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© 2011 Eaton Corporation. All rights reserved.
Aerospace Business Break Out
Steve Wagner
Eaton Aerospace
22© 2011 Eaton Corporation. All rights reserved.
Agenda
• Agenda/Introductions 8:00am – 8:15am
• Overview of Eaton Aerospace 8:15am - 8:45am
• Trends in Aerospace &
Overview of Strategic Initiatives 8:45am – 9:30am
Initiatives
• Break 9:30am – 9:45am
• Quality 9:45am – 10:15am
• Materials Management 10:15am - 11:00am
• Global 11:00am – 11:15am
• Shared Service Team 11:15am – 11:30am
• Question and Answer 11:30am – 11:55am
• Wrap up 11:55am –12:00am
• Boxed Lunch and Adjourn
33© 2011 Eaton Corporation. All rights reserved.
Introductions
• Steve Wagner
• VP Aerospace SCM, August 2010
• Joined Eaton as Director SCM Aerospace
HSD, August 2008
• Before Eaton spent 13 years at Ford Motor
Company in various positions; last role as
Director Electrical Procurement
44© 2011 Eaton Corporation. All rights reserved.
Industrial SectorAerospace Group – Steve Wagner
Title: VP, Supply Chain Management
Office Location: Jackson, MI
Operations: 26 sites in 6 countries
Supplier Count: 4,481 located in over 30
countries
2010 Sales: $1.6B USD; 13% of Eaton
2010 Spend: $660M USD
2010 SCM Imperatives� Supplier Rationalization
� Improved Material Management
� Demand Management
� Supplier Integration
� Improved Quality and Delivery Performance
� Advanced Quality Planning
� New Product Introduction
� Build Regional Capabilities
Key Products and Services� Hydraulic Systems
� Fuel Systems
� Engine Subsystems
� Electrical Power & Control
� Pilot Interface & Power Distribution
Key Commodities� Machining $273M
� Electrical $ 39M
� Electronics $ 25M
� Fasteners $ 25M
� Valves & Fittings $ 23M
� Fabricated Metal $ 22M
� Outside Processing $ 21M
55© 2011 Eaton Corporation. All rights reserved.
Aerospace Supply Chain….Organization Structure
G BoutsikakisSupplier
Performance
Pat TavolacciMaterials Mgmt
B KellySCPM
T GarnettSCM Controller
P BandiwadekarSST
J StramLCC APAEE
J GarciaLCC LA
N WrightProcurement
K Clark HSD SCM
N WrightFSD SCM
J RogersESC SCM
I Campbell CSD SCM
• Eaton Aerospace Supply chain is a team of 350 people
• In 23 manufacturing sites, and 40 total sites, globally
• US, UK, Mexico, France, Germany, Turkey, India, China,
Singapore, Malaysia, Russia, Brazil
• Covering supplier development, procurement, materials
management (MPS, Materials Planning, Logisitics, Inventory
Control), LCC Sourcing/Supplier Development, Sub contracts
Program Management.
66© 2011 Eaton Corporation. All rights reserved.
2008
100 Years Of Heritage • The Last 10 Years: Emergence of the Aerospace Group
• 2000 to 2003: Transition to systems businesses and winning key contracts
like A380, JSF and Hawker Horizon
• 2003: Strategy of Component Excellence AND Superior Systems established
• 2003 to 2005: Building systems capability and identifying component gaps
• 2006 to 2008: Integrating strategic acquisitions in adjacent fuel handling, air
conveyance and engine components segment.
1999 2002 2005 2007
Sterer
Tedeco
MechanicalProducts
Sterer
Tedeco
MechanicalProducts
1998
$187M
$1.8B
77© 2011 Eaton Corporation. All rights reserved.
