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The recession was a wake-up call for industrial manufacturers, with no more double-digit growth to hide the sins of complexity, long cycle times or high inventories. Throughout 2009, industrial manufacturers focused on freeing up cash. The leaders now emerging from the downturn have redesigned their supply chains to ensure sustainable performance. But will they be the demand-driven leaders of the future?
Gartner published "Supply Chain Strategy for Manufacturing Leaders: The Handbook for Becoming Demand Driven" as a guide for manufacturers across industries, providing frameworks, strategies and tactics to help supply chain leaders transition from a traditional, siloed, supply-centric organization to a demand-driven one. Although there are many similarities across industries, we've identified specific considerations and factors for different industries and business models. This handbook is unique to the industrial and commercial machinery, equipment and components sectors, including automotive and aerospace and defense (A&D).
Being demand driven matters to industrial companies. When done right , it increases customer responsiveness and revenue. It can also reduce complexity while minimizing adverse global and local operational impacts, such as delays in demand visibility, scrap or excess and obsolete inventory. In fact, it takes nine days on average to sense channel demand, according to our research. But this doesn't include the time it takes for the demand to be communicated upstream. Becoming market driven is key to corporate agility.
Although these industrial sectors are diverse in markets served and product portfolios, they have many similar characteristics:
Gartner recognizes that the industrial sectors are diverse. If any of these attributes apply to your business, however, this research will be both relevant and useful.
So, what do we really mean when we say "demand"? For starters, grasping what it means to be demand driven begins with clarity of demand sources. But this can be tough in industrial sectors, where demand sources are multiple and complex, with many crossing the strategic, tactical and operational planning horizons. In Figure 1, we illustrate the demand landscape typical to manufacturers in the industrial machinery and components, commercial and electronic equipment, automotive and A&D sectors.
Source: Gartner (September 2010)
When thinking about long-term, midterm and short-term demand indicators, consider the following:
In industrial organizations, demand management means sensing not only demand volume but the details that affect product and information flow or timing. Consider a design that requires responsive engineering or a schedule change that impacts product and service delivery. To deal with challenges like these, a manufacturer of process instrumentation must put project pursuit managers in place just to coordinate construction project schedules and manage the impact of ECOs on production, the supply chain and costs.
The reality is that many of these different demand streams are managed by different groups that use separate systems. Combined with a lack of demand visibility, this plunges many procurement and manufacturing teams into crisis mode. They fight fires and expedite materials and goods.
Poor visibility into these multiple demand signals coupled with engineering changes results in high excess and obsolete inventory (E&O), scrap, rework and expediting costs, which directly affect the bottom line and are contrary to most industrial companies' process and cost-efficiency objectives.
Why is this demand picture important? Where there are any shared resources across the value chain, a consolidated view of demand, from all its sources, provides internal and external visibility and reduces the latency of the aggregate demand signal. Improving demand management and visibility is the most effective way to improve performance across key metrics, such as service levels, cash and costs. Having a consolidated view of demand is a fundamental requirement for planning processes, such as sales and operations planning (S&OP).
Unfortunately, Gartner doesn't see many companies in the industrial sectors excelling at being demand driven, or even realizing the benefits of broad and deep consolidated demand visibility through S&OP. Furthermore, off-the-shelf demand management software, without an integrated demand-driven business process, struggles to support the complexities of the aggregate demand landscape for these environments.
We did, however, find pockets of excellence in our research. We'll share some of these next.
Gartner defined the following four core strategies for becoming demand driven, which are described in more detail in "Supply Chain Strategy for Manufacturing Leaders: The Handbook for Becoming Demand Driven" (see Figure 2):
Source: Gartner (September 2010)
We found that the best companies focus on all four areas, with excellence in some. They identify a champion to drive and sustain the overall cross-functional, cross-divisional integrated strategy. Even though isolated projects may emerge as very visible pockets of excellence, unless they're embedded in a broader, end-to-end value network strategy, they don't bring sustainable improvements. Many survive only as long as the strong leader that implemented them remains a champion.
