Lean Supply Chain in the Electronics Sector
Steve Cowman
www.volex.com COURT OF EXPERTS Conference February 21st, 2003
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5 types of companies5 types of companies
Those who make things happen
Those who think they make things happen
Those who watch things happen
Those who wondered what happened
Those that didn’t even know that anything had
happened
Jack Welch reckoned there are 5 types of companies
www.volex.com COURT OF EXPERTS Conference February 21st, 2003
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AgendaAgenda
Lessons to be Learned from the Electronics Sector
Telecommunications Business …… a changing dynamic
Original State of the Supply Chain
Change Programs, Successes, Failures, Benefits & Results
Some thoughts as we move forward
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Lessons to be learned from the Electronics SectorLessons to be learned from the Electronics Sector
Short product life cycles (Technologies, Products, Applications)
Complex technologies
Price erosion of greater than 20% per year
Large Capital costs
Global footprint requirements
Global & worthy competition
Global customers demanding a global solution
Sophistication in the dynamics of the Supply Chain
Poor Forward Visibility & Unpredictable demand forecasting
A common management view is that the dynamics that pertain to the Electronics Sector have applicability to other business segments*
*Drucker, Peters, Asnoff
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Comparative Labour RatesComparative Labour Rates
$12 is a useful Labour reference rate:
Hourly rate in our Irish facility
Daily rate in our Malaysian facility
Weekly rate in our Chinese facility
For Irish business ……… we will never be the low cost supplier …. but we do have the opportunity to be the high Value supplier
Becoming the value provider …… particularly by driving improvements in the Supply Chain is a Key Element ……… is a key to survival & success
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Eastern Europe labour ratesEastern Europe labour rates
Currently 54 USD
Currently 350 USDCurrently 400 USD
Currently 600 USD€4.96 / hr€3.28 / hr
€2.50 / hr
€0.33 / hr
www.volex.com COURT OF EXPERTS Conference February 21st, 2003
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AgendaAgenda
Lessons to be Learned from the Electronics Sector
Telecommunications Business …… a changing dynamic
Original State of the Supply Chain
Change Programs, Successes, Failures, Benefits & Results
Some thoughts as we move forward
www.volex.com COURT OF EXPERTS Conference February 21st, 2003
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Telecommunications MarketTelecommunications Market
Has undergone an absolutely fundamental change over the past few years
Gone from a segment that was growing at +40% per year to one that has seen recent annual declines of -30%
Plunging Share Prices & 3G License Auctions have sucked significant equity out of the Telco Business
Competitive pressures have increased exponentially as Telco companies fight for a smaller pot & fight for survival
Competitive pressures have rippled (amplified) down the supply chain
The result is a Business Dynamic in the Supply Chain that is totally different from just 2 to 3 years ago
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Telecommunications MarketTelecommunications Market
Quarterly price downs
Reverse auctions
Rebate Programs
Consignment Inventory/full logistics support
Ability to fully support dramatic swings in demand
Move from Local Supply to Global Procurement
Trend from Regional to Global competition
Ability to replace entire portions of the OEM business as our customers outsource “non-strategic” activities
Need to move up the Value Chain & down the Price Curve
What differences have happened in the Supply Chain ??
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What our customers are sayingWhat our customers are saying
“The market remains challenging and uncertain, and that’s a fact. The best I could say is that the market may be closer to stability. We’re not calling a recovery”
Patricia Russo, Lucent CEO, January 22, 2003
“The uncertain global economic picture, war looming in Iraq, and cautious spending by network operators make it unwise to give more precise financial targets other than to say that conditions do remain challenging also into 2003, and this really seems to be affecting the way the year will start”
Jorma Ollila, Nokia CEO, January 23, 2003
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AgendaAgenda
Lessons to be Learned from the Electronics Sector
Telecommunications Business …… a changing dynamic
Original State of the Supply Chain
Change Programs, Successes, Failures, Benefits & Results
Some thoughts as we move forward
www.volex.com COURT OF EXPERTS Conference February 21st, 2003
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Original State of the Supply ChainOriginal State of the Supply Chain
Driving the Top Line
Positioning for Future Growth
Maximizing Profitability
When your business is growing at +25% pa & Operating Margins are running at >10% ………
The Focus tends to be on:
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Original State of the Supply ChainOriginal State of the Supply Chain
Large inefficiencies in the Supply Chain
A lack of focus on developing improvements in the Supply Base
Inventory turns below Industry Best Practice
Manufacturing focus primarily directed towards Capacity Planning Superior Quality & Improved Service …… but occasionally at the expense of efficiencies in the Supply Chain.
