BY MICHAEL TOLINSKI

Despite the variety of manufacturing operations worldwide, there’s a unity of concerns they all share. Many of these concerns can be addressed through better collaboration across the supply chain, which is enabled by Internet-based software services that make information highly visible, from sub-suppliers to the final customer. Although "e-collaboration" of this type has been heavily promoted within the automotive industry, the value of it applies to other industries as well.

The fundamental benefits of collaborative supply chain management stem from the reduced inventories that result. The cost savings from reduced inventories can be felt across any manufacturing supply chain—especially for companies facing a business environment of declining orders. Moreover, collaborative management applications can be adapted for improving all aspects of a manufacturing operation that have influence on the supply chain, including:

• production execution and future production forecasting;
• process and workflow management;
• logistics and transportation tracking;
• maintenance and repair planning; and
• the reporting of supply chain performance data needed for strategic decision-making.

Explained below are the capabilities of web-based collaborative supply chain management and its accompanying software applications for the above functions. To illustrate the potential benefits for a variety of industries, this paper also provides relevant, concrete examples of different real-world manufacturing situations.

Lately, more manufacturing professionals have been attending presentations that proclaim the benefits of e-business. Although they may often find the presentations persuasive, they’re sometimes met with blank stares when they ask the presenters how integrated solutions will work in specific, "real-life" situations. The presentations may explain how collaborative supply chain integration can save a company time and money through abstract, "bean-counter" language—but when a question such as "What if I want to [fill in the blank] for my operation?" is asked, it often won’t be given a concrete answer.

Manufacturers of all kinds of products know that their needs for integrated manufacturing are specific and concrete, not abstract or theoretical. Simply put, this paper provides specific examples of where event-driven supply chain applications are being used now and how they can be used for specific plant functions. Supplying everything from toothbrushes to computer chips, manufacturing operations across diverse industries are all different, but the following examples may help manufacturing professionals, through analogies with their own operations, understand the real value of e-manufacturing.

Already various manufacturers are finding supply-chain management technologies profitable for inventory management and material fulfillment to ensure that the right parts get from manufacturing point A to point B in the right quantity, at the right time. But these manufacturers’ needs aren’t just driven by the increasing demands of massive supply networks, such as in the auto industry. The needs are driven by basic practices for saving money, like how lowered inventories and work-in-progress means less cost. The few examples below show how companies have captured the basic benefits of collaborative supply chain management, which helps reduce inventories by offering visibility of suppliers’ capabilities and customers’ needs:

• Take plastics injection molder Modern Plastics Technology (Port Huron, Mich.). The company had relied on paper and electronic releases, telephone orders, and guesswork to manage its inventory of plastic components, until its customer introduced it to SupplySolution’s Internet-based "i-Supply" application service. The service allows the molder to see exactly the schedule its customer sees, and to plan production accordingly. Thus, within a month, Modern was able to reduce the amount of people, hours, and stress associated with production planning.

• A manufacturer of small metal components also adopted collaborative supply-chain management for material fulfillment—and are reaping the benefits. Before integrating the i-Supply service, Dajaco Industries’ four plants had been using premium freight for shipping to their customer three or four times a day, piling up significant costs. Now, with a window to the customer’s inventory in real time, premium shipments are down to one per day. New part numbers continue to be added, but they’re easily managed, and the company has even been able to offer a 5% discount to its customers.

• And then there’s Freudenberg-NOK of Plymouth, Michigan. As a manufacturer of sealing components, vibration-control products, and custom-molded shapes for machinery, office equipment, aircraft appliances, and recreational watercraft, the company has a diverse product portfolio to keep track of. The use of a collaborative supply chain management service will eventually link the company’s U.S. plants with parent company operations in Europe, tracking $4 billion worth of annual production; i-Supply will supply visibility into inventories, consumption, logistics, and planning through Freudenberg’s multi-level supply chain.