"We want to be our customers' best partner. Their needs drive our actions." — Hilti
Results from a 2009 study indicate industrial manufacturers take nine days, on average, to sense channel demand. This doesn't, however, include the time it takes for the demand to be communicated upstream to manufacturing, supply chain, and suppliers and subtier suppliers, which typically takes four weeks or longer. To improve the ability to quickly sense and translate demand, leaders are market focused and reorganizing. They're redesigning value networks and building capabilities to align marketing, sales and channel partners to R&D, operations and supply chain. Getting closer to the end customer and channel partners as well as understanding what drives the moments of truth are the foundations of designing the supply chain response.
Market-driven, leading companies are organized to make it easy for customers to do business with them. The voice of the customer is constantly gathered, whether it's directly from customers, sales teams and channel partners or through surveys. This information is used to improve customer service or for design purposes, and it forms the basis of customer scorecards. Channel management is important, especially since industrial companies often don't have direct contact with the end customer. Deere & Company, for example, has dealer development programs to ensure its dealers have the technical knowledge and business acumen to best serve the customer.
Customer service remains an issue. Perfect order performance — that is, an order that's shipped on time, is accurate, with perfect quality, and is exactly what the customer asked for — is, on average, under 70% for industrial companies. But even where perfect order performance is much higher, achieving high levels of customer satisfaction must be considered and measured in a broader sense as well as analyzed to ensure the cost to serve doesn't outstrip profit. Analysis of total cost to serve is rarely seen. Even getting to the cost to deliver is on the wish lists of most. Understanding total cost rollup is necessary for demand orchestration, where conscious decisions on how to serve the customer must be made. Cost-to-serve analysis also helps multichannel strategies service different customer segments, with some deserving high touch, but others low or no-touch models.
Our research shows order management processes vary considerably and can be improved. Only 13% are fully automated B2B. Another 46% go through vendor-managed inventory (VMI), portal or Internet options. Technologies and processes to streamline and integrate transactions in the quote-to-cash cycle for configure-to-order and engineer-to-order products have advanced considerably with impressive benefits, particularly by reducing quote and cycle time, increasing profitability and improving life cycle management.
Companies realize the value of customer collaboration. Collaborative relationships to share forecast information or to establish VMI programs with customers and channel partners are cited as top priorities in managing demand variability, but both represent the biggest gaps in capabilities. Continuous improvement efforts in supply chain processes to improve customer service are rampant.
However, they work best when the definition of supply chain starts with sell and it's not confined by plan, source, make and deliver. Customer experience must be defined based on understanding what the customer values, then using network design, cost to serve and segmentation tactics to deliver the right experience .
The downturn has forced manufacturers to think differently about their solutions and the meaning of value. How do you justify premium price and ensure value beyond quality and reliability in a commoditized consumer market such as security systems and heating, ventilation and air conditioning (HVAC)?
Ingersoll Rand recently combined its residential portfolios into a new business, separated from its commercial businesses, that's focused on delivering innovative solutions to home builders and owners. To drive recurring revenue, residential solutions are sold through direct, dealer and retail channels, with innovative services for energy management and HVAC system monitoring. Standard and configurable packages and services support keyless door locks, cameras, lighting, HVAC and other home fixtures, as well as the ability to interact with them through Web or phone applications.
To ensure it stays close to its customers and any opportunities, Ingersoll Rand focuses on the following market-driven initiatives:
Ingersoll Rand's market-driven approach is reaping benefits. Building a strong pipeline (1.5 times the target) based on innovative products and coupled with high sales closure rates has resulted in sales growth of 24%. In addition, focusing on the connected home, rather than strictly a product focus, increases annual productivity, including cost efficiencies, at 4%.
Competition is fierce in the aftermarket for heavy trucks. Most truck components are common, and there's little brand loyalty for service. This manufacturer recognized the need to sense demand not only from dealers, but also truck drivers and fleet owners. More importantly, it realized shaping demand was essential.
As a result, the manufacturer implemented a multipronged approach:
"The AMR Supply Chain Top 25 for 2010"
"Toolkit: How Demand Capable Are You?"
