairly simple replenishment logic and messaging
techniques. The basic idea is to establish inventory buffers at appropriate
points across the supply chain, along with the replenishment quantities (KANBANs)
required. Replenishment can be
based entirely on actual consumption downstream in the chain; when one KANBAN
has been used, a signal can be generated to replenish the inventory.
Depending on the source, the signal may be a purchase order (“buy one
KANBAN”), a transfer from another location, or a manufacturing authorization
(“make one KANBAN”). Depending
on how far the organization has progressed on its way to a lean supply chain,
one KANBAN may be a single unit, a box, pallet, or truckload.
In a lean manufacturing
environment, efficient inventory buffers compensate for demand fluctuations and
non-continuous supply processes. Depending upon how responsibilities for
replenishment are divided, these inventory buffers can be either the
organization’s internal responsibility or the supplier’s responsibility.
monitoring and messaging are crucial to implementing perfect pulls across a
multi-tiered supply chain. With the
right logic in place, it’s possible to operate an entire system as if it were
one continuous flow-cell in one room.
Don’t assume planning is old-fashioned
doesn't make itself, and resources don't appear out of thin air. A visual
factory is a good thing, and a visual supply chains is even better. But
linked processes and synchronized production work only when there is material
available to pull through the chain, and when there is sufficient capacity to
make the volume required. That’s why it is essential to have functioning
planning processes like:
and operations planning applied to the supply chain, linked to appropriate
capacity planning techniques.
scheduling at key points across the supply chain.
material planning techniques, either in detail or in aggregate, depending
on the processes.
5. Share when
possible, shield when necessary
sharing and collaboration are key to deriving maximum value from the supply
chain. However, certain proprietary
information constitutes the only bargaining power that suppliers have with their
trading partners. The only way to keep products from becoming commodities is to
protect their engineering content – the bills of material, process, and cost
information. In other words, in
every supplier-customer relationship there is certain information that must
It seems obvious that
internal, proprietary engineering content will not, and in fact should not, be
shared. Pure self-interest will
keep this information shielded from customers and out of “centralized”
information system processes. This
need to shield information has special implications for centralized supply chain
management and supply chain planning approaches.
In the “shared”
model of centralized supply chain management that large public exchanges
advocate, each and every supply chain partner must use the same
system for most, if not all, supply chain functions.
Typically this means that each supplier must share their proprietary
data, and then either:
Replace their existing enterprise software with the dominant supply chain
partner’s choice of software,
Add an additional layer of software functionality that may duplicate
enterprise functions already in place, while incurring increased costs in the
Because most suppliers
participate in at least one and often in many supply chains, the shared model
raises problems. It’s difficult to choose an appropriate system, to get
everyone to agree, and to cope with the multiple packages, with similar
functionality, that may be needed to interface with the various supply chains.
There’s also the
question of how to deal with products and materials that are common across
multiple supply chains. Should there be separate planning and signaling
processes for each dominant customer supply chain? How should existing
inventories be allocated to different customers and supply chain planning
processes? Although in theory there are advantages in the ability to rapidly
reflect schedule changes back through the supply chain in this approach, there
are serious practical problems in scaling this kind of centralized application
across a single large supply chain, not to mention the problems of dealing with
multiple supply chains.
the “shielded,” or collaborative, supply chain management model, each supply
chain partner can retain their enterprise systems and can do as much or as
little planning as they choose. If they choose to do detailed material planning,
or if they’ve been able to create a lean manufacturing environment with
repetitive production, this information can be used to drive the supply chain
resource planning activities for all suppliers. Internal planning remains under the control of internal
systems and only the appropriate demands are passed across to suppliers. These
suppliers can, in turn, do their internal planning and pass demand on to the
the future, many companies choosing to use a collaborative model will likely
decide to implement a mixed mode, neither totally centralized nor totally
decentralized. For example, when an
interior systems integrator uses just-in-time sequenced manufacturing, it may
make sense to set a single planning approach above the plant-specific data and
simply eliminate all other site-specific planning. Since the same company owns all the configuration and process
data, there is no issue with “giving away the corporate jewels.”
