Remember what it was like keeping on top of your supply chain before your company went global? Relatively simple, right? Supply chain planners were often just down the hall from the plant, or maybe across the street. But at least they were on the same continent. Procurement, logistics and production were all part of the same company. Even if common software tools weren't in place, everyone shared a vocabulary for how to describe things like customers and parts and the processes that touched them. Management-by-spreadsheet was a viable option.
How times have changed. Today, the reality for more and more small- and medium-sized manufacturers is that production, sourcing and selling are increasingly spread out across the globe. The customer you used to produce for locally, and ship to in another part of the state, may now be on the other side of the world. In search of lower labor and parts costs, your own plants may have moved to offshore locations many time zones away. And thanks to outsourcing, many of your plants may, in fact, not be your own at all but those of contract manufacturers. With that kind of complexity, you can forget trying to keep track of your supply chain by passing spreadsheets around.
Unfortunately, far too many manufacturing companies are still trying to do just that. According to a recent survey of manufacturers by Boston-based Aberdeen Group Inc., while increasing numbers of manufacturers are looking offshore for sourcing, the most commonly used tools for collaborating with foreign suppliers are still e-mail (86%) and fax (77 %). Only 25% are using tools such as e-sourcing and EDI software.
And many manufacturers that have stuck with older management tools and processes have found that, as globalization and complexity have grown, their supply chains have bogged down. The most common problem, says Bill McBeath, chief research officer at ChainLink Research Inc. (Cambridge, MA), is simply a lack of real-time visibility into global demand, inventory levels and manufacturing constraints.
Visibility in global supply chains has been obscured not just by the distances involved, but also by the arms-length relationships that often exist between manufacturers and the third-party distribution and contract manufacturers they may use offshore. And without that visibility, says McBeath, many manufacturers are faced with an uncomfortable choice: Either compromise customer service by eliminating or scaling back capabilities such as available-to-promise, or increase costs by building safety stock buffers into the supply chain.
"Managing a global supply chain has been a huge learning experience for a lot of people," says McBeath. "In many cases, companies are not realizing all of the savings that they had hoped for when they began global sourcing and production in the first place."
A WEALTH OF ACCUMULATED DATA
Increasingly, however, manufacturers are opting for a third choice: Implementing supply chain management tools that afford multi-site visibility and support real-time collaboration between suppliers, manufacturers, customers and distribution partners.
That approach has helped Don Toohey weather what could have been a global supply chain disaster. Five years ago, at the height of the dot-com bubble, Toohey's company, networking equipment maker Enterasys Networks Inc. (Andover, MA), decided to outsource much of its production to offshore contract manufacturers. That decision was made partly to cut costs but also because, in 1999, Enterasys had been spun out from parent company Cabletron Systems, leaving it without its own dedicated plants.
When the Internet bubble burst, however, Enterasys was in a world of trouble. Not only did telecom customers stop buying, but Enterasys quickly discovered that it was on the hook for inventory at its contract manufacturers (CM) that the company didn't even know was there.
"We would be working with six or seven CMs at a time, and the way we'd manage at the component level was to get these big spreadsheets from the CMs and then spend lots of time reconciling exactly what they meant," recalls Toohey, director of worldwide strategic sourcing at Enterasys. "Because we had to spend all our time just trying to interpret these spreadsheets, we never had visibility into what our total liability was relative to our supply chain from our contract manufacturers through to our component suppliers. The end result was that we had tons of excess inventory."
Not only that, but Enterasys had a hard time keeping track of how much it was spending with its CMs. "We were always looking in the rearview mirror on what we paid for a product," according to Toohey. "We realized we needed to get a tool that could give us some forward-looking visibility."
A big part of the answer for Enterasys was to implement a tool that gave the company's planners and buyers real-time visibility into suppliers' production schedules and inventory positions, including off-balance-sheet inventories.
Enterasys selected the Global Inventory Visibility tool from Valdero Corp. (Palo Alto, CA), which automates the consolidation and rationalization of inventory data from multiple suppliers and manufacturing and distribution facilities. The Valdero tool essentially pulls data directly off of the ERP systems of Enterasys' contract manufacturers.
"The value of the tool is that it lets us accumulate all of the data into one tool suite that our planners and buyers can look at," says Toohey. "They can call up a component and understand throughout the supply chain what they have available and where. And they can do it without pouring over spreadsheets or going to seven different CM portals."
Enterasys insists that its contract manufacturers provide access through the Valdero tool to their ERP data. Although some initially balked at the idea, Toohey said, all eventually agreed once Enterasys was able to demonstrate that the system is secure.
The Valdero tool, says Toohey, has allowed Enterasys to respond much more quickly to changes in inventory status throughout the supply chain. By interacting directly and in real time with suppliers and contract manufacturers, the company has even been able to quickly move parts inventories from one CM to another when needed. "Now we're able to say, 'Supplier B needs those, so instead of placing purchase orders, why don't we just get them to talk (to one of our other suppliers) and move the inventory between them?'"