"Evolving to a Demand-Driven Value Chain: Not Easy But Required"
"Key Issues for Industrial and High-Tech Supply Chain Leaders, 2010"
"Hype Cycle for Supply Chain Management, 2010"
"Customer Value Analysis Improves Margin for High-Tech Manufacturer"
"Predicting Total Business Impact To Achieve Maximum Product Life Cycle Value"
"Service Supply Chains: The Path Toward Total Life Cycle Value"
"High-Tech Networks Evolving To Deliver Cash"
"Rethinking Demand Management"
"Industrial Manufacturers Wake Up"
"We have become stronger at translating the channel needs into interesting and innovative solutions, and this has driven market share." — HVAC manufacturer
Orchestrating the demand-driven response increases in complexity as new, innovative offerings emerge to differentiate and retain market share and as services and service and extended warranty programs are created to extend product life cycles. This complexity further hampers the ability to accurately forecast. Leaders, however, are working both ends: improving demand sensing and forecasting as well as becoming more agile and shortening cycle times.
In most industrial solutions, agility starts with product and service innovation that maximizes platforms, modular design and component reuse. "Design anywhere, manufacture anywhere" strategies are becoming more important to mitigate complexity — thus the emergence of the term "design for x," or DFX. DFX strategies support platform design that allows for maximum reuse and postponement strategies when configuring products to meet customers' unique requirements. Leaders use simulation technology to optimize design for supply, but also to design for manufacturing flexibility, global scale, reliability and extended service, and sustainability.
Portfolio management is also a priority. It's expanding to include life cycle management, from collaborative design phase gates, to perfect product launch, to disposal and phase out. This applies to both products and services. There's a need to balance cost versus differentiation of product and service complexity, while recognizing that new products drive demand but can affect cost, residual product management and supply agility. Tightly coupled to the portfolio is intellectual property (IP) management and other supply chain risks.
To illustrate the complexity, consider this: According to a 2009 custom study, industrial companies, on average, have 15,000 items, 16 manufacturing locations and ship 110,000 orders per year. The research also showed it takes about five days to ship an order. This supply chain response is more costly, with even worse asset utilization, than in other manufacturing sectors. Inventory write-offs are high at 6.8%. Although complexity might be inherent in the business model, we can't ignore the fact that much of it is driven by an engineering culture or a sales-driven, SKU proliferation, with no comprehension of whether or not this complexity truly offers value. Figuring this out is a core facet of being demand driven and key to balancing this strategy with the other three demand-driven ones.
Another major challenge is that product and service innovation is done separately. Since design must support product functionality and how it integrates into the total value proposition to the customer, companies must view services as an integral part of the product. Consider the case of NCR, where equipment installation and ongoing service is critical to the customer experience. To improve internal alignment and better serve its customers, NCR recently moved its services organization under global operations. Gartner expects to see more companies integrate services into operations as a best practice.
New product development (NPD) must also incorporate the product life cycle and related services that reflect the voice of the customer, including the recent trends of green and sustainable products. For example, a heavy equipment manufacturer now puts more metal on an engine block because it allows for the remanufacture of engines, thus reducing landfill. The initial engine cost may be higher, but the outcome is much more sustainable.
Design anywhere, manufacture anywhere strategies allow for flexibility, but companies must understand a global segmentation strategy and design and build accordingly. For example, a manufacturer of electrical transformers designed a base that was common globally, but allowed local engineering teams to adapt it to specific regional needs — thus, the base is a platform designed with global differentiation in mind. Furthermore, designing to use the manufacturing capital investments of key global or regional suppliers can help improve costs and logistics in those markets. Besides simply designing for compatibility with supplier manufacturing technologies, industrial companies can do more to use suppliers' technical abilities and drive product and service innovation.
As demand for innovation increases, suppliers and design partners increasingly become an integral part of the picture. Gartner sees open innovation strategies and collaborative design networks on the rise.
Pushing global products into emerging markets achieves 10% to 20% growth for manufacturers. GE Healthcare, however, saw an opportunity for three to four times this number in India by looking at the market and customer needs and innovating products specifically for the region.
For example, the typical electrocardiogram (ECG) device isn't suited to India's vast rural areas, where hospitals and even electricity are scarce — not to mention cash. The company needed an ECG device that was portable, battery-operated and very low cost. The one it created was just that, costing about $1,000. And not only did it drive growth in India, but it also opened up new opportunities in the massive developed markets of the United States and Europe. Just think of an accident site where a machine can be taken to a person sooner than a person can get to a hospital, or consider a space-constrained medical facility. GE Healthcare experienced similar success with imaging equipment designed for China, which also fueled growth elsewhere.
