© 2004 Sierra Atlantic, Inc. Leveraging 11i PLM and Manufacturing to Minimize Inventory Write-offs

© 2004 Sierra Atlantic, Inc.

Leveraging 11i PLM and Manufacturing to Minimize

Inventory Write-offs


Engineering Changes

• Innovation drives profits

• Product Lifecycle Management– Prototyping and Pilots– NPI– Continuous Product Improvement– Defect management– Phase-out

• ECOs - Carriers of design change information


11i PLM

• Manage product development through complete lifecycle

• Engineering Change Management– Create and Submit– Route– Approve/Reject or Escalate– Release and Implement

• Interface Production ECOs to manufacturing


Downstream Impact

• Disconnect between Engineering and Materials

• Component item phase-out leads to a downward spike in demand for the item

• Inventory may be hedged to high levels

• Open purchase orders for large quantities may not be canceled until after ECO implementation

• High PO cancellation costs


A stitch in time saves nine

- Ancient Proverb


Demand

Identifying the Niche

On-hand + On order

Qua

ntit

y

Demand

ECO Implementation

Demand

Use-up

Excess

ECO Implementation

Use-up

Excess


Identifying the Niche

On-hand + On order

Qua

ntit

y

ECO Implementation

Use-up

Excess


Business Issues

Planner• When do I cut-in a given engineering change?

• Which components to use-up vs. which ones to scrap?

• How do I implement better transition planning for products with shorter lifecycle?

Financial Analyst / CFO• How do I measure the total cost of material write-offs due to

engineering changes?

• How much money can be saved by putting in place a process to effectively implement ECOs


The Million Dollar Equation

Mid-sized hi-tech manufacturing company

Annual Revenue $500mAverage inventory $200m

Annual E&O write-off $15mWrite-off attributed to ineffective $3mECO implementation

Savings through effective implementation $1m


Resolve to be a master of change rather than a victim of change

- Brian Tracy


Business Process Overview

Create ECO

Submit

CCB

CCB

CCB

ApproveRelease

ECO

PLM

Cost Analysis

Schedule Implement

Manufacturing

Assess the Impact

Study ScenariosTime vs Cost

Refine Best Scenario

ResolveConflicts

Generate Transition Plan

•ECO Information•ECO Status

•ECO Status•Item Information•Inventory Info•MRP Info•WIP Info•PO Info

•Effectivity date•Disposition•Transition Plan


Step 1 – Identify ECOs

• Not all ECOs may lead to excess or obsolete inventory

• Eliminate NPIs, Documentation Changes, etc.

• One of the following criteria should be met:– BOM redlines to remove or replace a component

– Any other critical change in assembly rendering the older rev unshippable

– Obsolete or inactivate an assembly or component


Step 2 – Identify Impacted Items

• Non-backward compatible revised items

• Outgoing components and subassemblies

• Components of assemblies being obsoleted

• Ignore low cost or unplanned items (C items in an ABC classification)


Step 3 – Gather Data

• Demand Information– Gross Requirements from MRP– Planned orders of whereused

• Supply Information– On-hand– WIP– On-order– At suppliers/subcontractors– Other (On Field, etc.)

• Item Information – Unit Cost

• Currency Conversion Rates


Step 4 – Create Scenarios

• Study usage as a function of time and generate scenarios for various dates

• Different liabilities for different categories– Inventory : 100%– On-order : depending on contracts and delivery

date– WIP : depending on completion percentage

• Focus on the scenario that offers an optimum balance of cost savings versus time delay


Choosing the right scenario

$

Time

E&O Scrap Cost

Carrying CostProcurement CostOpportunity Cost

Total ECO Cost


Step 5 – Refine Chosen Scenario

• Find alternate uses for excess quantities – Spares– RTV– Negotiate better cancellation rates with

suppliers– Convert open POs to orders for new components– Rework WIP– Use up at other manufacturing locations

• Arrive at new lower cost


Step 6 – Prepare Transition Plan

• An implementation blueprint for the ECO

• Disposition Items

• Disposition quantity in various supply categories

• Disposition in each category (Scrap, Rework etc)

• POs and Work Orders to be canceled/converted

• Shortages to be fulfilled

• Special instructions (transfer between orgs, etc.)