Hydraulic Pumps, Motors, Generators
Hoses andCouplings
Debris SensorsActuators
Components & Systems: Components & Systems: 4 Product Divisions4 Product Divisions
Aerospace Operations…Products and Technologies
Co
nve
yan
ce
Syste
ms
Fu
el S
ys
tem
s
Hyd
rau
lic S
ys
tem
s
Ele
c. S
en
sin
g &
Co
ntro
ls
Fuel SystemsComponents
88© 2011 Eaton Corporation. All rights reserved.
• Sales Mix
• Commercial: 60%
• Military: 40%
• Channel Mix
• Original Equipment: 60%
• Aftermarket: 40%
Aerospace Today
• Emerging economies
• New products and programs
• Acquisitions and alliances
• Focus on energy efficiency
and weight
• Maturing systems capability
Growth Drivers
Aerospace Sales2010 $1.5B
OE Sales Mix
Rotorcraft
Military Fighters
Large Transport
Regional Transport
Business Jet
General Aviation
Military Transport
Other
Military Rotorcraft
99© 2011 Eaton Corporation. All rights reserved.
• A Heritage of Innovation and Strategic Growth
• Focused on Power Management
• Exciting New Technologies
• Acquisition Integrations Complete
• Positioned for Growth with a Market Tailwind
• Expanding Globally
Aerospace Today
1111© 2011 Eaton Corporation. All rights reserved.
Aerospace Trends
• Aerospace business is becoming more global.
• Aerospace customers performance demands are
increasing at an accelerated rate.
• Aerospace customers material replenishment
expectations rapidly going up.
1212© 2011 Eaton Corporation. All rights reserved.
Globalization
• Eaton’s customers have raised their expectations
on offsets to support more global sales.
• Eaton’s customer base is becoming more global.
• Customer expectations of price reductions,
coupled with raw material challenges, make cost
reductions paramount.
• Significant, talented resources within the Global
Eaton Corporation
1313© 2011 Eaton Corporation. All rights reserved.
Accelerating Customer Performance Demands
• Eaton and its customers are “raising the bar” on
On-Time Delivery and Quality expectations
• Trend toward performance penalties in contracts
• Expectations of APQP deployed on all new
programs.
• Evidence of SPC, CPK at Eaton and at sub-tiers.
1414© 2011 Eaton Corporation. All rights reserved.
Increasing Materials Replenishment Demands
New business contracts requiring:
• Delivery lead-time less than cumulative lead-time, (example, one customer requires no Lead Times >180 days (26 weeks))
• Financial delivery penalties for missed/late shipments, with minimum requirements increasing to 98% to 100%
• Increase use of min/max systems that require flexibility in supply to replenish on short notice or to forecasts
• Requests to implement consignment stock on-site at the supplier or customer sites
• Year over year lead-time reduction expectations on legacy product not just new business
• Consideration for new business being based on past delivery performance, poor past performance means lower ratings when bidding new contracts
• Customer portals being increasingly used to project forecast requirements that are not firm. Eaton is expected to receive, evaluate, determine production plans and be flexible in changes.
• Customer expectations to run more flexible schedules and be able to expedite shipments within Lead Times
1515© 2011 Eaton Corporation. All rights reserved.
Eaton Aerospace SCM Strategic InitiativesG
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Rationalization
Eaton Aerospace key Strategic Initiatives
are purposefully set to help Eaton better
meet the trends and challenges of the
Industry.
Additionally, In order to be successful,
Eaton also recognizes the need to
reduce our supply base into fewer, key
supplier partners.
These Strategic Initiatives interact with
each other: Rationalization will improve
our Supplier Performance; Improving
our internal materials management will
help improve supplier OTD.
Leit motif through all Initiatives is that
Eaton deploy standard processes to fix
our internal performance.
1616© 2011 Eaton Corporation. All rights reserved.
Strategic Initiative I:Globalization
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Rationalization
C:\Documents and Settings\e0085997\My Do
1717© 2011 Eaton Corporation. All rights reserved.
We have a global operations footprint
Where we are today…presence
Reynosa MXTijuana MX
Batam Indonesia
Low Cost Manufacturing
Dallas TX
Pune India
Engineering Centers
1818© 2011 Eaton Corporation. All rights reserved.