This concept is a radical change for "corporate America," with its desire to push global products, sometimes with fewer features to reduce costs, into the large Brazil, Russia, India and China (BRIC) economies. What GE Healthcare did was design a low-cost device specifically for India, then scaled it up for global deployment. The company calls this "reverse innovation and market-back planning."
So what's the take-away from this medical equipment success story? There are many examples of companies growing revenue and market share by designing for emerging markets. In this case, however, GE Healthcare brought innovation to developed regions to shape demand and created a new market in result.
"We will achieve best-in-class financial performance by serving our customers with a comprehensive offering of innovative products, knowledge and services, all delivered with bulletproof reliability." — Herman Miller's VP of supply chain
Over the past five years, innovation at Herman Miller has moved from an R&D push model to being market responsive. There's now great collaboration between marketing and R&D to blend the needs of customers while bringing new ideas to market. Category leads are out in the field, listening to customers, dealers, architecture and design firms and working with focus groups. The company continuously assesses its current portfolio and identifies gaps and opportunities, working with the design and development team to ensure the right mix.
Consider the following:
"SKUs Are Driving Complexity Into Your Supply Chain and Profitability Out of Your Bottom Line"
"Leading Manufacturers and Retailers Rely on Value Chain Service Providers"
"Develop and Manufacture Anywhere To Reach Global Markets and Optimize Product Supply Networks"
"Embedding Innovation Into the Value Network Requires New Approaches"
"ATK Mission Systems Executes Projects To Make Affordable Innovation a Reality"
"Product Innovation and Operations Excellence: Who Has the Discipline To Be the Best?"
"Sony Ericsson on the Right Path to Design-for-Supply Excellence"
"Deploying Product Launch Dashboards: Lessons From Leaders"
"Integrating Innovation and Operations Excellence at Toyota"
"I believe that in many companies today, the capability of the supply base affects their competitiveness more than any other single factor." Dave Nelson, ex-CPO of Honda of America Manufacturing, Deere & Company and Delphi
It's true that manufacturing agility starts at home. But considering that about 70% of a manufactured product is sourced nowadays, the supply network must be agile, too. Even though companies have moved away from heavy vertical integration, many still focus their lean, Six Sigma and innovation efforts only on the 30% they manufacture. Leaders, on the other hand, build supplier relationships and development capabilities that focus on the 70% they don't.
The automotive debacle of 2009, for instance, highlighted the leaders that valued supplier relationships and, in turn, saw fewer of their suppliers go bankrupt. The difference between the traditional focus on transactional processes and leaders that built effective relationships is significant. Picture the traditional, all-powerful buyer sitting in an office driving efficiency and "favorable" purchase-price variances with adversarial supplier relationships. Then picture integrated teams where the buyer spends most of his time at the supplier location and has deep knowledge of the technologies he purchases as well as the supplier's capabilities. In the case of the latter, agreements come down to a handshake and a simple memorandum instead of a 40-page contract. Open-book costing and joint kaizen events for mutual profit are the norm.
This journey isn't trivial — after all, the supply base is the primary source of risk, innovation, cost reduction and quality, and, in many cases, superior customer service. It must start by building a strategic sourcing and procurement team with knowledge and experience far beyond current administrative capabilities.
Unfortunately when we talk about supplier collaboration, the conversation quickly turns to collaborative practices and technologies to support connectivity. So, the question to ask is, Is your company building collaborative practices or developing collaborative relationships? Collaborative practices such as portals, electronic data interchange (EDI) and supplier-managed inventory (SMI) are important, but robust supplier development programs, like ones developed at Honda of America Manufacturing, help the automaker reduce the cost of each new model, while maintaining quality and increasing the features included in the vehicle.
Ever heard of supplier "keiretsu?" It's the Japanese word for networks of suppliers that learn, improve and prosper in sync with their parent companies. This is the Honda and Toyota way, but it's also been adopted by non-Japanese companies, one being a U.S. heavy equipment manufacturer.