When your business is growing at +25% pa & Operating Margins are running at >10% ………
A Consequence of this tends to be:
www.volex.com COURT OF EXPERTS Conference February 21st, 2003
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AgendaAgenda
Lessons to be Learned from the Electronics Sector
Telecommunications Business …… a changing dynamic
Original State of the Supply Chain
Change Programs, Successes, Failures, Benefits & Results
Some thoughts as we move forward
www.volex.com COURT OF EXPERTS Conference February 21st, 2003
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Change ProgramsChange Programs
A Few Key Elements in our Lean Supply
Lean Supply Chain Management
Demand Forecasting
Supplier Partnership
Lean Thinking
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Change ProgramsChange Programs
For Volex, “Lean Supply Chain Management” is all about making sure that Product
Is where it needs to be
When it needs to be there
In the cheapest possible way
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Lean Supply Chain ManagementLean Supply Chain Management
Understanding that business is not about making a product ……. It’s about making a profit
Understanding that business is not about making a product …… It’s about selling a product.
Every time you make too much or too little , you’re introducing cost into the Supply Chain
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Lean Supply Chain Management - SuccessesLean Supply Chain Management - Successes
Relentless drive to understand what is happening at the point of sale/point of consumption
Developed the use of advanced Information & Planning Systems to capture real time information
Paradigm shift to a “Demand Driven” model & continued refinement of Demand Forecasting
Continuous monitoring of demand with production & inventory adjusted accordingly
Benchmarking to achieve Best-in-Class & Competitive Best Practice Inventory turns > 20- Cash-to-Cash cycle < 35 days- Ability to meet a 20% rise in < 10 day demand
www.volex.com COURT OF EXPERTS Conference February 21st, 2003
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Change ProgramsChange Programs
A Few Key Elements in our Lean Supply
Lean Supply Chain Management
Demand Forecasting
Supplier Partnership
Lean Thinking
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Demand ForecastingDemand Forecasting
Fundamentally becoming ever more complex as the market dynamics drive shorter-term horizons without the benefit of customer insights into their demand drivers
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What our customers are sayingWhat our customers are saying
“We reiterate our view that in the short term the market is uncertain, but remain firmly optimistic in the longer term perspective as the global number of subscribers and network traffic continues to grow”
Ericsson Press Release, December 17,2002
“The industry is starting to stabilize, starting to get it’s feet on the ground. We are expecting single digit declines from the Service Provider market in 2003 compared to 2002, while we
see Enterprise demand flat to marginally up”
Frank Dunn, Nortel CEO, January 23, 2003
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Open order book share of 7 key customersOpen order book share of 7 key customers
36% 33% 33%38% 36%
22% 20% 20% 22%
40%
32% 29%
34% 38%
26%
9% 12% 9%
15%
10% 10%
10%14%
8%
10% 6% 10%
8%
8%
1%
12%6%
8%
13% 18%18%
0%
0%
1%
1% 1%
1%
2%1%
2%
25%
5% 1%
18%
32%
1% 1%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
June July August September October November December January February
Customer 1 Customer 2 Customer 3 Customer 4 Customer 5 Customer 6 Customer 7
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www.volex.com COURT OF EXPERTS Conference February 21st, 2003
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Change ProgramsChange Programs
A Few Key Elements in our Lean Supply
Lean Supply Chain Management
Demand Forecasting
Supplier Partnership
Lean Thinking
www.volex.com COURT OF EXPERTS Conference February 21st, 2003
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Supplier PartnershipSupplier Partnership
Peter Drucker
Adversarial power relationships work only if you never have to see or work with the bastards again
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Supplier Partnership: Reducing the Supply BaseSupplier Partnership: Reducing the Supply Base
Speeds Development & Fulfillment operations because fewer, more dependable, suppliers make fewer mistakes
Permits more time to be spent with the supplier
Makes you a major customer of your important suppliers
Reduces the degree of variability in the Supply Chain
Allows Design Engineers to work closely with the Supplier to effect Functional, Cost & Quality improvements
Facilitates outsourcing partnerships
Reduction in the number of suppliers for each commodity to a minimum (preferably 2 or 3)
www.volex.com COURT OF EXPERTS Conference February 21st, 2003
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Supplier Partnership: Strategic Long Term PartnershipsSupplier Partnership: Strategic Long Term Partnerships
Builds a partnership rather than a transactional relationship
Facilitates a “Win-Win” vs a “Win-Lose”
Permits exchange of more data than traditional relationships
Permits frank discussions at all levels so that you understand the Technical Cost & Quality issues of the supplier’s product ……. Which (after all) becomes part of your product.
