THE TROUBLE WITH CUSTOMERS IS THAT IF THEY ARE NOT BUYING FROM YOU, THEY ARE BUYING FROM SOMEONE ELSE. THE “NEVER SATISFIED” CUSTOMER IS PRESENTING RADICAL CHALLENGES TO THINKING ON THE SUPPLY CHAIN AND, ACCORDING TO EDWARD RODERICK, CEO, CHRISTIAN SALVESEN, THE BIGGEST THREAT FOR MANUFACTURERS IS THE THREAT OF SUPPLY CHAIN OBSOLESCENCE.

M anufacturing was, once, a relatively straightforward concept. The artisan assembled raw materials, processed them into a finished product and sold them onto the customer. With time, it became apparent that the more

product he could produce, the less per unit it would cost to make and so the more he could undercut his neighbour, or take some extra profit. Fast-forward to the industrial revolution and mass production. As products became more complex, so manufacturers evolved more sophisticated just in time, total quality and then postponement production systems. Then came the Internet, and the rules all changed.

No longer constrained by what they are offered or from where, customers-corporate and consumer-

can shop around the clock and around the world from their own homes/businesses and on their own terms, at the same time having direct access to suppliers. Customers dictate what they want and demand that manufacturers supply it. If one company can’t deliver it, they find another one that can. And with the typical firm losing between 10% and 30% of customers each year, the once ‘satisfied’ customer is the ‘continually to be convinced you can satisfy them again customer’- not easy to please or to hold onto.

The Internet, alongside global competition amongst manufacturers, is driving fundamental change. As Nick Scheele, President of Ford, Europe has commented: “The Internet is forcing more radical change in the next ten years than has been seen in the past 200. By altering the way companies bring together

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parts and services from suppliers the Internet will impose massive change.”

By giving customers a plethora of choices and unprecedented access to suppliers, it has shifted power away from the manufacturer, firmly into the hands of the customer. And by bringing together information about buyers and markets it has given to manufacturers the technology to fulfil it. The supply chain has become the demand chain. Mass production has become mass customisation. And where once we looked downstream to the customer and focused on the product and the price, now we’re upstream and focusing on how to work together.

For the traditional manufacturing supply chain, that presents a basic threat: obsolescence. Saddled with long lead times and excess inventory, traditional supply chains are too unwieldy to respond to customer demand for variety, quality, off the shelf availability, lower cost or to cope with manufacturer pressure for product innovation, shortening product life cycles and continual product changes.

For the manufacturer, avoiding obsolescence means becoming ‘agile’ and ‘lean’-shortening cash cycles to turn assets and working capital into cash to meet demand, whilst at the same time stripping out inventory and waste within the supply chain.

AGILITY AND LEANNESS Agility focuses on change proficiency-the ability to read and respond to demand and changes in demand, catering for the proliferation of product options without building inventory to cover every eventuality.

Achieving agility requires time compression. In traditional supply chains, made up of discrete suppliers, manufacturers and retailers, stock is held at multiple levels, with replenishment driven by transfers of stock from one level to another. In agile supply chains, inventory is stripped out to the fewest levels and replenishment is driven by data driven demand. Production previously planned by discrete units and batches of product fed between them, with the majority of stock in finished goods waiting to be dispersed, is now planned from end to end with the minimum lead times and the majority of stock held as work in progress awaiting build or configuration. Instead of time lost in raw materials and finished product standing still, the ultimate goal is a system where product and information are shared and are moving, not in sequence, but in unison.

Agility also requires visibility. If the manufacturer does not know what is being demanded and where it is in the supply chain he cannot plan for it. If he cannot plan for it, he must carry the buffer of inventory. End to end visibility is therefore vital.

By contrast, leanness focuses on minimising inventory and eliminating waste, pulling product through the process based on firm or short term

forecast demand. Where inventory was once seen as a sign of low price per unit produced, it now represents high price per, unit used incurring cost in interest on funds to purchase, space and warehousing, damage, pilferage, obsolescence, light, heat, security, stock controllers, IT systems and time when inventory is standing still. And, as product life cycles continue to reduce, particularly with fast moving consumer goods, obsolescence is a critical issue.

Leanness drives highly integrated downsized supply chains, promising cost savings and closer working partnerships. The danger is that where total focus is on the steady-state, lean means fragile.