For this company, the keiretsu process was arduous. It needed to completely redefine its strategic and tactical relationships. After all, the traditional American procurement mentality is "reign of terror": Many companies demand cost reductions without collaboration and quickly jump ship to a cheaper source, especially since the Internet made it easier to compare costs. The manufacturer replaced this mind-set with loyal partnering for joint value and total cost reduction, joint kaizen events to reduce costs and improve quality, and ensuring the financial health of suppliers, with a belief in healthy competition during new product introduction.
This manufacturer's supplier management program is the result of a multiyear transformation:
The heavy equipment manufacturer wants to be its suppliers' best customer. This ensures total loyalty, with suppliers going the extra mile when needed, which increases quality and flexibility. Has the manufacturer achieved this? We talked to one of its major component suppliers, and the answer was "absolutely, yes. [The manufacturer is] our best customer. [It's] tough but fair. [It helps] us improve, gives us great feedback and is totally trustworthy."
Embarking on a journey like this must be done with the right vision and related investments. It delivers long-term transformational benefits, not just short-term incremental cost savings.
When discussing the supply network — internal and external manufacturing plus suppliers — it's important to address the issue of business strategy and organizational models. Because of the diversity of the products and markets served as well as growth through acquisition, most industrial organizations are fairly decentralized. This autonomy facilitates an agile business strategy close to the customer, but it doesn't take advantage of an efficient business strategy enjoyed by more centralized organizations, which have maximized standardization and consistency as well as leveraged synergies and economies of scale.
In the past 18 months, the sun has started to shine again on vertically integrated manufacturing and a business model Gartner calls "center led." In this model, organizations can retain the advantages of some autonomy and agility strategies, while leveraging scale and efficiency strategy where it makes sense. For example, GE's appliances division has shifted from sourcing and relying on suppliers for 70% of the finished goods it sells, to manufacturing some of the goods itself for greater efficiency. To support this transition, GE and other companies have migrated to an organizational model based on centers of excellence (COEs), shared services and governance and process councils.
Moving to a center-led model is particularly difficult in program-driven industrial segments like A&D. Rockwell Collins started its supply chain transformation journey in 1996, far earlier than most, and today it boasts a consolidated, centralized supply chain organization with a broad span of control focused on corporate efficiency . As noted in "Conquering the Seven Deadly Challenges of Sales and Operations Planning" (see Challenges Nos. 4 and 5, specifically), getting the customer-driven demand process aligned with the organization or reorganization model and governance process is critical to optimally support efficient, agile or hybrid value network business strategies.
The concept of center led also applies to the manufacturing elements of the supply network. Like in other supply chain functions (e.g., procurement, planning, warehouse and distribution center management, and transportation and logistics), manufacturing environments must align their organization or reorganization models and governance processes with their corporate supply network strategies. Manufacturing operations must strike the right balance of efficiency and agility when managing across a set of regional or global manufacturing facilities, whether they're owned, co-owned or supplier owned, including compliance with mandatory requirements. Table 1 highlights these trends.
Source: Gartner (September 2010)
Establishing programs to create and manage the balance of agility and proximity versus efficiency is a lengthy yet fruitful initiative. Consider, for example, Ford Motor Company's One Ford program. One facet is to create standardization across manufacturing facilities to support flexibility in capacity usage. Ford's program assumes that variable demand for certain platform configurations will occur, which makes flexibility and agility a necessity. It has standardized plants to enable efficient response within 24 hours. Supporting this are standards across sites for quality, safety and plant efficiency in all production domains: assembly, power train, transmission and stamping. Ford is starting to see the fruits of its labor, too: In the recent J.D. Power and Associates' Initial Quality Study (IQS), Ford was the highest-ranked U.S. OEM.
As evidenced by Ford's revamp of its production system, many manufacturers are "rediscovering their roots" inside the four walls of their plants. In many cases, it's more than applying business process rigor in the forms of lean or production scheduling principles. It's about information access and availability to support continuous improvement across the products, processes and people organized and aligned to the corporate supply network strategy. For example, a bicycle manufacturer and a fuel rod producer have invested in process monitoring applications. This technology doesn't just monitor critical-to-quality processes at line, it also identifies across sites where capacity is available to support available-to-promise (ATP) and capable-to-promise (CTP) decision making. These capabilities support the desire to balance line efficiency with agile manufacturing execution.