These types of examples of companies large and small that are using online application services for Kanban-style inventory management are becoming routinely reported. But underreported are some lesser-known software applications that are integrated with supply chain management services; these can handle some of the other nagging issues of day-to-day operation.

Manufacturing is more than just pushing product in and out the door; it’s about launching new product lines, maintaining and upgrading equipment, and inventing and justifying new ways of doing things. Accordingly, new software applications are being combined with web-based inventory-management services to tackle specific functions. Some applications that are being bundled with the i-Supply service are shown below, with specific scenarios for their use.

Just as important as what a manufacturing operation is doing at present is what it can produce and ship in the future. A software application integrated with the supply chain management service can help with these planning needs. It can provide supply-chain visibility of manufacturing capacities, allowing forecast-to-capacity comparisons and aggregate forecasts from multiple customers, as defined by the supplier. It can also make key information easily accessible, including critical launch dates, real-time updates of sourcing plans, and build-out dates and quantities. This information visibility allows suppliers to quickly re-plan and adjust for changes, reduces customer/supplier obsolescence issues, allows a view of future requirements beyond the forecasts, and creates more accurate estimates of demands to ensure on-time deliveries.

• Scenario: A small manufacturer is launching a new computer chip that will be used in a new customer’s circuit board. The customer, a powerful industry leader, has concerns about the manufacturer’s ability to produce the higher maximum volumes that are now expected (and, given the higher-than-average downtimes in chip-making operations,¹ this is a legitimate concern). Without proof that the higher volumes can be supplied, the buyer will soon be looking for backup suppliers.
• The Solution: Fortunately, the manufacturer can address the customer’s reservations by demonstrating the plant’s higher production capacity with integrated forecasting tools. These applications take into account all potential resource constraints, performance limitations, and the competing demands of other product lines. For the highest forecasting accuracy, a company might even use data taken directly from plant-floor equipment that’s linked via Ethernet to a PC network.¹ The forecast data can be shared with the customer directly in a collaborative supply chain environment, satisfying the buyer.

Assisting at the plant-floor level, this application includes functions for automating the execution of processes and for extracting data from the processes. This allows better visibility into the supply chain for all who require it, while allowing the manufacturer to protect from view certain private, internal transactions. Ultimately, it reduces non-value-added time for gathering and distributing information, reduces labor costs, improves delivery time, and expedites logistics decision-making.

• Scenario: A manufacturer that supplies finished fabric upholstery and trim has recently automated its cut-and-sew operation with a massive investment. The production planners are used to operating in the previous labor-intensive operation via direct supervision and human interaction—but now they’re faced with new integrated machinery that only supplies reams of hard data about the processes.
• The Solution: A software solution integrated with the supply chain management service makes monitoring the automatic operation easy and the data understandable and useable for correcting production tie-ups. Moreover, collaborating fabric suppliers can monitor fabric usage through a web browser, adjusting their own production and supply schedules accordingly.

Applications for tracking transportation and shipments are currently available as part of collaborative supply chain management services, such as SupplySolution’s i-Supply. The logistics software facilitates real-time, in-transit monitoring of shipments; tracing, routing, and scheduling; dynamic re-planning and alerts of exceptions; automatic tendering; and inbound and outbound shipment collaboration across the supply chain. These features allow more predictability and reduced buffer inventory, and they enhance customer service, improve shipping cycle times, and decrease logistics costs.

• Scenario: A high-volume chemical manufacturer notices that too many trucks are entering and leaving the loading dock only partially full. Whether for delivering raw materials or shipping product, these partial shipments inevitably result in higher logistics costs across the supply chain.
• The Solution: To reduce the partial shipments, the company, its suppliers, and its customers turn to a transportation management application in the collaborative supply chain management suite. The companies analyze the partial shipments to find their root cause and then adjust production and transportation scheduling until the problem is reduced. In some operations, this detective work can be aided by barcode systems that help track the routing of individual raw material containers, supplying the system with specific data on materials usage.²

The real-time operation visibility used by a collaborative MRO management application helps maintain the proper crib levels for MRO service parts. It also helps maintenance rapidly locate replacement parts for unscheduled repairs and can share data with part suppliers so they can adjust their inventories. This eliminates excessive stock levels and prevents redundant ordering of new parts when spares are available, and it saves time in MRO planning.