Allows frank discussions on Growth & Capacity Planning
Facilitates Technology discussions focussed on re-engineering the product to remove cost from the Supply Chain
Allows for the exchange of detailed cost data which can reduce duplication of effort & activities
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Supplier Partnership: Supplier CertificationSupplier Partnership: Supplier Certification
Drive this as an active program
You get out of it what you put into it
Created & use a Certification Process that challenges suppliers & makes them want to be certified
Have ensured that the Certification Process contains exactly those criteria that are important to the Company
Recognize Certified Suppliers publicly
Makes the supplier strive to please our Company
Produces better suppliers, cutting mistakes and confusion to create leaner operations
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Supplier Partnership:E-Biz/Internet InitiativesSupplier Partnership:E-Biz/Internet Initiatives
Active drive to use Internet Technologies to connect to suppliers
Exchange of not only transaction data, but also a wide variety of other information (Business performance, Engineering changes, etc)
Customized Web Pages for Key Suppliers
Publish regular Technology Roadmaps & Capacity Planning information for Key Suppliers
Reduces confusion …. Everyone is on the same page
Brings Key Suppliers closer, improving the partnership
Publishes timely (agreed on) metrics for OTD, Service & Quality to improve performance & motivate the supplier base.
www.volex.com COURT OF EXPERTS Conference February 21st, 2003
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Change ProgramsChange Programs
A Few Key Elements in our Lean Supply
Lean Supply Chain Management
Demand Forecasting
Supplier Partnership
Lean Thinking
www.volex.com COURT OF EXPERTS Conference February 21st, 2003
40
AgendaAgenda
Lessons to be Learned from the Electronics Sector
Telecommunications Business …… a changing dynamic
Original State of the Supply Chain
Change Programs, Successes, Failures, Benefits & Results
Some thoughts as we move forward
www.volex.com COURT OF EXPERTS Conference February 21st, 2003
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Some Thoughts as we Move ForwardSome Thoughts as we Move Forward
“Do we have the capability to eliminate booms and busts in economic
activity ? ……. The answer in my judgement is no, because there is
no tool to change human nature. Too often people are prone to
recurring bouts of optimism and pessimism”
Alan Greenspan, December 14, 2002
“The pattern of recession and recovery across industries has changed
fundamentally. The whole business cycle is different”
Carl Steidtmann, Chief Economist at Deloitte Research,
January 13, 2003
EndEnd
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Appendix 1Appendix 1 - Lean Thinking - Lean Thinking
Understanding Waste
Setting the direction
Understanding the big picture
Detailed mapping
Getting suppliers &customers involved
Checking the planfits the direction &ensuring buy-in
Types of Waste
The three typesof activity- Value Adding- Non-Value Adding- Necessary Non-Value adding
Developing criticalsuccess factors
Reviewing ordefining appropriatebusiness measures
Customer requirements
Information flows
Value Streammapping
Process activitymapping
Using mappingtools
Assessing projects
Catch-balling the change programme
Targeting improve-ment for each businessmeasure
Defining Key businessprocesses
Deciding which needsto deliver against eachtarget area
Understanding whichprocesses need detailedmapping
Physical flows
Linking physicaland informationflows
Complete Map
Supply chainresponse matrix
Production varietyfunnel
Quality filtermapping
Demand amplificationmapping
Value adding timeprofile
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Appendix 2 - Major InitiativesAppendix 2 - Major Initiatives External Initiatives
E-business purchasing portal
European/Global Supplier Partnership Strategy…..
Consolidate Suppliers on a macro level, and use commodity manager approach.
Vendor Managed Inventory
Internal Initiatives
Cycle Time Reduction Program (Little’s Law TH=WIP/CT)
WIP Management Program (ConWIP & Kanban)
Facility Layout to support CT reduction & WIP Management
Line Scheduling optimisation