A Plan for Every Part

Supply chain managers have two primary goals: reduce inventory and avoid delays. For years, just-in-time delivery has been the preferred method for meeting those goals. While just-in-time has proven an effective tool for improving a manufacturer’s bottom line, it is not without its challenges. Even the most carefully made plans are subject to myriad uncontrollable factors — labor issues, equipment failure, political unrest, severe weather. While those factors still exist, evolution of technology, longer supply chains and changes in customer demands have forced manufacturers to rethink their supply chains and re-tool the original concept of just-in-time deliveries.

“The supply chain is evolving,” says Tom McKenna, senior vice president of logistics engineering at Penske Logistics.

Penske Logistics is a partnership between Penske Corp. and General Electric, which has more than 300 logistics centers worldwide. Penske Logistics custom-designs supply chain solutions to cut costs, reduce cycle time, improve service, help integrate technology into operations and execute new strategic directions.

“In the late ’80s and early ’90s when lean and just-in-time were really being implemented, it wasn’t a plan for every part, it was every part today,” McKenna says. “I think that philosophy has evolved as people have begun to get a handle on the total cost associated with the supply chain. Not just inventory costs. Not just freight costs. It is evolving to a plan for every part, but that has to be taken somewhat figuratively, not literally. Theoretically, you’d like to have a plan for every part, but the reality is you end up with a plan for every batch of parts.”

Companies are looking at rationalizing their entire just-in-time strategy. Jim Erdman, vice president of operations at Penske Logistics says, “Maybe like a pendulum, it swung to ‘let’s do everything just-in-time’ to maybe now it’s coming back and companies are going to try to do justin- time with only the things that really make sense to do just-in-time. Companies are now asking ‘what makes the most economical sense, as well as meeting the service requirements for a manufacturing plan?”

“You’ll always hear a lot about lean logistics and lean manufacturing,” adds Erdman. “That certainly is a buzzword. Part of that is being flexible with your supply chain, having a plan for all your shipments, but also being able to be flexible and make exceptions.”

Delphi implemented its manufacturing system in late 1997, and has been applying lean manufacturing techniques across all of its plants and also throughout its supply chain. Delphi is a world leader in mobile electronics and transportation components and systems technology. Delphi conducts its business operations through various subsidiaries and has headquarters in Troy, Mich.; Paris; Tokyo; and S?o Paulo, Brazil. Delphi has approximately 186,000 employees and operates 172 wholly owned manufacturing sites, 42 joint ventures, 53 customer centers and sales offices and 34 technical centers in 41 countries.

“We’ve been about driving what we call high frequency delivery of small lots,” says Mark Lorenz, vice president, operations and logistics, at Delphi Corp. “The reason that is important is because we feel that we can still leverage our size to reduce logistics costs and inventory dollars. We are all about elimination of waste and non-value-added steps. The key here is the reduction of lead-time. The bottom line is, we are about putting in our lean manufacturing system across the lean enterprise.

“Our sense is that if you compress time, you’re really improving performance. You are reducing cost. You are reducing investment. The bottom line is, our customers, as well as internally into ourselves, from our supply base we are looking for shorter lead times, smaller lots.

“Long ago we stated that we want to run every part every day. Well, that was before we really understood what that meant. In some cases you may not run every part every day, but in some cases you might run half of your part every shift. In some cases you may run parts every other day. Again, it all ties to your supply chain, your modicum of risk, and what’s in that supply chain — where your customer is located, where your plants are, etc. The key that we are focusing on is to ensure that we have a plan for every part.”

With OEMs building multiple models on one assembly line, suppliers are forced to change the way they manufacture and ship parts. At Chrysler’s Windsor, Ontario, Canada, assembly plant (above) Chrysler Town & Country and Dodge Caravan minivans share the assembly line with the Chrysler Pacific crossover.

According to Lorenz, as customers demand change — and they will, frequently — the benefits of small lots, high frequency, allows Delphi to make those changes. So instead of having 500 pieces in one load, Delphi might have five loads of 100 pieces, which allows it to quickly change and respond to customer demand.

