Aerospace Business Break Out - Eatonpub/@eaton/@corp/documents/... · © 2011 Eaton Corporation. All rights reserved . Aerospace Business Break Out Steve Wagner Eaton Aerospace

© 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


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


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


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.


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


Hydraulic Pumps, Motors, Generators

Hoses andCouplings

Debris SensorsActuators

Components & Systems: Components & Systems: 4 Product Divisions4 Product Divisions

Aerospace Operations…Products and Technologies

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Syste

ms

Fu

el S

ys

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Hyd

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lic S

ys

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Co

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Fuel SystemsComponents


• 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


• 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


Trends


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.


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


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.


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


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.


Strategic Initiative I:Globalization

Glo

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Rationalization

C:\Documents and Settings\e0085997\My Do


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


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


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...


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$180

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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



Overview

• Global Sourcing Objectives

• Eaton Aerospace Global Resources

• Shared Services Team


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


Eaton Aerospace Global Resources

Eaton Aerospace has Sourcing and Supplier

Development resources in the following countries:

• Turkey

• Moscow

• India

• Mexico

• Brazil

• China

• Singapore


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


SCM Shared Service (SST)

Aerospace

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


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


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


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


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.


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.


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


Strategic Initiative II: Aerospace Supplier Performance

3/15/2011

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Agenda

• Quality Jumpstart

• Supplier Expectations

• Quality Performance

• Quality Systems

• On time Delivery Performance

• General

• Supplier Performance


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


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)


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”.


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



• 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



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



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


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


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


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


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


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


Strategic Initiative III:Materials ManagementSMART/Model Plant G

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Mat

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Rationalization


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


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


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


Eaton Aerospace Materials Mgmt ‘SMART Operating Model’


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


Materials Mgmt ‘SMART’ Operating ModelPolicy Structure


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


Model Plant – Policy Structure

Process FlowPolicy

Work Instructions

Work Instructions


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


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


Current Procurement Methods


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?


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.


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.


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.


Eaton Continuous Replenishment Methods


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.


Strategic Initiative IV:Rationalization

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Rationalization


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)


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