New Zealand
Guam
Korea Dem Rep
Australia
Bangladesh
Bhutan
India
NepalPakistan
Sri LankaBrunei Darussalam
Cambodia
East Timor
Indonesia
Japan
Laos
Malaysia
Myanmar
Papua New Guinea
Philippines
Singapore
Taiwan
Thailand Vietnam
China
Hong Kong
Korea Rep
Macau
Mongolia
Role of Asia Pacific …Growth Engine
61% ww population
• China 1.3 Bn
• India 1.1 Bn
• SEA 0.6 Bn
33 % ww GDP
• China $5.7 Trillion
• Japan $5.4
• India $1.4
• SEA, Korea, Australasia, ..
Fastest growth
• China @ 10.2%
• India @ 8.8%
• SEA @ 6.5%
Yet, most of them have never flown
2020© 2011 Eaton Corporation. All rights reserved.
Role of Asia Pacific …Aerospace Market Potential
Airline business
• 1/3 of Boeing and Airbus backlog
• 45% of air traffic in 15 years
• Triple fleet size by 2027
Emerging OE market
• COMAC - C9x9
• AVIC - 3 new companies
• Airbus in Tianjin
• India - RTA x
• Japan - OE partnership with
Boeing and Honda programs
WorldAirTraffic0-24h_leone.wmv...
2121© 2011 Eaton Corporation. All rights reserved.
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Growth CAGR (‘05-’14) = 5.8%Growth CAGR (‘05-’14) = 5.8%
Australia $18.1B, 7.4%
India $28.2B, 7.8%
Japan $44.5B, 0.7%
Taiwan
$14.9B, 17.5%
South Korea (ROK) $27.4B, 9.0%
$B
illio
n
Source: 2008 Teal International Defense Budget, U.S.A. Office of the Secretary of Defense - Budget
Materials, SIPRI Military Expenditure Database, European Defense Agency
Notes: For reference, USA = $651B, Europe = $258B
Defense Budget Growth
Significant defense spending growth throughout Asia Pacific
Singapore$7.3B, 7.4%
Highlights
• Asia Pacific military budget
represents 20% of the US military
budget
• India represents largest “new”
market
• US/India nuclear deal
• Aging Russian fleet
• Major indigenous programs:
• Korea: T-50, KHP
• Japan: CX/PX
• New acquisition programs:
• Japan: Fighters (F-18 / F-35)
• India: Fighters (F-18, Typhoon, Mig35);
army helicopters (ECF AS550, Bell
407)
• Multiple modernization/upgrade
opportunities
Role of Asia Pacific …Aerospace Market Potential
2222© 2011 Eaton Corporation. All rights reserved.
Overview
• Global Sourcing Objectives
• Eaton Aerospace Global Resources
• Shared Services Team
2323© 2011 Eaton Corporation. All rights reserved.
Global Sourcing Objectives
• Reduce material cost through sourcing, where
appropriate to a low cost base.
• Develop a global supply base to support our
growth in China, Russia, Brazil.
• Develop a global supply base to support our
customers’ requirements (Bombardier in Mexico,
Offset requirements)
• Develop a global supply base to support Eaton
Aerospace’s increasing global footprint
2424© 2011 Eaton Corporation. All rights reserved.
Eaton Aerospace Global Resources
Eaton Aerospace has Sourcing and Supplier
Development resources in the following countries:
• Turkey
• Moscow
• India
• Mexico
• Brazil
• China
• Singapore
2525© 2011 Eaton Corporation. All rights reserved.
What does it mean for our Supply Base
Tremendous opportunities exist for growth with
suppliers willing to expand globally with Eaton.
• Subcomponents
• Sub-assembly and Assembly (outsourcing and
Line Replaceable Units)
• Raw materials
• Castings, forgings.