“The bottom line is that we eliminate a lot of inventory that we would have on hand just in case. There aren’t really any disadvantages to justin- time,” says Lorenz, “but you do have to understand the risk of just-intime, especially in the long value streams. You have to make sure that when you set these value streams up, that you account for things like political rifts, dock strikes, customs issues. If you set up the value stream where you have little room for error and you design it to be perfect, you need to make sure you have a contingency plan and back-up plans.

“As we design our value streams,” adds Lorenz, “we have contingency plans behind all of these value streams to ensure that they are not only just-in-time, but you’ve really got to error proof them just like you would a manufacturing process in a plant.”

The evolution of technology and the quantity and quality of information that is immediately available has had an enormous effect on the way companies manage their supply chain.

“Part of the shift in delivery frequency is just because of the IT developments over the years. Information is more available,” says Erdman. “One thing that has really changed within the last several years is that the cost capital is so low that the carrying cost on inventory isn’t as significant as it probably was at one time.”

“Information wasn’t readily available in the past,” says Ed Cumbo, senior vice president, Penske Logistics. “Now it is much more available and companies are better able to rationalize their supply chain on a frequent basis. It used to be that companies would take a look at things once every few years. Now, literally, it is daily or weekly.”

With longer value streams in the supply chain, it is important to have integrated data that allows companies to respond quickly to all parts of the value stream. “In other words,” says Lorenz, “if you have data but it is residing in all different locations throughout the company, your ability to respond quickly is very much limited. We are working very hard to ensure that we have integrated data. We also want to make sure that in the supply chain we are providing clear instruction to all the supply chain stake holders, whether it’s responding to a customer or to one of our plants, or whether it’s to a logistics provider, or to our supply base. And not only be able to communicate, but probably the most important point is to have visibility of the material and information flow. I think most companies are getting better at their material flow. The real challenge is, ‘do you have visibility of the information?’ because if you don’t have the information visibility, you can very quickly shut down a plant or shut down a supply chain.”

One tool currently available to provide supply chain managers with visibility of their materials is from Santa Clara, California-based WhereNet Corp. WhereNet’s Wireless Parts Replenishment System provides a single, integrated wireless infrastructure for real-time location, messaging, telemetry, and 802.11b applications. The result is constant, ondemand information about valuable assets in the supply chain, their physical location and status. Driven by wireless radio WhereTags and WhereLAN locating access points, WhereNet offers both a real-time locating system (RTLS) and an access point for non-WhereNet wireless LAN clients and applications. The WhereNet system consists of four major components: WhereLAN, a cellular network of locating access points; WhereTags, a low-powered active radio frequency transmitter associated with an asset; WhereCall, a wireless messaging system used for parts replenishment in industrial manufacturing; and WherePort, a magnetic exciter that extends the functionality of WhereTags by triggering them to transmit differently when in range of a WherePort.

“Our technology is active RFID and is a real-time location system,” says Gary Latham, director of industry marketing at WhereNet. “We’re able to provide a technology that allows for real-time creation of information and then that information can then flow through the supply chain to allow the supplier, or the person who’s providing material, to see information as it is changing, which allows them to see exactly how fast material is being consumed and when more is going to be needed. And we have the ability to track vehicles called OTD or Order to Delivery. What suppliers want to do is reduce the amount of time it takes to get vehicles to the end-user. And that translates into reducing the amount of inventory or vehicle inventory that’s in the delivery chain.

“Primarily, I think the big trends in supply chain for my type of technology, which is a tracking technology and a messaging technology, really is in just-in-time manufacturing and in leaning out the supply chain so that we’re really running almost on a consumption-based demand system,” Latham adds.

Ford Motor Company recently deployed the standards-based WhereNet RTLS technology at its new Dearborn Truck Plant at Rouge Center in Dearborn, Mich. The WhereNet WhereCall wireless parts replenishment system will help Ford execute new flexible manufacturing processes, allowing the automaker to rapidly adjust to shifting market demands for its F-150 pickup trucks.

Maintaining a Global Supply Chain

As manufacturing companies expand into new countries, customers are requiring that they have inventory closer to them. For suppliers, this means longer supply chains and implementing global operations to ensure demands are met and costs are kept in check. There are a lot of similarities between Europe and North America when it comes to supply chain management.