More broadly, investments in manufacturing plants are being made to improve efficiency and compliance by automating the still-present manifold of paper-based and manual processes. When well thought out, they can generate efficiencies through basic automation and enable a flexible manufacturing architecture beyond ERP for multiplant integration. These continuous improvements have the potential to increase automation project ROI through multiplant benefits and increase corporate return on invested capital (ROIC) through improved used of capital equipment.
Although automation processes are critical for efficient operations purposes such as inventory backflushing and order management, it's also imperative to connect these systems further upstream, including integration with product and process design and other product life cycle management (PLM) functions. Upstream connections permit the creation of common data models for engineering and production management systems. Common data models help align manufacturing, including the organization model and related operations processes, with product and process design, engineering, simulation models, industrial and plant engineering machine commissioning, program and product management, and change management.
At the start of its strategic alignment/transformation journey, one automotive supplier restructured its plant IT systems to support the award of a multimillion-dollar contract with an OEM for a new platform. The project is supported by a specific IT center of excellence for MES. With measurable results and ROI, Siemens Industry Automation Services (IAS) is on the other end of this transformational journey. By completely automating its production lines at its Amberg facility , the company now accommodates a higher mix of products, while still having a 99% reliability rate for filling orders worldwide within 24 hours.
"Successful Supply Management: It's About How the Relationship Is Defined"
"Six Best Practices for Building World-Class Supplier Strategies: A Unilever Case Study"
"Reaching Sourcing Excellence, Part 2: Going From Good to Excellent"
"Managing Risk: Can You Sense Supplier Failure?"
"Intel: A Case Study in Supplier Risk Management"
"Four Talent Development Milestones Build Better Supply Chains"
"Legal and Regulatory Compliance Only the Tip of the GRC Iceberg"
"Having an S&OP process with full commitment and joint ownership for forecast accuracy with sales and marketing has improved our forecast accuracy by at least 10 points — 20 or more, in places." — Electronic equipment manufacturer
For industrial manufacturers, demand management must be tied to the business strategy and forecasting capabilities with the end goal in mind. Becoming demand driven requires a focus on sensing and shaping demand and capturing this demand in pipeline and forecasting tools, while working to eliminate bias and error.
Based on the characteristics of your supply chain, consider these options:
Conventional forecasting technologies don't handle high mix and product configuration well. Consider modeling attributes, models and platforms against the goal, with organizational structure also aligned to the goal. Use analytics for sensing patterns in buyer behavior to refine forecasts, create recommendation and configuration engines and support design improvements.
According to a recent Gartner study, 46% of industrial companies reported they're increasing their investments in S&OP, with better asset utilization, supply planning and schedule adherence, and better translation of demand to procurement requirements cited as the key benefits. Translating demand into manufacturing and procurement plans, however, is the greatest gap.
In high mix environments, reconciliation of the sales pipeline to the financial plan and supply forecast for pre-builds and pre-buys is complex. While the financial numbers may ultimately be achieved by sales, changes in mix cause headaches for planning and finance. Survey respondents reported they struggle the most with supply-constrained, what-if analysis as well as the ability to measure trade-offs and then measure and communicate the plan. For the industrial sectors, S&OP must be designed for value streams, with an effective decision-making process and tools to define profitable plans based on capacity, resources and material supply. This should tie into and reconcile with the financial plan, and then drive material and factory planning consistent with the collaborative demand-driven plan.
Twenty-nine percent of industrial manufacturers also reported they have no formal S&OP process, stating limited resources as the main reason why. To make matters worse, only 27% have common, end-to-end supply chain metrics in place, and 50% of people are rewarded through the annual appraisal process united with key business results metrics. Industrial organizations steeped in legacy processes and a traditional procurement-based supply chain culture continue to operate in crisis management and expediting modes. However, those that recognize the value of multifunctional and integrated planning processes that enable conscious choices emerge as the winners.
S&OP is a key process in a journey toward achieving Stage 4 — orchestration. The term orchestration, though, is seldom understood in the context of supply chain. When we talk about orchestration of the demand-driven response, we're referring to the following:
The ability to accept or decline orders based on profitability and to consistently align to business strategies is difficult to cultivate, but it's a characteristic of mature, Stage 4 demand-driven leaders.