And the single planning mechanism makes it possible to drive schedule
changes across a large portion of the supply chain as rapidly as possible.
this kind of integrated planning and execution makes sense, it depends upon a
software architecture that separates the base information from the application
itself. The diagram illustrates the
structure for retaining existing systems and enterprise information.
Focus e-Procurement on value, and bring the highest value functions online first
big payoff in purchasing is in direct materials, which typically accounts for
more than 50 percent of product cost. Direct materials typically are either
highly engineered or high volume, and typically not commodities. Companies
that focus their purchasing efforts on buying office supplies and MRO materials
more efficiently are not focusing where the most money can be saved. Smart
companies implement the functions that give them the "biggest bang for the
buck" first and fastest.
coming wave of e-Procurement, specifically focused on direct materials,
committed relationships, and supplier scheduling and releasing, will be private
trading exchanges. Successful organizations need them, now, not later.
7. Make the most of
your IT investments
of the promises the major software suppliers have made during the last ten years
has been "enterprise-wide" integration of all business processes.
One system. Standardized software and uniform business processes.
companies have fully realized the benefits.
Rapid consolidation of the automotive supplier community as a result of
mergers and acquisitions has only compounded the problem. Larger companies
have found themselves saddled with more systems, not fewer. Because
software packages did not fit all companies equally well, each division ended up
with its own "tailored version."
not possible, or practical, to get rid of plant specific systems. They’re
still essential for basic information maintenance such as inventory records,
bills of material, and process data; for master scheduling and material
planning, at least as we’ve known it in the past; and for things like plant
and process monitoring. What’s needed is a way to interface all the separate
plant level systems to accomplish important cross-enterprise or
cross-supply-chain functions like centralized order management (“one face to
the customer”) and interplant signaling and synchronization.
Forcing all sites to the same system is impractical.
solution is a complete rethinking and architectural redesign of the way
applications interact with enterprise data. In future systems, many key
applications – planning, order processing, release management – will be
“disconnected” from the basic enterprise information maintained in company
systems. Instead of being part of
the basic transaction systems that are plant specific, these key applications
will be elevated to the supply chain level. Basing essential supply chain
management functions on the data that is already maintained by site-specific
enterprise allows companies to retain existing software and minimizes the cost
of making changes.
advances in information system technologies have made it possible to develop
object-oriented supply chain management software built around messaging
middleware, and designed to work with plug-in messaging objects
to any ERP or host database
system. As a result, there is now a new breed of software that creates
Private Trading Exchanges. Some of these new software products are designed to
help businesses solve their supply chain synchronization problems without
forcing them into replacing all their base enterprise transaction systems.
8. Prepare to make
Although the technology exists
to support e-Business effectively, it takes more than good software to make
e-Business successful. Before making the transition, companies need to ask
themselves a few critical questions:
we really willing to do what is necessary to make e-Business work - even if
it means focusing on internal processes first?
we willing to make an investment in people and relationships at least equal
to any possible software investment?
we willing to put time into equipping our people to really run the business
in a different way?
we willing to invest executive time in understanding what kinds of
transformations we can reasonably make?
your engines, and race to win.
Today, global automotive
supply chains are in a race for leadership, and sometimes for survival. The
winners will be networked enterprises that can integrate, align, and collaborate
across their entire value process better, and more profitably, than anyone else.
suppliers, the only way to break away from the pack right now is to focus on
incorporating methods and systems that contribute to a “continuous-flow”
supply chain. That’s why, from
now on, the companies that stay in the race will be those that know how to make
the most of E-business.
exist to make the e-Business transition possible. But it’s not just about
systems. Only when the rest of the components for success are in place will
E-Business pay off. Winning with e-Business means being committed to
collaboration, planning, judicious sharing of information, and making the most
of human resources.
Staying lean and
competitive is an ongoing process. But whatever the future brings, e-Business
will remain an essential for staying in the race. And those who employ it well,
starting now, are the ones who will lead the pack.
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