“Conceptually, we have the same opportunities and the same challenges,” says Cumbo. “As an example, how do you manage all of the returnable containers going back to the supply base? A returnable container is as important as an inbound shipment, so it presents the same challenges. That is the same in North America as it is in Europe. The twist in things comes with the cultural differences. Governmental and environmental issues, for example. There are a lot of things that make it appear to be different, but conceptually, it is the same.”

WhereTag hanging from a rearview mirror of a new BMW at its plant in Dingolfing, Germany (tracking new vehicles as they roll off the line).

Infrastructure plays a critical role in maintaining a global supply chain. “Europe has the advantage that we do in the U.S. of having a very solid infrastructure,” says Erdman. “When you get into China and South America, they don’t have the infrastructure in place, but the strategy is the same.” “You can’t presume that what you do in the U.S. or Western Europe or even South America is the same as Asia Pacific or vice versa,” says Lorenz. “It is a much bigger challenge. It’s mostly customer driven and many of our overseas customers require warehousing of supplier finished goods where we are responsible for the logistics.

“The infrastructure between the countries varies wildly,” Lorenz adds. “You can’t assume that the same conditions exist — containerization, borders, supply availability, electronic communication. You can’t presume the roads are the same, say in the interior of China, even versus the interior of Mexico. The way I present it to our team is presume that everything does not move like it does moving up and down I-75. You’ve got to understand the local environment. You’ve got to develop a plan for every region of your supply chain.”

Penske Logistics is currently in the process of “making a credible presence in China,” says McKenna, and plans to be making investment decisions by third quarter 2004.

“As companies expand into Eastern Europe and Asia Pacific and China, especially, a lot of time, companies start out trying to push the North American/European IT model onto the rest of the world,” McKenna says. “But we are all realizing that it needs to be a little more flexible given where those countries are starting from.

“In the automotive world, the North American OEMs certainly are going to try, and are trying, to enforce the way they do business in North America and in Europe on what they are trying to do in China, in particular — as they relate to the flow of information, the implementation of their core operating systems, their planning systems, and all of their connections to the supply chain that those systems have. I think they are going to try importing as much of their current methods that work.”

Manufacturing Flexibility

As automakers are shifting to manufacturing multiple models on the same line, suppliers are being forced to become more flexible and more responsive.

“It has forced us to shorten our lead times to be able to build to the customer order without extra inventory,” says Lorenz. “Some companies have said, ‘I’ve got to respond so I build a lot of buffers, a lot of inventory, and whatever the customer does, then I can react.’ What we are saying at Delphi is, ‘We can build shorter lead times.’ We can build more product more frequently and flex with the customer’s requirements, which then allows us to have less inventory and not add additional costs. Again, if we have that plan for every part with the lean responsiveness in line, we can react to our customer requirements that change day by day, week by week. The whole supply chain has got to react, not just our plants. We have to ensure that we can get the parts from our supply base. We’ve got to make sure that they arrive at the required time. Multiple models on the same manufacturing line have forced us to be more responsive and more flexible.

“Multiple vehicles on the same line do not affect supply chain strategies and logistics,” Notes Cumbo, “it just makes the solution, and our job, more complex. It’s the next level of competitiveness for the OEM — different products on the same line.”

“At Delphi, we are very much about going from a push system to a pull system, which really generates short lead times,” says Lorenz. “The reason that is so critical is because our customers are expecting responsiveness. To get into the game today, you’ve got to have top quality and the lowest cost, but it’s all about responsiveness now. Making sure you have the right part at the right time at the right quantity.

“The lean bar is always changing,” adds Lorenz. “Lean is a focus on the elimination of waste. You’ve got to have the best quality at the best cost. Everything we do is to continuously improve, but at the end of the day you have to benchmark yourself against your best competitors to ensure that the bar is high enough and that the tools you are putting into place are not only going to beat your competitors, but exceed them,” says Lorenz. “That is the other side of the strategy: To ensure that you’ve got the tools in place and that the metrics are always getting better. At the end of the day, elimination of waste should improve your quality, reduce your lead time and improve your costs.”