The Perils of Supply Chain Management

Let’s face it, managing a supply chain today isn’t an easy pill to swallow. While improved technology provides better tools to do the job, the more steps there are in getting products from point A to ultimately point C — the customer — the more there is to go wrong.

today’s economic conditions and political unrest around the globe are Only adding to the challenges of maintaining a global supply chain. Automotive Industries had the opportunity to sit down with a number of the speakers at this year’s AutoLog 2003 — a conference dedicated to all aspects of supply chain management — we spoke with representatives from OEM and supplier relations to transportation and logistics providers, to IT providers and service parts distributors. While all agree that there are better tools today to equip companies with the ability to better manage their supply chain, everyone admits, there is still plenty of room for supply chain efficiency improvement.

“The key to supply chain is time,” says Ramzi Hermiz, senior vice president, global supply chain, Federal Mogul Corp. Federal Mogul’s 95 percent fill rate is among the industries highest. The company has operations in 24 countries. “Everything is cause and effect. Time reduction is the cause. The effect is lower cost, lower investment and higher delivery performance. If you take out time, you are doing it faster, you can improve performance and you can take out the investment.

“When Federal Mogul reevaluated its supply chain, we looked at how we could take out time. Because in the end, that is really what the customer is looking for. They want efficiency from the standpoint of when they ordered it to when they get it.” Solutions for improving supply chain efficiency and lowering overall costs — the two biggest trends in supply chain management — vary depending on who you talk to.

The IT Approach

Most organizations have data stored and captured in multiple systems, making fast and strategic decision making a challenge. According to Mark Arduino, senior industry consultant, automotive/manufacturing at Teredata, achieving complete supply chain visibility and systems integration is the key to a more efficient and productive operation. Teredata, a division of NCR Corp., provides data warehousing and enterprise analytic technologies and services.

“A single view of your business is a coined phrase that we use, but what we mean by that are a couple of things. Most organizations have data stored in various places, making decision making a challenge. Having to independently gather all of the data limits your ability to respond quickly and confidently.

“Leveraging a data warehouse,” says Arduino, “what you end up doing is integrating all of this independent data and data sources together from these multiple systems. So what you get is this integrated view that leverages your entire enterprise. And now I’m speaking even outside of supply chain, tying in financials with supply chain; tying in quality with supply chain; tying in quality and everything else so that you get an enterprise view, or an understanding of the information. “Basically it ties together the systems that will forecast what will happen with the reports that tell them what actually happened.”

According to Arduino, the integration of the dispirited systems will give you the visibility across the entire supply chain, from your suppliers to your customers. Integration will allow you to respond quickly and confidently across all segmentation — suppliers, logistics providers, manufacturers, distributions centers, dealers and openly to the customer.

“With the single view you can get a snapshot of what I call the health of the system,” says Arduino. “People can now work on solving problems associated with performance metrics instead of spending inordinate amounts of time trying to collect the data. Technology is allowing people to spend the time managing the system and solving the problems instead of collecting data in order to try to solve the problem.

“If you can integrate all of your systems,” Arduino adds, “it really is a change agent or adaptation to ever changing business requirements. That’s not to say that the model changes, but as a company becomes more lean and as new supply chain initiatives are kicked off, there is always more and more data required to assist them in their endeavor. By integrating the system, you are not constrained by the technology.” Visibility across the supply chain is more than the visibility of the dispirited systems. It is the ability to also get detailed data. Looking at summarized data is okay, says Arduino, “but in order to solve your business problems, you have to be able to drill down, to really identify and get to the point of cause. I say point of cause and not root cause because root cause is something that somebody has to do to fix something. The point of cause guides you to the area.”

Not all source systems, even internally to an OEM or Tier 1, have the required data, therefore it might require both IT intervention and then business process changes, admits Arduino. A solid IT structure is an important part of maintaining an efficient supply chain, but when cost is the ultimate driving factor, IT improvements are sometimes a tough sell.

“In the automotive industry, where it’s adversarial commerce at best, you have to run real lean IT,” says Dick Lefebyre, senior vice president and CIO at Metaldyne. Lefebyre oversees the global systems efforts of the company. “We can’t go to Ford and say, ‘Our IT is pretty expensive so the balance shafts we sell you are going to be two dollars more.’” According to Lefebyre, IT has changed from what it used to be. IT was a large group of order takers who had to do everything internally. The new IT model, Lefebyre says, is a smaller IT group but they are value added providers.