• Outside processing
27Confidential & Proprietary
Eaton Corporation
Overview
• The SCM SST was founded by Aerospace in June, 2009 to achieve the goal of migrating to a customer centered standard material management and procurement operating model that is supported by centralized shared services
• Elevation of Buyer skills and addressing areas of neglect (e.g Supplier payment)
• The transition is planned in 3 phases with the scope being,
• Phase 1 – Supplier Integration & Procurement
• Phase 2 – Material Planning
• Phase 3 – Demand Management
• The team started with 4 members in Pune lead by a Manager and a Tiger team ( site SCM) to support the transition.
• Team will have 35 members working for Aerospace by end of 2011
• Center of excellence for supplier integration and purchasing support
28Confidential & Proprietary
Eaton Corporation
Advantages
• Process specialists will train team members, drive for continuous improvement and best practice sharing
• Limits the number of team members & supervisors
• Single process POC for sites/Suppliers/NAFSC
• Escalations to Prayag who will be responsible for ensuring satisfaction of all segments
• Focused approach towards supplier integration activities and purchasing/planning
Advantages
• Process specialists will train team members, drive for continuous improvement and best practice sharing
• Limits the number of team members & supervisors
• Single process POC for sites/Suppliers/NAFSC
• Escalations to Prayag who will be responsible for ensuring satisfaction of all segments
• Focused approach towards supplier integration activities and purchasing/planning
Current StatePune SCM Share Service Team is organized by process with specific points of contact for each process
Aerospace: 14 Heads (20 to be hired)
Manager, SCM SST
Team Lead Supplier Integration
Team LeadProcurement
SupervisorPlanning
Business Analysts
Aerospace A/P
Aerospace A/P
Aerospace Procurement
Aerospace Procurement
Aerospace Planning
Aerospace Planning
29Confidential & Proprietary
Eaton Corporation
Current Status Current Status -- AerospaceAerospace
ProcurementProcurement
RFQ / Discrete PO Placement
Supplier IntegrationSupplier Integration Material PlanningMaterial Planning
Demand PlanningDemand Planning Commodity ManagementCommodity Management
Managing Supplier Portals
PO Audit / Approval
Memo / MRO PO
Open Order Acknowledgement
Action Message Report (AMR) Mgmt
Supplier OTD Reports
Invoice Holds Resolution
AP 12/13 Error Management
Realizing Unclaimed Debit Memos
Supplier Add/Change
Digitizing of Invoices
Part Creation / Maintenance
Price List Set up and Maintenance
Supplier Schedules Maintenance
Lead Time Verification
ABC-RRS analysis and Reclass
VMI Consignment training for Suppliers
Customer Portal Management
Customer Schedule Demand Mgmt.
After Mkt. Demand Planningand Safety Stock
Min / Max Demand Management
Shipping Forecast Accuracy
Customer OTD
LTA Database Management
Supplier Spend Verification with LTA
Supplier Development / Mgt.Supplier Development / Mgt.
Improving WISPER effectiveness
Closing past due DMR
Process Moved Process Move In Transition Process Move Planned
Improving DPO
Supplier Spend Analysis/Reduction
30Confidential & Proprietary
Eaton Corporation
Example of how SST Operates
30
• Fully documented PF & WI
• Drives efficiency
• Ensures appropriate response & reduce errors
• Reduces reliance on plant buyers
• Directly work with NAFSC
• Continually revised to capture learning and increase process sophistication
• Help to bring new people on board
• Professional work force
• Accountable to service level agreements
• Hired from service industries
• Flexible working hours to support NA & EU regions
• Verify and audit to ensure accuracy
• Monthly activity reporting/ BSC
• Executive summary highlighting key issues/success
• Performance metrics for every process
• Root cause analysis & Team occupancy tracking
Example of Process Documentation & Service Level Agreement
Invoice SLA
Action Message Report SLA
Example of Job Aids
Invoice Case Study
AP12/13 Errors Case Study
Invoice Holds Resolution WI
31Confidential & Proprietary
Eaton Corporation
Benefits for Suppliers
Benefits:
• Average days on hold reduced from 209 to 35 days
• Total Invoices on hold reduced from $7.1M to $2.1M. Invoices on hold for more than 60
days reduced from $4.5M to less than 700K
• On-Time Payments improved from 91% in 2009 to 94.3% in Feb(2011)
• 60% reduction in AP12-13 errors for NA sites.