• The Scenario: A machining shop uses a battery of automated lathes to machine castings in a high-volume operation. The machine tools on the lathes chip and wear and regularly need to be replaced without significant downtime.
• The Solution: The shop’s MRO application anticipates tool replacements, automatically alerting the tool supplier that a new tool shipment is needed so the supply crib is never depleted due to human mistakes. Conversely, a collaborating tool supplier can monitor these needs via a web browser and anticipate the shop’s shortages—so the shop never has to make a panic phone call, nor does it have to carry excess "just in case" inventory.

This functionality produces standard or user-defined reports and handles ad-hoc inquires about an operation’s supply chain performance. With a "drill-down" capability, it also allows data mining for strategic supply chain planning and decision-making. Generally, detailed reports can assist an operation in solving problems, identifying trends, spotting new business opportunities, and improving processes.

• The Scenario: An injection molder of cell-phone components is considering expanding its operation by buying more molding machines to produce parts in-house, rather than buying them from the current supplier. Justifying the investment requires analysis of the current production flows and costs, and this requires easy access to production data about the performance and capacities of the supplier and of the molder’s current operation. Moreover, the molder would need to choose between two kinds of molding machines: inexpensive hydraulic presses and faster, all-electric presses, both of which are used in the current operation.
• The Solution: To help make an argument either for or against the new capital investment, an integrated supply chain reporting capability is used to clearly output specific data about the operation. Different reports summarize the supplier’s performance, freight costs, and patterns of inventory changes; they’re also used to compare the performance of the two kinds of molding machines in the shop. Such reporting makes the operation transparent for long-term decision-making.

A web-based service for collaborative supply chain management and its accompanying software applications can be effective for optimizing production for a variety of manufacturing situations. Despite the notoriety of these kinds of "e-solutions" promoted for the automotive industry, all manufacturing industries—electronics, chemicals, textiles, appliances, and so forth—can benefit from easily accessible data that’s made visible across the supply chain.

1. Teresko, J., "The Dawn of E-Manufacturing," Industry Week, Oct. 2, 2000.

2. Creswell, J., "America’s Elite Factories," Fortune, Sept. 3, 2001.

©2003 M. Tolinski

This study supplies some much-needed concrete information about the importance of e-business for lower-tier suppliers in the automotive supply chain. Using a survey of Tier-1 suppliers, the study shows the extent to which these companies consider e-business readiness a factor when consolidating their supplier lists, as well as what kinds of e-capabilities Tier-1s consider important.

The findings all support the idea that within two to three years, the e-business capability of each Tier-2, -3, or -4 supplier will be a critical factor for maintaining and expanding its presence in the automotive supply chain. Specific conclusions include:

• Suppliers that are proficient in e-business stand to gain as Tier-1s trim their supplier lists;
• Tier-1 suppliers are confident that e-business will reduce costs across the supply chain;
• Tier-1s expect their suppliers to expand their e-business capabilities in several specific areas; but
• They are also conscious of the obstacles to e-business implementation.

Finally, the study offers several recommendations for planning e-business implementation, for selecting the right tools and providers, for executing the implementation plan and maintaining its effectiveness, and for avoiding pitfalls and hidden costs.

Computer-based e-business technologies are maturing and developing into a backbone that supports all industries, including traditional manufacturing. For companies in the automotive supply chain, future business success requires a readiness to adapt to the e-business climate and co-evolve with it. This evolution is based on several changes that are driving the use of e-business, including trends toward:

• More complex components
• More diverse information environments
• 12-month design cycles
• 7-day order fulfillment
• Fewer 1^st- and 2^nd-tier suppliers
• More work outside the traditional automotive sector

To understand more about what Tier-1 automotive suppliers expect from their suppliers, a study was undertaken to identify the concerns of supply-chain decision-makers. The study queried first-tier suppliers to learn about the e-business capabilities of their supply base and, perhaps more importantly, to determine the direction of e-business in the industry.

