Taking Automotive Suppliers to the "Next Level of Lean"

PeopleSoft, IBM launch joint offering to help tier-one, -two auto suppliers improve supply chain responsiveness, reduce operational risk

PeopleSoft, IBM launch joint offering to help tier-one, -two auto suppliers improve supply chain responsiveness, reduce operational risk

Pleasanton, CA  September 17, 2004  Enterprise solution providers PeopleSoft and IBM are looking to expand their global alliance with a new initiative aimed at solving some of the major technology challenges facing tier-one and -two suppliers in the automotive industry.

By combining PeopleSoft's applications and IBM's infrastructure equipment, the two solution providers said that they will assist mid-market automotive suppliers in improving the responsiveness of their supply chains, reducing operational risk and improving overall time to market. The joint offering provides an integrated solution encompassing software, hardware and implementation services.

IBM Automotive Solutions for PeopleSoft is the culmination of nearly a decade of collaboration between the two providers. The solution embeds functionality in the areas of release scheduling, lean manufacturing and lean procurement.

In the area of demand flow manufacturing, the solution provides a set of tools that enable automotive manufacturing companies to further their journey to lean, which has been a major initiative in automotive for a number of years and has prompted many companies in the sector to look for technologies to enable the appropriate processes.

Lean Procurement Functionality

The lean procurement functionality is designed to let a company in the automotive supply chain connect to its suppliers and enable lean-based procurement processes, replenishment processes such as vendor-managed inventory or supplier-managed inventory, all the way up through simple kanban replenishment processes, as well as the schedule sharing and forecasting that has to go on in that process.

In addition, the solution includes what the two providers said is a one-of-a-kind scheduling module, PeopleSoft Demand Scheduling Execution. Released in June, the module enables the release accounting process used in the automotive supply chain, according to Andy Carlson, vice president of product marketing for manufacturing and supply chain management at PeopleSoft.

As the automotive original equipment manufacturers (OEMs) create demand, they use this process to transfer that demand down through the supply chain to their tier-one and tier-two suppliers and beyond. This product is designed to enable suppliers to conform to automotive release accounting and cumulative management models, allowing automotive suppliers to fulfill manufacturer's demand schedules consistently, precisely and on time, according to PeopleSoft.

The scheduling module also is intended to help suppliers reduce excess inventory by having real-time visibility into manufacturing customers' production and planning schedules, and shipments; and to respond quickly to work order exceptions and production schedule changes, while maintaining compliance with the manufacturer's contract requirements.

The Shift to Global Competition

Richard Scott, global industry director of automotive for PeopleSoft, said in an interview that the new joint offering is intended to help tier-one and -two automotive suppliers, with annual revenues ranging from $250 million to $1 billion, cope with the new realities of the global automotive business.

"The automotive industry is continuing to become more competitive, and particularly more competitive in the global sense," Scott said. "In the past we saw OEMs working primarily with a small local group of suppliers and building and maintaining tight relationships with those suppliers. But now they are starting to source more globally, and the industry is moving to a more global way of working, with global platforms for a lot of the vehicles."

As a result, the tier-one and -two suppliers have to compete much more on a global scale. "That does two things to them," Scott continued. "There has always been price pressure, but global sourcing has intensified that price pressure. That means that suppliers need to be more conscious of their costs and be more diligent in controlling their costs and every aspect of the cost that is contributed to the product, whether it is the direct manufacturing cost or other cost in the operation.

"The other factor that we're seeing is that in order to maintain a competitive advantage, suppliers in North America need to become more and more flexible. Flexible in the sense of being able to accommodate changes not just in demand from their customers  so a customer changes the mix of products that they want, sometimes on a very short time basis, within a period of day or two  but also in the sense of being able to adapt to new business processes that are imposed by those customers on the suppliers."

"The Next Level of Lean"

The new IBM/PeopleSoft offering, Scott said, therefore is intended to help "take automotive suppliers to the next level of capability in lean manufacturing, what we call demand-driven manufacturing, but also to do that in a way that provides them with the tools to be able to very flexibly adapt their processes and their communication modes with supply chain with their suppliers and their customers."

For example, while EDI has been a standard for a long time in automotive, suppliers increasingly are having to accommodate XML, communication through Web portals, direct transmission of data and other means of communicating data. Because PeopleSoft has built its solution on top of the IBM WebSphere platform, suppliers using the solution should be able to handle multiple communication modes with their customers. "We've tried to build into the product the ability to handle whatever mode of communication might be required to quickly adapt to whatever the customer pushes onto them," Scott said.

In addition, the solution was designed to allow suppliers to more quickly adapt to new processes mandated by their customers, such as new contract management process. "All the processes for that are table-driven, so it's easy to make changes, such as in the contract-tracking process, in response to new requirements from the customer," Scott said.

Gaining a Competitive Advantage

This flexibility will be key to keeping these tier-one and -two suppliers in the game moving forward, Scott asserted. "It gives them a competitive advantage," he said. "It gives them the opportunity to be more adaptable and hence easier to do business with. And that, in combination with being able to drive costs lower and being able to maintain costs through the lean manufacturing support in the [joint solution], is going to give those suppliers the ability to compete more effectively on a global market."

Besides PeopleSoft's enterprise software solutions, IBM is providing implementation services, financing, hardware and open-standards middleware for the joint offering. The PeopleSoft-IBM alliance includes joint product development, marketing and sales, and the joint solution is generally available immediately.

IBM hardware options for the new solution span its various platforms, including the iSeries, AS400, the Wintel platform and the UNIX platforms. Scott said that he believes the IBM financing will also be attractive for the joint solution's target customers. "This package, including the financing, makes it an easy solution for the mid-market to buy," he said.

The pedigree of the new PeopleSoft offering stretches back to the J.D. Edwards automotive offering, which PeopleSoft acquired when it bought J.D. Edwards last year. Development on the new joint solution began back in 2002, when J.D. Edwards was still a separate company.

PeopleSoft/J.D. Edwards' history in the automotive space stretches back some 14 years, and PeopleSoft now has about 300 customers for its automotive offering, although Scott explained that much of the company's growth in this sector has come in the past three or four years.

For more information on solutions for mid-market enterprises, see "Stuck in the Middle" in the April/May 2004 issue of Supply & Demand Chain Executive.

For more information on the challenges and opportunities presented by increasingly global supply chains, see the special in-depth report in the August/September 2004 issue of Supply & Demand Chain Executive, which includes the following articles:

For more information on the global supply chain, with a focus on security issues, see "Building the Secure Supply Chain," the Net Best Thing article in the June/July 2003 issue of iSource Business (now Supply & Demand Chain Executive) magazine.