Manufacturing Value Chain

A Call to Create Sustainable Supply Chain Management Practices

10/21/2009 by Jacqueline Harris

Dr. Mary C. Holcomb, University of Tennessee contributed the following article.

A CALL TO CREATE SUSTAINABLE SUPPLY CHAIN MANAGEMENT PRACTICES

This past year presented unprecedented challenges to firms as economies worldwide moved into recession.  The tough economic times significantly impacted how companies of all sizes managed and operated their supply chains.  The 830 companies that participated in our 18^th annual study on the trends and issues in logistics and transportation told us that the economic hardship is being compounded by unpredictable demand, increased customer requirements, and volatile commodity and fuel prices.  All of these factors are making 2009 one of the most difficult operating years ever for businesses.

The economic slide since 2008 has placed tremendous pressure on firms to become much more efficient than ever before.  In this relentless pursuit, customers have reminded companies that cost is not the only critical factor for success - service is just as important.  This was reinforced by the study results that showed that a majority of companies (48.9 percent) view themselves as "being all things to all people" when it comes to the overall strategy of the firm or business unit.  We have seen growth in this strategic direction of "being all things to all people" since 2006 when it passed customer service as the top ranked strategy.  As the Exhibit 1 shows, customer service and cost leadership combined are a smaller percentage than the mix strategy for 2009 illustrating just how dominant this approach is becoming.

Should we be concerned about the increasing number of firms that are choosing this strategy?  The short answer is yes.  For the mix strategy - being all things to all people - to be successfully deployed, service and cost tradeoffs must be carefully evaluated for each and every customer interaction.  This strategic direction requires that firms carefully differentiate service levels for customers in order to maximize their profitability.  Without this segmentation firms deliver "one size fits all" service.  Not only is this approach too costly for the firm in the short and long run it also results in the "best" customers receiving the same service as less important customers. 

Over the eighteen years that we have conducted the annual study, business conditions have fluctuated from good to challenging, particularly after 9/11/2001.  What we have found is that many firms in response to difficult times take actions that are often reactionary to the situation.  While these changes may have an immediate impact, the concern is that they are not changes that will sustain the business once the economy recovers - much less position the firm to take advantage of growth opportunities.

The current recession has prompted many firms to consider how they can endure during this economic downturn.  For many firms this has led to a relentless focus on reducing costs.  With the increasing number of firms that have positioned themselves "to be all things to all people," the concern is that the cost-cutting decisions are not being made in a manner that will best support this strategic focus.  What we learned from past experience is that cost-cutting initiatives focused solely on reducing operating expenses often negatively impacted firms for several years afterwards.  What lessons did we learn that can be applied to the current economic situation?  Simply stated they are:

• Cost cutting must be done using a strategic filter.
• Investments in improving supply chain capabilities should not be delayed.
• Even in bad times, customer service cannot be sacrificed.

The challenges and issues that firms are dealing with today leads us to believe that the changes that are occurring are not for a season; some argue that continual economic and social change is the "new normal" for global supply chains.   Therefore, instead of constantly reorienting to the changing conditions perhaps a wiser approach would be to create sustainable supply chain practices that adapt to conditions.  While the term "sustainable" has been used lately in the context of environmental and green issues, it also succinctly conveys the need to build and develop approaches and techniques to managing and operating the supply that will make the firm more responsive to a host of conditions. 

What are the supply chain management practices that will sustain supply chains through good and bad economic times?  They are:  velocity, adaptability, synchronization, optimization and profitability.  These are the drivers that will create the type of supply chain that is needed for the new normal.  Now is the time for companies to set themselves apart from the rest by viewing the economic downturn as the opportunity to change their competitive position through the development and implementation of sustainable supply chain practices.  The challenge that firms must deal with is how to advance this agenda in a period of financial adversity when the unrelenting pursuit is one of reducing costs.  The study results indicate that smart firms are making strategic and tactical changes to their businesses and supply chains that will make it possible for them to weather this economic storm.  More importantly, they are building for a more prosperous future.  These companies will be ready to deploy and utilize an array of capabilities that are based on sustainable supply chain management practices.  The question that you must ask is - "Will our company be ready when the economy rebounds?".

The 18^th Annual Trends and Issues in Logistics and Transportation is a joint research effort of the University of Tennessee, Georgia Southern University, Capgemini, U.S. LLC, and JDA Software.  More research on the annual trends and issues, as well as sustainable supply chain management practices, can be found at:  http://www.transportation-trends.com

Tough times? Use them wisely!

6/15/2009 by Chris Zimmerman

Recently, I have spoken to many companies who have taken the approach to hunker down and wait for the storm to pass:  taking the path of expense cutting, halting any capital or discretionary spending, and reducing sales and marketing initiatives.  Although for some, this is the prudent move, for many an opportunity has presented itself.  We all know, and history has shown us, that the economy will rebound and in most cases, manufacturing businesses will be there after the storm. 