• Centralized resources for managing MRP action messages for all Aerospace sites and
working towards better supplier delivery.
• Centralized and focused resources for all Aerospace sites working towards resolving invoice
holds with direct contact to NAFSC. Better response for supplier invoice queries.
• Improving WISPER effectiveness by resolving data integrity issues and answering supplier
queries for WISPER usage.
• Monitoring site spend alignment with LTA spend & commodity strategies.
32Confidential & Proprietary
Eaton Corporation
Help Needed from Supplier Partners
32
Please make your teams provide your teams with awareness to the following:
• Eaton Aerospace Shared Service Team (SST) is an integral part of my Supply Chain Organization.
• The SST will interface frequently and often with the supply base, on RFQs, Quotes, Purchase Orders, coordination of commitment and need dates, quality and OTD, etc.
• The SST has already made significant improvements to the outstanding issues that impact the supply base.
• The suppliers will continue to see benefit in doing business with Eaton by working closely with the SST to quickly close out action items. Please encourage your teams to continue doing so.
33Confidential & Proprietary
Eaton Corporation
SST Transition scorecard
• Senior Leadership sponsorship and support for driving SST deployment
•SST transition scorecard being discussed during high level site operational reviews and SCAC calls for reinforcement
•Tiger team of few site SCM Managers in place to do pilot testing of processes and risk assessment and mitigation
© 2011 Eaton Corporation. All rights reserved.
Strategic Initiative II: Aerospace Supplier Performance
3/15/2011
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3535© 2011 Eaton Corporation. All rights reserved.
Agenda
• Quality Jumpstart
• Supplier Expectations
• Quality Performance
• Quality Systems
• On time Delivery Performance
• General
• Supplier Performance
3636© 2011 Eaton Corporation. All rights reserved.
Quality Jumpstart
• Eaton Aerospace shall use a standard process
(across all plants) to select, measure, manage
and improve supplier performance
• Standard process set from the benchmark
within Aerospace of what good looks like.
• Jumpstart teams to go to Eaton Sites to
evaluate gaps to standard and develop
recovery plan
3737© 2011 Eaton Corporation. All rights reserved.
Jumpstart SCM/Supplier Quality Policies
1. WISPER Utilization
2. DMR Policy – When to issue a DMR how to count
rejects
3. DMR chargeback and total cost of poor quality
recovery
4. ASL Policy – How to add and/or delete a supplier
from ASL
5. Supplier Change Request
6. Supplier APQP Policy (TBD)
7. Concession Policy (TBD)
3838© 2011 Eaton Corporation. All rights reserved.
Benefits to Supply Base of Jumpstart
• Standard processes at each site for managing
areas of historical controversy.
• Supply base have clear understanding of the
process
• Eaton gets its “house in order”.
3939© 2011 Eaton Corporation. All rights reserved.
Quality Expectations
Zero Defects
• Zero Quality Incidents (DMRs) and DPPM
• Not merely a Philosophy
• Not merely a Statement in the Quality Policy
• Must become a Reality
• It is Possible – 67% of suppliers had Zero PPM in 2010
4040© 2011 Eaton Corporation. All rights reserved.
Quality Expectations
• Effective and rapid response to Discrepant Material
Reports (DMR’s)
• Immediate containment and risk assessment – 24 hours
• Comprehensive 8D Problem Solving action plan 14 days
• No repeat DMRs
4141© 2011 Eaton Corporation. All rights reserved.
Quality Expectations
Quality System Compliance
• All Suppliers will be AS9100 compliant
• AS9100 Certification by third party or compliant assessed by Eaton Supplier Quality
• Acceptable Eaton Quality System Assessment and Environmental Health and Safety Assessment (QSA Score >70, EHS>70)
• All suppliers with Special Processes must be NADCAP Accredited
4242© 2011 Eaton Corporation. All rights reserved.