Now that Enterasys has gotten a better handle on its global inventory, the company is next targeting improved visibility into its global demand picture. The company recently implemented the Enterprise Demand Management tool from Steelwedge Inc. (Pleasanton, CA), and is currently integrating it with the Salesforce.com hosted CRM system, which is used by Enterasys' worldwide sales team.
INCREASED RESPONSIBILITY
Just like their customers, offshore contract manufacturers are automating their supply chain processes in order to cope with the increased complexity of globalization. Electronics manufacturing services provider Jabil Circuit Inc. (St Petersburg, FL), for example, now operates 25 plants around the globe, producing consumer electronics and other equipment for OEMs. "About the only place we don't have a plant is Africa," says Ron Stappert, Jabil's manufacturing operations manager.
But it's not just the far-flung nature of Jabil's plants that leads to complexity. Increasingly, the company is being asked by its customers not just to produce electronics offshore for local consumption, it's also being enlisted to take on much of the fulfillment responsibility, in some cases including shipping directly to end consumers. At the same time, Jabil is increasingly shifting production to locations like China in order to take advantage of lower costs.
"As we continue to leverage regional strengths, we're doing much more cross-regional distribution, whereas historically we built and shipped within the same region," says Stappert. "With that, complexity has grown as we've tried to maximize cost advantages."
Like Enterasys, Jabil traditionally shared production and inventory data with customers by exchanging spreadsheets. As global complexity-and the number of reports that Jabil shares with customers-increased, however, Jabil officials decided the company needed a tool that could help accelerate supply chain collaboration. Jabil chose to implement the RapidResponse tool from Webplan Inc. (Ottawa, Ontario, Canada). Like Valdero, Webplan automatically extracts and consolidates supply chain data from enterprise applications, like ERP systems, at multiple sites. RapidResponse also includes a series of analytical tools that help Jabil and its customers quickly spot and understand changes in key performance indicators such as cash flow, inventory levels and manufacturing constraints. Jabil's OEM customers, such as NEC Corp. and Alcatel, tap into that information, analyze data and collaborate directly with Jabil through a Web portal.
According to Stappert, the Webplan tool has helped Jabil maintain consistent customer service levels, even as globalization and complexity have escalated. Next, says Stappert, Jabil plans to roll out a similar portal, based on the Webplan tool, for its suppliers.
GREATER OBSTACLES
Jabil and Enterasys certainly aren't the only manufacturers being forced to automate in order to cope with the rising complexity that comes with globalization. A recent report by consulting firm Frost & Sullivan predicted that the overall market for supply chain management software is about to break out of a protracted slow-growth phase, increasing from $4.59 billion in 2003 to an estimated $9.66 billion by 2010. That growth will be driven, the report said, by manufacturers attempting to cope with supply chain complexity brought on by outsourcing and other factors.
Still, say manufacturers, supply chain management software tools alone, while extremely helpful, aren't enough to overcome all of the complexity that comes with going global. According to the Aberdeen survey, manufacturers said that finding and qualifying offshore suppliers, collaborating on requirements and other pre-negotiation tasks are by far the most challenging aspects of global sourcing. And, for those types of issues, nothing beats having your own people knocking on suppliers' doors and physically inspecting quality levels.
"You can always find an offshore supplier who will say, yes, they can fill your order. But quality is important. You have to check the materials they're using," says Craig Hergenroether, CIO at packing and sheeting equipment manufacturer Barry-Wehmiller Companies Inc. (St. Louis). "We had hired folks on the ground, and these people could go to vendors, spend time on the site and spec out their processes, even get involved initially in where vendors sourced their material from. Especially in the initial phases of a relationship, you can't just hand something over to an offshore supplier," he adds.
Fortunately for Hergenroether and Barry-Wehmiller, just before beginning to explore global sourcing a couple of years ago, the company acquired a firm that already had IT and engineering groups stationed in India and other offshore locations. Partly to help hammer out global sourcing agreements and put integrated supply chain process in place, both for Barry-Wehmiller and external clients, the company kept them on.
Companies that lack that kind of internal resource may want to consider partnering with one of a growing number of global supply chain management services companies that provide everything from raw materials and factory sourcing, to shipping consolidation and export documentation.
"Companies like Li & Fung Ltd.(Hong Kong) know all of the factories, and they know the political situation in the local countries, the customs and culture," says ChainLink's McBeath. "If you don't have that in house, you can't expect to just throw stuff over a wall on the other side of the world and have it work. You need active, hands-on, local management."
Putting into place the right automation tools and having local expertise in place are simply the cost of running an efficient global supply chain. Manufacturers that try to go global without covering these bases, says Carol Ptak, vice president for global manufacturing and distribution industries at PeopleSoft Inc. (Pleasanton, CA), will end up paying a dear price in lost customer satisfaction.
"At the same time manufacturers are going global to cut costs, the market is expecting faster and faster delivery of product," says Ptak. "Running an efficient global supply chain is all about dealing with that dichotomy."