“You’ve got to have a solid IT infrastructure,” says Lefebyre. “Technology becomes obsolete, but certain technologies don’t become obsolete as quickly. If you purchase the right equipment, it can grow with you. From a value prospective that is the toughest thing to sell. It’s sort of like building a house. You can’t put the walls and the molding on until you have the plumbing and infrastructure in place.”

Lefebyre’s belief is that if IT is going to keep pace with turbulent times, they have to lead and they have to get engaged in the business. “That’s the price of admission to sit at the executive table. It’s different today from being the guy that just operates the computers. Operating computers is pretty important, but face it, it doesn’t add value. You’ve got to lead and get engaged in the business. Less focus on technology and more focus on the business. You can go out and buy technology today. A few years ago, technology was the long pole in the tent. People would come up with all kinds of things they wanted to do in their business and the technology just wasn’t there. You can’t come up with anything today that somebody doesn’t have some kind of technological edge. We need to stop thinking about technology and start thinking more about the process thinking.”

Going Lean

Simply put, the definition of lean is the elimination of waste, of which material handling, material movement, overstocking conditions, are waste.

Kevin Wall, director of MPL operations, Jaguar, Land Rover, Aston Martin played a key role in transitioning Jaguar and Land Rover from a supplier push to a lean manufacturing pull program. “We’ve taken the Jaguar brand to what we would regard as best in class practices in terms of our supply chain,” says Wall. “We’ve come from a very much a push environment to a true pull environment.”

Wall admits to many challenges in changing the system from push to pull.

“One of the big challenges was in looking at the supply chain and insuring that we optimize the best total cost solution that takes into account the frequency of delivery of freight versus the inventory in the supply chain. That’s a big challenge and you need to be looking at each individual part to make sure that you’re making the best decision. And equally making sure that the way the material is ultimately presented for fitting into the vehicle is absolutely packaged and presented with top quality precision.

The reward, says Wall, “You actually understand your total supply. It forces you into understanding exactly what you need to do for each and every part. So it’s a true plan for every part. The pull system makes you actually understand your supply chain, whether it’s close by or whether it’s overseas, in infinite detail. And in doing that, you understand your business and you understand the opportunities and the potential as you go forward.”

When you think of lean, companies like Toyota come quickly to mind. According to some, they’ve written the textbook for the industry on how to implement lean practices.

So the challenge for Doug Zopfi, director PDC operations, planning and support for the Mopar Parts Division of DaimlerChrysler, was applying lean practices — which are traditionally associated with manufacturing techniques — to the service parts industry. “We’ve taken a unique approach and involved the UAW at every level in this process,” says Zopfi. “That’s what’s necessary for lean to succeed but also be sustained.

“We are not doing anything revolutionary here. We are taking a large organization and pointing it in a new direction, getting the proper people on board, involving the stake holders, especially the union.” In order to validate that this was a worthwhile undertaking, Mopar did a pilot with its new distribution center in San Francisco, Calif. “We wanted to validate that these concepts would work,” says Zopfi. “We involved the UAW in the very beginning with designing the building and the processes and the labor agreement. We transferred business from our Portland and Los Angeles PDCs to San Francisco and with that new operating template, the results we are getting in that facility are about 30 to 40 percent higher than what we were seeing in the same facilities where the business had been done previously.

“Lean is very non dependent on technology,” adds Zopfi. “Unlike our prior pattern, we built this model facility virtually technology free. We didn’t build fancy conveyers or any other type of automation. It is very focused on process, elimination of waste.”

Transportation Strategy

Most people in automotive manufacturing would agree that the just-in-time delivery concept of component supply has been not only positive, but a necessary step in the overall evolution of the supplier/ car manufacturer relationship.

In general, it has reduced costs and streamlined management processes through primarily the elimination of stock. If you have a justin- time supply chain, you theoretically are holding far less stock on hand, and that generally saves money.

The advantages of just-in-time, it helps wring cost out of the production of a vehicle. All manufacturers are looking for ways to reduce cost out of the whole production cycle, from the procurement of the raw materials right through to the delivery of the finished vehicle to the dealer.

