Leveraging Supply Chain Logistics: Get Physical and Agile

In order to perform on a world-class level, companies must redesign the supply and service chains to meet market demands. Dramatic changes are in order.

U.S. manufacturing is facing stiff foreign competition in most markets. There is no question that the pressure is on for U.S. manufacturing to design and build the best quality product in the shortest time possible. Over the decades the United States lost significant world market share in key industries: wide-bodied aircraft, semi-conductors, automobiles, electronics, and steel. The U.S. manufacturing base eroded to offshore competition, and subsequently set the path for companies to rush overseas in search of cheap labor: Mexico, Taiwan, mainland China, etc.

But since the advent of just-in-time (JIT) manufacturing in the United States, lead times have shrunk considerably to levels that have substantially spoiled our customers to expect quick deliveries, not only for commodity products but for specialized and "customerized" products. In the retail garment industry, where retailers used to buy and stock clothing for an entire season, they no longer practice this habit. Instead, they stock minimal quantities at the beginning of the season, and wait to see which of the styles move quickly, then restock those on a JIT basis. If you are a supplier to these outlets, and cannot deliver quickly, you are out of business.

The same holds true for most products, including electronics and fabricated/assembled metal products. A recent survey of customers for a fabricated metal products manufacturer revealed that their highest priorities were reliability, availability and delivery. Price was at the bottom of the list. Quality is a given. Therefore, it is evident that products must be delivered with speed, quality and agility through the supply chain, or suffer the same fate as the automobile and steel industries in the 1980s when market share was lost to corporations with more efficient supply chains.

This type of organizational ability requires an agile supply and service chain, quick to respond to customer needs in the blink of an eye. Some companies have responded to these demands by offering electronic drawings on Web sites, allowing a potential customer to "red-mark" an electronic copy and upload the marked up drawing to the Web site for immediate pricing and delivery. Once the order is received, the drawing can be transmitted to production for next-day manufacture, assembly and shipment. From that point, getting the product delivered within a day or two within the United States is no longer a "nice-to-have," but a necessity, requiring a fast logistical network. The supply and service logistics are a fundamental part of an agile infrastructure that needs to be set in place for a company to perform on a world class level.

The key lies in refocusing and redesigning the supply and service chains — physically and logically — to meet market demands. Taking dramatic steps to become agile is necessary to be a world-class contender in the 21st century.

Part of this supply and service chain agility is virtual in nature: computer servers connected and electronically linking potential customers to sales engineering departments to order entry to production. But the most critical components of the supply and service chain that can slow the process are physical in nature: the distribution network, transportation, plant location and how components are manufactured. It makes little sense to get a "customerized" electronic drawing to the plant quickly if the production lead times are six to eight weeks. If a manufacturing organization is characterized by component plants located away from assembly, scrambled factory flows, poor communications, physical walls, functional walls and colloquial empires, the ability to be responsive is lost, as is recognition of and service to customers.

Getting Physical

Companies that desire a more agile supply chain should emulate the Fluid Power Division of Cleveland-Ohio-based Eaton Corp., a diversified industrial enterprise — specifically what the Division did in the late 1980s with Viscous Clutch Converters. It started by examining the physical flow of parts through the factory and to shipping. Within the factory, successive operations in the work chain were physically coupled, removing non-value-adding functions and inducing velocity. Realizing that parts must move with high velocity through the work chain, the Division eliminated and simplified natural points of delay, closing the distance between each point in the flow.

As part of its Computer Integrated Manufacturing program, Eaton also streamlined the information chain and electronically linked every point so that information flow is direct, without interruptions and delays.

Following Eaton's example, business cycle times must be reduced to the time it actually takes to effectively process information. It makes little sense to move a part through the factory in two hours, if it takes two weeks to enter an order.

But in addition to local changes in physical and virtual flow, the distribution network and logistics for fast delivery needs to be redesigned for velocity once the product leaves the factory. Ensuring that product can move within most parts of the United States within one to two days provides a competitive edge.

What Are the Benefits?

The benefit that a company can receive is a direct result of the extent of change implemented, and the starting point. Dramatic changes produce dramatic results, and the following changes are possible: 30 to 35 percent reduction in the cost of sales, 75 to 80 percent reduction in delivery time, 60 to 80 percent reduction in inventory, and a 65 to 70 percent reduction in cost of quality. This is in addition to an unpredictable but substantial increase in market share. The results from Eaton were:

* People Before: 108 Classes
People After: 50 Classes
* Pay System Before: Standards
Pay System After: Pay for Knowledge
* Organization Before: Traditional
Organization After: Focused Factory
* Lead Time Before: 15 Days
Lead Time After: 6 Hours
* Cost Before: 100 percent
Cost After: 75 percent
* Material Flow Before: Spaghetti
Material Flow After: Straight Line Cell
* WIP Before: 100 percent
WIP After: 10 percent

Those successfully emerging from this radical transformation will be the winners and leaders: quick, and resourceful enterprises. These enterprises will be world-class competitors, organized to respond to a dynamic market with precision and unprecedented speed in delivery and new product introduction. They will be capable of achieving world-class quality, with substantially less non-value-added cost. Each company will be developed uniquely to suit its particular needs, but one characteristic will fit them all — they will all be agile.

Those successfully emerging from this transformation will be the winners and leaders: quick, and resourceful enterprises. Becoming agile means competing and leading in this decade. It takes time and resources to enact changes of major proportions, as well as careful planning. It isn't easy, but the alternative is worse.

About the Author: Richard G. Ligus CMC CPCM is an international supply chain operations management consultant and President of Rockford Consulting Group, with over 30 years experience in engineering, manufacturing, procurement, transportation and distribution. He specializes in developing and implementing supply chain operational strategies and implementations. He is an author and a speaker, and has developed seminars with the American Management Association.

Mr. Ligus has a Bachelor of Science degree in Mechanical Engineering from the New Jersey Institute of Technology, and a Master of Business Administration degree from Rutgers University. He is a member of CASA/SME, and has been listed in Jane's Who's Who in Aviation and Aerospace.

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