A research survey was performed by the Center for Automotive Research (CAR) and the Environmental Research Institute of Michigan (ERIM) and sponsored by e-business application developer SupplySolution Inc. The study was initiated in January of 2000 and consisted of two steps:

1.) Three automotive systems integrators were queried in focus groups to learn of the major areas of concern in supply chain e-business.

2.) A complete survey was administered to16 Tier-1 suppliers with annual North American sales totaling $70.2 billion (with average sales of $4.4 billion). (The survey questions were authored by experts from ERIM and CAR.)

The results of the survey are compiled and discussed below.

1.) Tier-1 suppliers plan to reduce the number of their suppliers, keeping only those that are proficient in e-business technologies. 77% of the respondents reported they would be reducing the number of their suppliers within the next 12 months, averaging a 21% supply-chain reduction overall.

Along with this trend will come increasing reliance on those suppliers who are e-capable. Tier-1 suppliers reported that although they currently select only 15% of their suppliers based on their ability to handle e-business, in two to three years, they will select 77% of their suppliers based on e-capability.

Respondents also rated the importance of doing e-business with suppliers for the specific activities of demand planning, engineering design, and procurement. They provided ratings ranging from 2.4 to 2.9 (with 4="required for success") for today’s business climate--but these scores increased to 3.2-3.5 when respondents considered the importance of these activities 2-3 years down the road.

2.) Tier-1 suppliers expect to save more from e-business than they spend on it. Respondents estimated that capital spending on e-business will increase from 3% of total expenditures today to 13% in 2-3 years. However, the expected cost reductions from e-business are expected to outpace the spending rate in all surveyed areas (see Table 1), increasing from 3-7% today to 16-19% after the respective e-business plans are implemented.

3.) The auto industry expects competitive suppliers to expand e-business capabilities in several areas. Respondents estimated the percentages of their current suppliers that were picked for specific e-business capabilities, and they predicted the proportion of their suppliers that must have these e-capabilities two years from now. All results are compiled in Table 2 for the following e-business capabilities:

• For procurement of production parts. Tier-1 suppliers expect that in two years, over three-quarters of their suppliers should be able to handle requests for bids electronically, compared with one-quarter today. Moreover, over the next two years, Tier-1 suppliers anticipate that five to 13 times more of their suppliers should be able to display their catalogues on-line for general information or negotiated prices, while eight times more should be able to facilitate reverse auctions on-line.
• For collaborative engineering. In two years, Tier-1 suppliers expect nearly three-quarters of suppliers to be able to transfer interoperable CAD files and to control engineering changes electronically, compared with 18 to 25% today. Similarly, over five times as many suppliers should be able to handle joint product design and maintain a common database on-line in two years.
• For demand planning/management or inventory management. Over the next two years, Tier-1 supplier expectations will increase two to 20 times for various production management activities including parts ordering, shipment tracking, parts availability checking, and production scheduling. Particularly, major improvements are desired for checking part availability and for observing suppliers’ production schedules, neither of which are capabilities currently possessed by many, if any, lower-tier suppliers.

4.) Tier-1 suppliers are confident that their suppliers will become much more e-capable within the next two years. As shown in Table 3, actual supplier capabilities in several areas will increase over the next 2-3 years. A positive sign already are the high percentages of suppliers capable of basic computer-to-computer communication.

Table 3: Estimated % of Suppliers Capable in Various Areas of E-Business

5.) Suppliers of Tier-1 suppliers face hurdles to e-business caused by the costs and infrastructure changes it requires. Using a four-point scale, Tier-1 suppliers rated cost (3.0 score) and hesitation before the unknown (2.7) as the leading obstacles for lower-tier suppliers that are trying to expand their e-business capabilities. Finding adequately skilled staff (2.5) and supporting computer applications and software (2.5) were rated as other major hurdles, along with the difficulties from conflicting e-business demands of the automotive industry versus non-automotive customers. (Table 4 shows all the responses.)