The disadvantage of just-in-time is that it is based somewhat on a perfect world — there is little room for error. And we are not living in a perfect world. Having the right transportation strategy is crucial. “Just-in-time delivery, especially in the automotive sector, is really about the planning and forecasting of your component needs based on your expected sales volumes overall,” says John Monetti, vice president sales and marketing for World Courier. World Courier specializes in the delivery of time and/or temperature sensitive shipments. It has 131 offices around the world.

“Let’s say there is an equipment failure at an OEM and they can’t produce components for 12 or 24 hours. Once it’s fixed they are behind, that puts pressure on the logistics companies and they need to make up time in the transport.”

“Transportation strategy is a big challenge for supply chain management,” says Hermiz. “At Federal Mogul, we spent a lot of time putting in performance measures and realigning our carrier base. We consolidated a number of carriers. Part of our turn time is managing transportation. If we can package it and have it ready at the dock in three days, the last thing we need is a carrier taking five days to get the parts to California. It goes back to managing time, understanding each step in the process and highlighting where there is value added and where there is not. Packaging is value added, sitting in cue is not. Moving it onto a truck is value added — it has to get there, sitting at a depot waiting for delivery is not.” A solution for Toyota is treating its transportation companies like partners.

In the North America, Toyota has production facilities in Mexico, Canada and the U.S., shipping automobiles into 1,200 Toyota and 200 Lexus dealers.

“We treat our transportation companies as partners so that we work as a team,” says Steve Sturm, vice president and general manager, Toyota Logistics Services. “A lot of companies treat their transportation companies or whoever their source is as vendors and it’s all about cost and every year you have to cut your cost more. The rolls are adversarial at best. We took a different approach. We work with them and when the good times are there, we both reap the rewards. When the challenges are there, they step-up and protect our business plan and also come to our aide when we need it. And vice versa. When they struggle, we protect their business plan.”

Cost is a predominate factor in shipping parts to their final destination, but as World Courier’s Monetti points out, production stoppage is going to cost manufacturers far more than the right transportation strategy. “If auto manufacturers could use ocean freight for everything, they probably would because it is the cheapest transportation possible. As you go up the hierarchy of services — ocean, rail, trucking, air freight, express and then specialty couriers like ours, sometimes they will find it distasteful to even think about utilizing our services because the cost of shipments is so high. In a perfect world, just-in-time would be enough. What you want to have as a manufacturer — as an OEM as a Tier 1 supplier — is all of the potential areas covered so that in the end, you don’t have a loss by not being able to respond to a situation well. It’s about having the right tools, the right transportation mode available and using the right transportation mode in the right situation.”

Offshore Sourcing

Automakers are eyeing China as fertile ground to gain market share in a global playing field. With more and more manufacturers and suppliers setting up shop in China and other offshore locations, managing a global supply chain is becoming a bigger challenge. Robert Sims, director, MP&L Operations at Ford Motor Co. is responsible for managing $1.7 billion annually and manages a staff of 130 engineers and logistics practitioners. He was heavily involved with Ford’s ventures in China.

“With our China operations, it was critical that we have the right logistics provider so that we could integrate all of the opportunities, not only for China but emerging markets into our existing supply chain process,” says Sims. “What was key to us is that the supply chain remain transparent to our assembly operations. That in itself presented a great opportunity for logistics to really demonstrate why logistics are so critical in this whole supply chain.”

According to Sims, one of the biggest challenges he and his team faced in integrating the Chinese operations into the supply chain was company perception. “Being a large company, the major challenge was just getting people to realize that it was a great opportunity in China,” Sims says. “There are still people that think of a city like Shanghai and believe people are still walking around with ox carts. We had to change the perception of our organization and the people within the organization as to what China has to offer.”

Another challenge, says Sims, was the development of getting the supply base ready and understanding not just the logistic network to get material across the ocean, but the logistics network within China. Sims admits that integrating Chinese operations into Ford’s supply chain is still a work in progress. “We still have information technology challenges,” he admits. “We have to get the right people on the ground. SARS did not help us. We have to get the right people on the ground to put the processes in place.”

Companies need a certain degree of flexibility when dealing with a global supply chain to deal with changes in currency, changes in market dynamics, supply availability. Even weather becomes a factor when shipping materials overseas.

“Supply chains are going to be a bit longer than they are today,” says Debra Shumar, senior vice president, continuous improvements and quality at ArvinMeritor. “Going over to China and low cost countries, managing that supply chain from far away is going to be a major challenge for suppliers. Having that interface, having the language, the communication is going to be a big deal.”