So in these down times, what can we do and what can we gain?  A few potential ideas:

• Examine all process and procedures for:
  • Redundant or double data entry
  • Highly manual processes (high potential for errors)
  • Examine the use of spreadsheets in production (limited visibility)
  • Data availability to the appropriate parties (executive, back-office, customers, vendors)
• Utilize technology to solve the above issues
  • In most cases using the systems already owned
• Potential manufacturing business gains:
  • Increased market share when business increases
  • Increased profitability through a more scalable business with no expense increase
  • Improved operational efficiency for a clearer view of data for better decision making
  • Broader view of all data across the entire business
  • Improved process can allow for reallocation of over staffing and head count

It is not always for the faint of heart to make bold moves in difficult times, but more often than not, they will be rewarded for their foresight with a more dominant business.

The link below is to a blog post from the President of SGIA, he agrees that the time is right for business and process improvement.

Last to Move - First to Lose

eBusiness Value Chains: eCommerce Website Products

6/09/2009 by Jack Burnett

At TwinEngines, we optimize manufacturing value chains.  Sometimes that is your supply chain or value added activities to fulfill orders from sales, through product configuration, manufacturing and logistics.  Sometimes, for an eBusiness, the value chain includes accepting orders in your eCommerce website, picking and fulfilling the order, and managing shipments and payments.

For an eBusiness, I want to talk about presenting products that are available for purchase online 24/7 in the eCommerce website - the value-added activities including inventory tracking, product marketing and sales order processing. Presumably, inventory is maintained somewhere.  For smaller businesses, inventory tracking may be in a Microsoft Excel spreadsheet; For mid-market companies inventory is found in a back-office system, ERP, financial or inventory systems.  Each individual item is represented in these systems, with a quantity-in stock data attribute.  There are also other attribues, like Reserved Minimum Quantity and Reorder Quantity.

The items (or Skus) in the back-office system are usually grouped together at the product level for display on the website.  This allows an online shopper to search for a product quickly, and then select the particular item based on size, color, brand, etc. For example, you are shopping at the Mercier Orchards online apple store for blackberry jam.  You find the jams product, and then you then select the flavor and the size of the jar.  For the online shopper there is the one jams product presented in the Jams, Jellies, and Preserves category in the product catalog.  In the ERP system however, there is a jam item for every combination of flavor and jar size.  So it is important to manage at the item level back-office systems, and ideal to manage at the product level on the website.

Let's just say the manufacturing business has an ERP system like Microsoft Dynamics, where items, inventory and sales orders are all managed. When there are many products online and even more items in the ERP system, it makes a lot of sense to integrate the eCommerce website with the ERP system's sales order processing and item detail modules.  With integration, each web order is automatically sent to the ERP system.  When the web orders are fulfilled, inventory is automtatically depleted, and inventory counts are transmitted to the website at some frequency (perhaps daily or hourly).  We use eConnect for Microsoft Dynamics, and similar products for other financial and ERP systems.

So now the question is, what do you do when you run out of an item in inventory?  Without getting into backorders, here are the options:
1. Show the product and allow the shopper to select the item.
2. Show the product, but don't allow the shopper to see any items that are out of stock.
3. Show the product and item, but don't allow the shopper to select the item.

I don't recommend option 1, unless you are 100% sure you can fulfill the order meeting your guarantees to your shoppers. When to capture the charge is a topic for another day.  Let's just assume you send an order confirmtation email to the shopper and authorize a hold on the shopper's credit card for the total purchase amount.  When you realize you cannot fulfill the order, you have to tell that shopper and void the authorization.  Chances are you lose that customer forever.

The second option is the other extreme I don't recommend.  If a shopper doesn't see that Mercier Orchards carries his favorite blackberry jam at all, chances are he is lost forever.  The only time this option may be satisfactory, is when you are closing a product line and when it's gone, it's gone for good.

I think the best option is displaying the item, but not allowing a shopper to add it to the eCommerce shopping cart.  Even better, the shopper sees a message indicating the item is currently out of stock with a phone number/email address to get more information.  The eBusiness gets a call from the shopper, and has the opportunity to cross-sell or get the customer's contact information to alert them when the item is back in stock.

Integrating the eCommerce website to the back-office systems is a key piece to optimizing the value chain for a manufacturing eBusiness.  Deciding how to display products and availablity for online purchase 24/7 is also a key business issue.  When presenting products online, there is a lot of prepatory work involved to group individual items (Skus) into product groups.  A product image, description and name has to be created for the eCommerce website, and managed with the website content management system.

Microsoft Robotics Studio Has Potential

5/25/2009 by Kevin Seefried

Microsoft Robotics Studio for Manufacturers.

Each year I attend the Microsoft Worldwide Partner conference.  Two years ago as Steve Ballmer delivered his keynote address he presented a slide to show all the new products Microsoft had released that year.  In the bottom corner I caught a glimpse of an obscure reference to Microsoft Robotics Studio.  Being in manufacturing for small and mid-market companies, this peaked my interest and I started to follow the product.  The next year as part of a new product demonstration on the main stage Robotics Studio got its 15 minutes of fame in front of all the partners in attendance.  The demo was actually disappointing, but the fact it got time reinforced my belief Robotics Studio might be an up and comer for the real-time enterprise.  At that same conference the product had a booth and I had the opportunity to talk to one of the product managers.  That conversation in addition to all my research made me realize that this was not a niche product targeted to robotics hobbyists.  I realized it has real potential based on some of the observations made below.