Both leanness and agility imply that optimisation and integration be achieved across supply chains. They rely on total end-to-end transparency of key elements including demand, cost and value. Understanding true demand from point of sale information, evaluating existing finished goods inventories at all points in the chain for all sales channels, viewing work in progress, effective planning, upstream demand notification, lead-time information are all essential to effective manufacturing.

Practically, that depends on information exchanges and synchronisation of IT. It begins with mapping the total supply chain from supplier’s supplier to end-user, measuring actual or forecast demand against inventory flow. Identifying inventoryholding points is the starting point for agreement on rationalising the supply chain.

Take the mobile phone and its component silicone chip. The process which begins with assembly of raw materials-silicone and machine parts at the manufacturing warehouse, then transfer of finished goods to regional warehousing, onward to OEMs and then distributors, means inventory is held by the + Goodyeor Dunlop found that collaboration with a logistics provide, revolutionised the supply network

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Coodyear Dunlop is the UK's No.1 manufacturer of replacement tyres selling more than seven million car, truck, motor-cycle, agricultural and earth-mover tyres per year-25% to 40% of market-share-to customers that include retailers, car manufacturers, main agents, fleets, small garages and wholesalers. Coodyear Dunlop is also the winner of the Supply Chain Excellence Retail Supply Chain of the Year. Why? According to the panel, because: "The entire operation regards the supply chain as providing a source of competitive advantage that is unusual in a non-food industry."

Goodyear and Dunlop formed a global alliance in 1999 and, in the UK, one of the key synergies has been the complete overhaul of the supply chain.

The first step was to rationalise the number of distribution centres, combined with the formation of a supply chain partnership with Christian Salvesen. The challenge was to drive cost out of the supply chain whilst at the same time improving service levels to customers.

Streamlining its logistics with a single provider has led to consolidation of the two group's operations. The initial step was to combine deliveries of all brands, fed by seven different Coodyear Dunlop warehouses operating complex through-the-day cross-docking onto the same customer delivery vehicles. This was followed by consolidation within a single 46,000 square metre national distribution centre, Tyrefort, located adjacent to the Coodyear Dunlop head office in Birmingham. Tyrefort, which has 47 loading bays, operating 24 hours a day, houses up to one million tyres destined for next day deliveries with a throughput of up to 80,000 per day.

COORDINATION Supply chain operations are co-ordinated centrally through an on-site traffic office installed by Salvesen at Tyrefort, comprising 22 administration and management staff, 40 loading staff and 95 drivers. Distribution of over seven million tyres per year to 7,000 outlets has been transferred from seven satellites to Salvesen's network depots at Bovey Tracey, Bracknell, Bury St Edmonds, Gloucester, Leigh, Motherwell and Rochester, phasing out the previous complex cross-docking arrangements at former break bulk centres. ,/ ,#M#

bespoke SHARPnet system, which sequences deliveries. These are fed back into Coodyear Dunlop's IT' systems, which use it to form picking lists and to check against the original order.

A fleet of 50% dedicated vehicles carry consign- ments directly to the customer and 50% draw mounted vehicles deliver consignments assembled by route and wave, picked with product destined for furthest away picked first.

One of the most significant achievements of the partnership has been the design, of 29 unique draw bar trailers, used for trunking movements. Consisting of a Daf prime mover, carrying a 5m body and two further 5in liveried bodies, the trailer system allows the rear tvvo boxes to be disengaged at multi-user depots and attached to delivery vehicles for onward delivery, whilst tbe original prime mover is used for customer deliveries. Boxes returned to the depot are then hitched back onto the prime mover for return to Tyrefort:.

TRACK AND TRACE The contract is the first dedicated contract in the UK to take advantage of Christian Salvesen's SHARPnet track and trace technology, providing customers with web- accessed information about consignments detailing estimated delivery time, location and status of the consignment.

The outcome of streamlining Coodyear DIJnlop's combined supply chain is a significant increase in service levels to 99.6% against key performance indicators. Continual improvement is being achieved by monitoring performance against KPls and forecast customer demand, with imminent introduction of cost to serve modelling making it possible to identify the most cost-effective carrier solution for each customer.