Quality Expectations
Quality Systems Compliance
• Must register and use WISPER
• Be accountable for your performance in WISPER
• WISPER performance information is strongly considered for sourcing
• PPM, DMR, Quality Assessments and Performance Scores
• Keep WISPER data updated and accurate
• Supplier Contacts
• Quality System Capabilities
• Performance data
4343© 2011 Eaton Corporation. All rights reserved.
Supplier Expectations
On Time Delivery
• 100% OTD
General Expectations
• Continuous improvement
• Comply with Supplier Excellence Manual
Requirements
• Comply with First Article Inspection (FAI)
Requirements
• Notify Eaton Aerospace prior to any changes
• Manage your supply base
4444© 2011 Eaton Corporation. All rights reserved.
Supplier Expectations
General Expectations (cont.)
• Comply with Eaton’s Code of Conduct
• Open book, agreement on a cost model
• Embrace Eaton as a strategic customer
• Operate with a long term focus
• Sustain an open and confidential dialogue
regarding business opportunities
4545© 2011 Eaton Corporation. All rights reserved.
Supplier Performance
2010 Supplier DPPM (12-month) = 2,724 25% Better than 2009
Supplier DPPM
0
1000
2000
3000
4000
5000
6000
7000
8000
2007 2008 2009 2010
DP
PM
4646© 2011 Eaton Corporation. All rights reserved.
Supplier Performance
Supplier OTD
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
2007 2008 2009 2010
OT
D
2010 Supplier OTD (12-month) = 88.2% 30% Better than 2009
4747© 2011 Eaton Corporation. All rights reserved.
Summary
• Good progress in supplier performance; however, we are not at a satisfactory level.
• Quality Jumpstart should provide standard, consistent, transparent process to the supply base.
• Need suppliers to accelerate quality performance:
• DMRs closed out in WISPER
• Corrective actions closed ASAP
• Zero defect mentality
• Eaton has significantly increased expectations in OTD, DPPM, DMRs, APQP, Process controls
4848© 2011 Eaton Corporation. All rights reserved.
Strategic Initiative III:Materials ManagementSMART/Model Plant G
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4949© 2011 Eaton Corporation. All rights reserved.
49
Standard MAterial ReplenishmenTMaturity Levels
Self
Assessments
ERP
Assessments
ERP Health
Measures,
SMART
Scorecard
SMART Dashboard
ERP
Rules,
standard
process
SMART
Model
Plant
Definition of
Key SCM
Measures
Non-
standard
processes
Multiple
ERP
Systems &
Versions
MfgPro
Deployments
and
Upgrades
Single ERP
Platform
Policy &
ProcessMeasure Calibration Systems
0
Developing
the
foundation
1
Placing the
blocks
2
Refinement
Maturity
Level
Today
‘Place &
Chase’
‘Managers’
supported
by SST
Centralized
Planning &
Local
Execution
People
Step Change 1
Step Change 2
Continuous
Improvement
• Significant benefits in working capital and OTD were gained through
project SMART so far…now we have the opportunity to make another
step change with the release of the SMART Model Plant
5050© 2011 Eaton Corporation. All rights reserved.
SMART Model PlantWhat is it?
• At the beginning of 2010, there was at least one site green in every
ERP Health Measure
• During the first half of 2010, the Materials Management experts from
across Aerospace documented the benchmarks for what Materials
Management “good” looks like.
• Documented 43 standard policies, procedures and work instructions.
• Provides the standard work for Materials Management
• Sites will adopt SMART Model Plant Policies and reference its
documentation in local quality system
• SMART Policies, Processes & Work Instructions will be embedded into
the site quality system
5151© 2011 Eaton Corporation. All rights reserved.