Follow-up Steps

• Feedback effectivity dates to ECO

• Communicate analysis results to CCB

• ECO Release

• Communicate disposition actions to planners, buyers, shop-floor control, subcontractors, etc.

• Enforce dispositions

• Monitor supply and demand situation until ECO is implemented – carry out corrective actions whenever necessary


Challenges

• Extensive data gathering from multiple modules, sites and even companies

• Highly iterative process

• Manual procedure:– Human error– Clutter of reports and excel sheets– Limited iteration capability

• Needs a software solution that can tap into PLM as well as Manufacturing


Show me the money

- Cuba Gooding, Jr in Jerry Maguire


Case Study – Finisar Corp

• Leading manufacturer of optical networking equipment

• Annual revenue $167M

• US-based design organizations

• Outsourced manufacturing (Malaysia, China)

• Running Oracle Applications 11i


Business Issues

• Excess and obsolete inventory seen as an avoidable drain on the bottom-line

• No visibility into the impact of ECOs on excess inventory – what you can’t measure, you can’t improve


Solutions Considered

• Use-up date from ERP system– Considers only on-hand inventory– Cost impact is still not known– No provision to analyze (e.g. specify alternate

dispositions)

• Manual analysis of ECOs with evident large cost impact– Prone to human error– Does not consider ECOs in the low and medium cost

impact range – costs add up– Iterative process – frustrating and inaccurate when done

manually– No follow-up after ECO release– Clutter of loose documents (excel files, reports etc)


The Solution – ECO Lens


About ECO Lens

• Highly configurable browser-based application

• Deploys without production downtime

• Adaptable to multiple PLM systems

• Ability to import supply/demand data retrieved from other ERP systems or from subcontractors in text files

• Supports multiple organizations


Never take hours or days to do what you can do in minutes

- Common Sense


ECO Lens

• Creates default optimization scenarios

• Provision to create what-if scenarios and refine existing scenarios


ECO Lens

• Manipulate material disposition at a granular level

Optimize material dispositions for minimum

cost impact


ECO Lens – Transition Plan

Total Cost Impact

Follow-up Actions


Fitting ECO Lens in Business Process

• Identify owner of the analysis process

• Identify criteria to filter ECOs to be analyzed

• Require engineers to provide basic information (like forward compatibility, foreseen cost impact, etc.)

• Provide placeholder for analysis results– Cost impact– Disposition instructions (inter-org transfer, etc.)


Deployment Timeline

• Rapid deployment

• Zero production downtime

• Bottlenecks: process setup and rehearsal

Identify ProcessOwner

Document ProcessSteps

(2 Weeks)

Execute Setups(1 Day)

Install and ConfigureECO Lens on Test

System(1.5 days)

Test ECO Lens withComple Business

Process Flow

(2 Weeks)

Go-live (overnight)

t = 0

2 Weeks

4 Weeks

Install and ConfigureECO Lens on Prod

System(1.5 days)


Results

• Instant visibility into thousands of dollars worth of inventory that would have otherwise been scrapped. Over 100% ROI in the very first quarter

• Reduction in CCB cycle because of availability of impact analysis in a concise form

• Slight reduction in the number of ECOs by enforcing a review at an early level

• Streamlined and highly efficient post-release material disposition owing to Transition Plan


Moral of the Story

• Impact of ECOs on materials should be appreciated and attended to

• Comprehensive analysis must be carried out using the right tools

• Discipline needed enterprise-wide for methodical material disposition

• A few minutes spent in analysis can translate into millions of dollars in savings annually


Q & A

Documents

© 2004 Sierra Atlantic, Inc. Leveraging 11i PLM and Manufacturing to Minimize Inventory Write-offs