Success of the venture is attributed to the continual collaboration of the two companies, operating as a single organisation. Staff share a common building and uniform and are briefed via weekly, monthly and quarterly planning meetings, whilst Coodyear

Dunlop's customers were actively consulted throurrhout the Drocess. But collaboration "

is not at the expense of accountability for performance. As the judges noted:

product flow. Orders, formerly picked "Both Goodyear Dunlop and throughout the day, are now Christian Salvesen appreciate the received by the Goodyear Dunlop lear split of roles and sales office and downloaded to responsibilities at strategic Goodyear Dunlop's SAP system and operational levels and at 5.30pm for next day delivery. although operational

performance is a shared responsibility, the side

Data is then transferred into Christian Salvesen's automatic routing software and proposed that has done the job routes fed into Salvesen's right gets repaid."

IT systems are crucial to managing f.""'

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manufacturing site, work in progress, regional physical movement of goods. Evolvement in manu- warehouse, OEMs and the distributor. By minimising facturing supply chains requires different types of inventory buffers within the manufacturing process, transportation solution. Selecting the right mode of sometimes hidden inventory significantly reduces transport and third party provider are paramount in pipeline inventory meeting customers on service. Consignment sizes

reduce as entities in the pipeline call off only the SY NCH RON ISATION quantities they need and can use within their cycle. In reality there is a long way to go before supply chains The numbers of consignments increase and the are synchronised by IT. Despite ED1 (electronic data distances these smaller consignments travel widen as imaging) and e-commerce true customer-purchasing/ centralised stocks move further away from the demand supplier-sales links are still the exception and points. New options are needed. Such as shared-user development of software continues to be a priority networks combining smaller consignments of many According to a Computer Sciences Corporation survey organisations into transport systems meeting service of automotive manufacturers, connecting vendors, requirements for economic transport of smaller, more customers and dealers is still an IT priority for just 38%. frequent consignments in a timed environment.

And if lack of availability or uptake of IT is slowing The transformation to the demand chain is not for down the development of virtual the fainthearted. Whilst the

thinking behind it is clear, the commitment to change must be ”THE REAL

organisations, lack of com- munication and trust hinders their implementation. Supply chain COMPETITION IS NOT strong. The financial investment-

especially in IT and compatible software can be daunting. As is

COM PANY AGAl N ST optimisation can only be achieved

managing the consequences of COMPANY BUT where OEMs, customers and suppliers work together and are aware of activity in the supply SUPPLY CHAIN AGAINST change: staffing issues, machines

and sites, potential disruption to customers, opportunity costs of lost

S U P P LY C HA1 NI’ chain. Whilst lean and agile can be incorporated within a manufac- turing organisation, the challenge management time and energy is to achieve efficiencies and CHRISTOPHER, CRANFlELD Indeed, when the Metals Industry

Competitive Enterprise surveyed the industry, it found that whilst

UNIVERSITY standardisation across companies, which, until now, have only been possible within a single organi- most companies recognised the sation. A holistic view of the supply chain needs opportunities within the supply chain for savings, few involvement, communication and collaboration of had any strategy in place to realise them. suppliers and vendors that must extend both up and But the scope for improvement is vast, with an downstream to be truly effective. estimated 95 to 99.1% of time in supply chains spent in

Such trust does not come naturally in traditional non-value adding activity And the risk to competitive manufacturing supply chains, built on autocracy and advantage great. According to The Manufacturing hammering manufacturers upstream on quality and Institute, companies who do display best supply chain cost. Open order books, experience tells them, mean management practice achieve significant competitive exposure and a trouncing on margins. The edge, with 50% reductions in lead-time and inventory manufacturer’s instinct is adversarial. Their focus is and 99% accuracy on time delivery In the automotive on cost and delivery not value, self protection not industry alone, it is estimated there is €400 billion sharing risks and benefits, individual profit not long- excess inventory to be removed and by applying IT and term mutual gain and needs-must not whole supply making cars to order E75 billion to be unleashed for chain communication. Trust is therefore likely to be reinvestment. earned only slowly and likely only where What demand chains achieve is elimination of manufacturers formally agree terms of engagement redundant processes, increased information sharing, and margins in processes and service level agreements. reduction in friction, removal of excess labour,

inventory and holding costs, faster movement of TRANSPORT product and, most importantly-by accessing Since Professor Richard Wilding, Cranfield University, information on customer demand and marrying it up coined time, transparency and trust “the 3T’s” they have with production schedules-improved ability to come to be recognised as the key elements of effective respond to the customer. supply chains. To these I’ll add a fourth: transport. And, we all know the trouble with customers!

Whilst consolidation of inventories allows for greater visibility of inventory and inventory Edward Roderick is CEO of the logistics provider Christian reduction; in turn it increases the dependence on the Salvesen

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