The Digital House
There has been a lot of discussion about the digital house.  I have seen refrigerators with internet access and game consoles delivering on demand movies but what is going to be the brains for the digital house.  The gaming industry manufacturers are adding features to achieve that goal and the audio visual companies are making their play but does either groups have the right technology base to provide the standardized brains to pull it all together.  I would argue that the right technology foundation would derive its roots from robotics and the associated asynchronous technology.  This is not a trivial market and Microsoft has a technology and the pull to deliver.

Manufacturing
Next, I look at the software currently running and connecting devices on the shop floor for companies who participate in the manufacturing value chain.  This realm is dominated by PLCs and software/tools provided by equipment manufacturers.  The programming languages and standards are fragments and archaic.  Some companies like Siemens can provide an end-to-end solution but these solutions are not practical for the small, mid-market manufacturers.  The disconnect on the shop floor makes it very difficult for companies pursuing concepts like the Real-Time Enterprise or trying to bridge the gaps between the front office and the shop floor.  If Microsoft can provide the R&D required to deliver a product for the shop floor that commoditizes the software for device manufacturers and easily connects equipment, there are huge productivity gains available.

Zero Labor
Manufacturers and other industries participating in the manufacturing value chain have realized the benefits of offshore labor to reduce costs.  To compete against this labor model the keys for US based manufacturing's viability is innovation, speed to market, and short lead-times.  But as energy prices rise, the pressure on firms to reduce their carbon footprint increases, and a stable, low cost labor force is more difficult to find will manufacturing return to the US through Zero Labor investments.  When you look at history we can use agriculture as an example.  Large numbers of people used to harvest but we now have farming equipment to do the work.  We used to dig holes by hand but now there are backhoes. 

As manufacturing becomes a fully mature industry can we remove labor as a major cost driver and return production to local sources.  The keys to this movement will be investment in automated machinery, the implementation of robotics, and the increased use of information technology.  I see a drastic change coming and Robotic is one of the keys.  We have to move to lower labor and transportation costs but we are not going to be able to lose the flexibility we have gained by shopping the world market for specific capabilities.  Robotics allows us to create flexible work centers that can adjust quickly to changes in market demand.  It is my belief that manufacturing equipment, robotics, and information technology will merge as we drive towards Zero Labor capabilities. Microsoft Robotics Studio has the potential to enable this trend.

What are Manufacturing Value Chains?

5/11/2009 by Jack Burnett

TwinEngines created the Industry Insights blog for companies who participate in the manufacturing value chain. Our goal is to help organizations increase their competitiveness by optimizing their manufacturing value chain. So what is a manufacturing value chain and how can TwinEngines help you optimize it?

First we start with the basic idea of the value chain. The Wikipedia definition says a value chain is a chain of value-adding activities of a business. Michael Porter introduced the generic value chain model common to a broad range of organizations in his 1985 book, Competitive Advantage. By separating the business processes and systems into the value-adding activities, companies can start to find opportunities to become more competitive.

When a business can offer a product or service at a greater value than the cost of the activities, the result is the profit margin. Put another way, how much more customers are willing to pay above the cost of the activities in the value chain determines how much profit businesses can achieve.

TwinEngines describes the manufacturing value chain as the chain of value-adding activities organizations perform to make, distribute and sell things. It includes the supply chains and distribution channels, and covers the business systems and processes from sales and marketing, through manufacturing to logistcs and repair and warranty. The operations performed in many companies include some, if not all, the value-adding activities that are found in the manufacturing value chain.

Organizations can become more efficient and increase their competitiveness by optimizing the activities and synchronizing the flow of information in the manufacturing value chain. Business systems must communicate with each other to enable customers, vendors, the front office, the shop floor, customer service and dealers and partners to work together in the most efficient manner. When this happens companies are competitive and profitable.

Optimizing the manufacturing value chain does not happen overnight. It is a journey with goals and milestones along the way; a continual improvement program focused on increasing profits. TwinEngines has learned that small and mid-market companies need a strategic plan to outline the journey and define the goals and milestones. Often times, custom applications are the most economical way to extend information found in core business systems, like ERP and MRP, throughout the organization and with customers and partners. A result of the many journeys we have made with small and mid-market firms, is a proven method to defining the strategy combined with a technology infrastructure for a jump-start on the business applications.

Whether your business is eCommerce, repair and warranty or made-to-order manufacturing, consider the following questions about your manufacturing value chain activities. Do you have a strategy for optimizing the value-added activities? Does your strategy align business systems and processes with the business goals? Who is focused on analyzing and implementing tactical applications to ensure they fit in the strategic framework?

Welcome to the Industry Insights Blog

4/29/2009 by Administrator

Welcome to the Industry Insights blog, TwinEngines' contribution to small and mid-market companies who participate in the manufacturing value chain.  Come visit us often to collaborate and share information that is near and dear to small and mid-market companies.

We hope you find the articles informative and welcome your comments.  In the end our goal is to make a contribution of information that helps small and mid-market companies increase their competitiveness and profits.