High-tech industry veteran Eugene McCabe currently serves as executive vice president for worldwide operations at Sun Microsystems, the Santa Clara, Calif.-based networking technology company, which reported revenues of just over $11 billion in its 2005 fiscal year. In his position, McCabe runs Sun's supply chain, manufacturing and logistics programs, and he is regarded as an architect of the company's "Zero Touch" supply chain, otherwise known as Sun's Customer Fulfillment in Transit (CFIT) process.
McCabe has been with Sun since 1999, when he joined the company as vice president for high-end operations, and he previously spent more than a dozen years with Digital Equipment Corp. (DEC) and later (post-acquisition) with Compaq. Supply & Demand Chain Executive recently spoke with McCabe about CFIT and the challenges in moving to "Zero Touch." We began by asking him about the business drivers behind the CFIT process.
McCabe: We started off with the objectives of streamlining and speeding up our supply chain and taking cost out. If you look at our industry, fundamentally we're all buying the same components. There are only a couple of memory suppliers in the world, a couple of disk drive suppliers and so on, so there isn't a lot of cost opportunity left in the materials. The opportunity for savings is in the efficiency of the supply chain process from the time you start with the raw material until you get the product to your customer. In looking at this process, we saw that we had at least one or two shipping and handling steps that didn't need to be there.
Our supply chain is very outsourced; probably 95 percent of what we sell is manufactured outside of Sun, and it's a typical computer or electronics supply chain, mostly distributed to low-cost areas — China, Thailand, Malaysia, Mexico and Eastern Europe. In the past, our supply chain looked like most other companies' supply chain, where we brought the product in from the Far East and then either hubbed it or put it in a distribution warehouse somewhere in the local geography. In some cases we had external manufacturing configuration sites in the local geography as well. We would receive orders from customers and fulfill those orders out of the distribution warehouses.
With the CFIT process we got rid of the warehouses in the geographies and moved to a process whereby our end customers' orders go directly to our suppliers, and the product is shipped, for each customer, directly from the supplier to the end customer. The complex part of this is that we've added an in-transit merge process. We needed that because some customers give us orders that have parts from multiple suppliers, but they want all those parts to show up at the same time as a compete order. The traditional way of doing that would be to bring all those parts to a warehouse that you own, consolidate the order, and then give it to a shipping company and have it go out to the customer.
With the in-transit merge process that we've put in place with our [third-party logistics providers (3PLs)], our control system synchronizes the departure of separate shipments from the different suppliers so that they get into the 3PL process and then merge before they get to the final destination. They show up at the customer looking exactly like one shipment from the factory. Some of the good news about this is that we've taken a stocking and handling process out, along with the distribution centers, and the only inventory leaving our suppliers is inventory that's on a customer order. We only take ownership for the length of time it takes the computer to buy it from the supplier and then generate the invoice for the customer.
S&DCE: What was the timeline for planning and implementing this process?