lean supply chain in the electronics sector steve cowman

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


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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


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AgendaAgenda







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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







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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:


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AgendaAgenda







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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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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


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Demand Forecasting


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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Demand Forecasting


Lean Thinking


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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)


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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.


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Demand Forecasting


Lean Thinking


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AgendaAgenda







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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

lean supply chain in the electronics sector steve cowman

Documents

lean supply chain

supply chain change

local supply

value chain

business dynamic

supply chainthe result

business segments

oem business