Orchestration requires the ability to translate complex go-to-market strategies, new offerings and supply networks into plans to meet business goals most profitably. Like cogs in a transmission, the demand, supply and product functions within an organization must be aligned and synchronized for this to happen. Each function must forecast and plan based on its own strategy, while the cross-functional S&OP or a similar process brings them together to orchestrate the demand-driven response.
Figure 4 illustrates some of the factors affecting the synchronization of planning.
Source: Gartner (September 2010)
The Rosemount business of Emerson's Process division has moved from being a reactive supply chain to a demand-driven orchestrator in short time. Rosemount provides pressure, temperature, flow and level measurement products to global customers and projects. Three years ago, there was no S&OP process. Planning was conducted at the plant level, even though multiple plants sold to the same global construction projects. At that time, Emerson measured too many metrics that weren't actionable, and its product lines were differentiated based on high CTO complexity. Today, however, this $2 billion division is in a very different place. It's considered a leader in S&OP and planning capabilities within the Emerson group.
Here's a synopsis of the its progress:
Like many in A&D, Lockheed Martin operates from a multiperiod backlog of business from the government. However, this significant backlog doesn't imply stable demand. Most deliverable products are individually configured, meaning every aircraft ends up with design changes, with many unique to the aircraft. For this reason, the company's customer value delivery system must accommodate change within short cycle times. The onus is on Lockheed Martin to reduce cycle times by knowing each product's critical path, and then working to eliminate constrained operations.
Before a company can become truly demand driven, the team at Lockheed Martin believes it must simplify operational processes by applying lean principles. Lockheed Martin is different than many other A&D prime contractors and major suppliers in that it focuses on end-to-end lean from supplier to customer, including synchronizing demand pull to minimize inventory buffers. Other contractors and suppliers have one-piece flows similar to Lockheed Martin, but others haven't yet extended lean outside their four walls. This extension requires effective collaborative supplier relationships, particularly with suppliers of constrained materials. For example, on the F-22 Raptor production line, there's a one-piece flow line to build an entire aircraft. This is different than the F-16 Fighting Falcon production line, which has many build stations. It requires discipline to get a single-piece flow line in place, but once it's mastered, it brings clarity and reduced supply chain complexity. At Lockheed Martin, inventory can be held at the point of consumption, which reduces the need for warehouses as aggregation points.
Long-term services are critical and support the company's business growth and products. Services use the same supply chain principles developed in manufacturing. Lockheed Martin currently has 23 PBL programs in place, five of which are system level, with the others at a major assembly or component level. As a PBL leader, it recognizes PBL is more than a contract. Achieving the deliverables, which are outcome driven and based on Department of Defense (DoD), customer-defined performance, requires the design of an end-to-end supply chain integrated with the customer's logistics community and assured delivery and availability. Trade-offs must be made, such as product design decisions that improve serviceability or long-term reliability.
Lockheed Martin finds value in PBL programs because they drive a five-year view of demand. Much of the impetus for PBL came from the foreign Ministries of Defense (for example, the aggressive, longer-term contracts that focused on mission outcome for the search-and-rescue helicopter program in the United Kingdom).
So, what does successful PBL at Lockheed Martin entail? Here are some of the key aspects:
The F-35 Joint Strike Fighter (JSF), which is currently in production, will take this design-for-service experience to a whole new level based on the extensive autonomic logistics incorporated in the aircraft. The logistics systems monitor the total health of the aircraft. A foundational element for the F-35 JSF is design for service for each customer community. Lockheed Martin designed a platform with three variants to satisfy domestic and international community performance-based service requirements.
"2010 AMR Supply Chain Top 25: Chemical"
"2010 AMR Supply Chain Top 25: Retail"
"Sales and Operations Planning: Transformation From Tradition"
"Conquering the Seven Deadly Challenges of Sales and Operations Planning"
"Embraco Transforms Its Value Chain Through Integration of S&OP and Order Fulfillment"
"As the Recession Dipped the Market, Cisco Rose Above It"
"The Hierarchy of Supply Chain Metrics: Diagnosing Your Supply Chain Health"
"Network Design: SanDisk Uses Smart Postponement to Slash Costs 60%"
"Debunking the Myth of Base Forecasts"
"A Four-Step Program for Supply Chain Agility"
This is part of an in-depth collection of research. See the collection:
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| Resource Id: 1430728 |