Table 4: Hurdles to E-Business Faced by Lower-Tier Suppliers

6.) Concerns about industry e-business portals are also slowing suppliers’ e-business expansion. Tier-1 suppliers also feel that concerns about e-commerce websites and application providers are causing their suppliers to resist expanding their e-business capabilities. Worries about the security of posted parts information is the number one concern (with a score of 2.7 out of 3), followed by concerns about Internet site longevity and the technical and cost issues in maintaining the required interfaces (each scoring 2.5).

The above findings and conclusions point to several important areas of e-business that can be targeted by Tier-2, -3, and -4 suppliers. Considering the hurdles to implementation that these suppliers typically face, the study’s sponsor recommends several stages of action for selecting and executing e-business strategies:

1.) Conduct an internal audit to assess readiness and identify priority areas. Managing inventory will free up working capital and will prove what types of results are immediately available to your organization.

2.) Ensure that your organization has a reasonable hardware infrastructure, as well as Internet access. There should be no need for your company to make extensive hardware or software investments; many existing hosted technologies are designed to pull from existing processes within your four walls.

1.) Ask your customers what they are using. This is an important consideration, as you want both a solution that has proven value to your customer and one that your customer will use.

2.) Request references. Ask the technology company you are considering for a list of customers to reference and case studies relevant to your situation. Keep in mind that there are a number of disparate, stand-alone systems that are likely to be obsolete in a short period of time.

3.) Be wary of biased resources. Often times, independent consulting organizations may have affiliations with solution providers; make sure you ask if such affiliations exist.

4.) Understand the benefits of Application Service Providers (ASPs). ASPs offer benefits for smaller organizations in particular. They require little, if any, up-front investment; they are easily scalable and can be tailored for specific needs; they demand little or no software; and they often are subscription-based, which is often a far more economical alternative to full-scale software systems and enterprise implementation.

1.) Work with your solution provider to develop an execution plan. It is important for you to collectively decide what is expected from the technology solution. Determine specific, measurable results such as a certain percentage of inventory reductions or an increase in inventory turns. Benefits in the execution plan will include: simplified upgrading, ability to minimize maintenance costs, and ability to identify opportunities for additional functionality down the line.

2.) Within the execution plan, determine milestones. The measurable results you determine must be met in a specific period of time.

3.) Schedule and then conduct a three-month review. You and the solution provider should sit down and discuss how the process has worked, implementation considerations, glitches, and opportune areas of improvement.

1.) Hidden costs. Software providers may provide applications at a lower cost, or even free of charge, but they can later hit organizations up with unforeseen costs, such as training and implementation. Ask the provider to spell out all direct and indirect costs.

2.) Unplanned upgrades. This is another area where suppliers can be hit with unforeseen costs. Solutions should be flexible enough to easily tailor to the specific organizational needs without excess costs.

3.) Isolationist solutions. These stand-alone solutions are often attractive to smaller supplier organizations that want to avoid (or cannot afford) full-scale supply chain technology investments. The solutions tend to focus on one specific area of need, but they can fail by not taking into consideration the impacts on other areas of the supply chain, ultimately resulting in excess inventory, driving further costs. Any single solution should be part of a larger application set that balances process adjustments.

4.) Do-it-yourself solutions. Suppliers should altogether avoid trying to use to self-created technology solutions for supply chain management. Like the isolationist solutions, this approach might lead to some short-term improvements but more likely will result in long-term headaches.

5.) Solutions that create excessive process adjustments or business disruptions. A specific benefit to e-business is the speed with which it can be implemented, with little organizational change. Any technology that drives disruption is not fulfilling its promise as a solution.

©2003 M. Tolinski