Eaton Aerospace Materials Mgmt ‘SMART Operating Model’
Supplier Integration
Master Scheduling
Demand Mgmt
Materials Planning
Inventory Mgmt
Logistics
VMI Consignment model through Supplier Visualization
Demand / Capacity Balance. ‘Plan & Execute’ culture.
Customer centric demand management100% demand reflected in ERP systems.
Optimized Planning Parameters. Plan for every Part
Standard streamlined transactions from receipt to shipment. Cycle Count Excellence
100% Mode Compliance. Leverage LLP capabilities
SEGMENT STRATEGY SUMMARY
5252© 2011 Eaton Corporation. All rights reserved.
Eaton Aerospace Materials Mgmt ‘SMART Operating Model’
Supplier Integration
Master Scheduling
Demand Mgmt
Materials Planning
Inventory Mgmt
Logistics
VMI Consignment model through Supplier Visualization
Demand / Capacity Balance. ‘Plan & Execute’ culture.
Customer centric demand management100% demand reflected in ERP systems.
Optimized Planning Parameters. Plan for every Part
Standard streamlined transactions from receipt to shipment. Cycle Count Excellence
100% Mode Compliance. Leverage LLP capabilities
SEGMENT STRATEGY SUMMARY
5353© 2011 Eaton Corporation. All rights reserved.
Materials Mgmt ‘SMART’ Operating ModelPolicy Structure
Supplier Integration
Master Scheduling
Demand Mgmt
Inventory Mgmt
Logistics
MM-017 SIOP
MM-018 Discrete Sales Orders
MM-019 Aftermarket Demand Mgmt
MM-020 Customer Lead time Mgmt
MM-021 Customer Schedule Demand
MM-022 Customer Min/Max Demand
MM-032 Demand Augmentation
MM-041 Mfg Item Replenishment
MM-023 Master Scheduling
MM-024 Work Order Mgmt
MM-025 Routing Mgmt
MM-016 Supplier Integration
MM-002 Supplier Delivery Performance
MM-031 Invoice Management
Materials Planning
MM-001 ABC & RRS Classification
MM-026 Lead time Management
MM-028 Outside Processing
MM-027 Purchased Item Replenishment
MM-029 Inter-Company Mat Plan.
MM-030 Part Creation & Maintenance
MM-036 Supplier Schedule Replenishment
MM-037 D-Item Management
MM-038 VMI Consignment
MM-039 On-Site VMI
MM-043 Discrete PO Replenishment
MM-009 Cycle Counting Policy
MM-010 Excess and Obsolete
MM-012 Bill of Material
MM-013 Inventory Location Mgmt
MM-014 Receiving Policy
MM-015 Shipping Policy
MM-011 Material Handling
MM-034 Customer Returns
MM-035 Safety Stock
MM-045 Supplier Returns
MM-004 Small Package
5454© 2011 Eaton Corporation. All rights reserved.
Model Plant – Policy Structure
Process FlowPolicy
Work Instructions
Work Instructions
5555© 2011 Eaton Corporation. All rights reserved.
SMART Improvements (within 4 walls)
• Reduced inventory
• Reduced pull ins/push outs
• Improved customer OTD
• Reduced past due work orders (due to material availability)
• Improved throughput.
• More stable financial forecast.
• Grand Rapids, Jackson MS, Glenolden, LA have made the fastest improvement within Eaton
5656© 2011 Eaton Corporation. All rights reserved.
What does it mean to Supply Base
• Stable demand signals (fewer push outs/pull ins)
• Ability to maintain a filled pipeline
• More stable financial forecast
• More efficiently applied working capital
• Ability to optimize capacity
• Improved On Time Delivery
• Your OTD is your OTD
5858© 2011 Eaton Corporation. All rights reserved.
Item Classification and Demand
• ABC - Spend Classification – Classifies parts based on future
expected 12 month spend
• Runner/Repeater/Stranger (RRS) – Classifies parts based on
demand pattern. Takes into account monthly repeatability, 12
month volatility and stability.
• Eaton supplies OEM, Aftermarket Spare Parts, and operates a FAA
licensed repair/service center.
• This classification is the basis for selecting the replenishment
method to be used to procure items.
• Eaton’s materials management team has been given the goal to
replenish 95% of all A/B Runner/Repeater parts through continuous
replenishment methods.
What is Continuous Replenishment?
5959© 2011 Eaton Corporation. All rights reserved.
Continuous Replenishment
Continuous replenishment is the use of communication methods that
communicate full demand and supply continuously to a supplier. The
supplier then uses that data to make procurement, production, and
shipping decisions.
How does this help a supplier?1. Allows supplier to make strategic decisions on raw material
procurement
2. Allows supplier to make strategic decisions on fabrication batch
sizes and manufacturing methods
3. Allows supplier to see full potential of sales
4. Provides coverage of costs related to raw material procurement
and fabrication of items within defined/agreed raw material
procurement and item fabrication times.
6060© 2011 Eaton Corporation. All rights reserved.
Continuous Replenishment Success
• Break the 1-for-1 Mentality – Production decisions can not be
based on specific date/qty requirements. This thought process is
discrete purchasing, not continuous replenishment. Production
models should be make-to-stock, not make-to-order.
• Some Stock Must Exist – Stocks should be minimized where
possible but our industry has demand volatility. That volatility must
be buffered by stock or lead-time reduction. Full demand visibility
gives the supplier the information to make strategic stocking
decisions.
• Lead-time Compression – The less time it takes to procure
materials then machine and assemble items the more flexibly a
business can be to demand changes thus allowing inventory
reductions.
6161© 2011 Eaton Corporation. All rights reserved.
Why Change?
Eaton’s customer expectations are changing.
Aerospace expectations are changing.
Our customers are currently changing their procurement methods. Eaton is
currently managing the following customer replenishment systems:
•Min/Max Systems
•Min/Max Consignment Systems
•Web based ordering and shipping approval (Portals)
•Customer direct to Eaton MRP schedules
The common theme in all of these models is customer expected lead-time is
well below procurement, machining, and assembly time. Thus Eaton has
shifted from make-to-order systems to make-to-stock systems with strategic
stock and forecasting. However, to be fully successful our supply base must
adjust with us or we cannot succeed.
6363© 2011 Eaton Corporation. All rights reserved.
Continuous Replenishment Benefits to Supplier and Eaton
SUPPLIER BENEFITS
• Run longer/more efficient production runs
• Frees up floor space; decrease time/cost required to manage inventory (VMIC)
• Reduces expedites/de-expedites and related “stress”
• Quicker identification and response to quality issues
• More reactive to customer expectations
• Favored supplier status
EATON BENEFITS
• Flexible to meet spikes in demands
• Reduces expedites and premium freight
• Reduces over time costs
• Reduces on hand inventory
• Improves ability to meet customer expectations.
6464© 2011 Eaton Corporation. All rights reserved.
Strategic Initiative IV:Rationalization
Glo
ba
l
Su
pplier
Pe
rform
ance
Mate
ria
ls
Rationalization
6565© 2011 Eaton Corporation. All rights reserved.
Rationalization
• Data shows need to significantly improve distribution of supply base:
• Grow Strategic
• Improve/grow Developing
• Improve philosophical alignment with Maintain
• Eliminate Eliminate
• Accelerated efforts to do each of the above
• Commodity Managers are leading cross functional teams to develop/execute comprehensive commodity strategies
• Cross functional IPT to accelerate resourcing (LAI, FAI, support technical questions)
6666© 2011 Eaton Corporation. All rights reserved.
What it Means to the Supplier Partners
• Significant opportunity for growth exists
• Eaton and Supplier Partners should be jointly
developing a executable plan for growth (capacity,
infrastructure, FAIs, sub-supplier)
• Develop a pricing model/table to accelerate
agreement on part level pricing.
• Eaton and Supplier Partner should work together
on any supplier performance opportunities to
ensure success