Supply chain makeover brings tangible benefits

By Roberta Duffy
EBN

09/29/2003 10:00 AM EST
URL: http://www.eetimessupplynetwork.com/15200650

San Jose

Motorola Inc. did it to cut the cycle time for material sourced in China by 37%. Altera Corp. did it to shave off two months of inventory and save 5% in product costs. Woodward Industrial Controls did it to improve inventory turns.

The "it" in each case was the company's decision to tear open its supply chain management systems and optimize the processes to add value, cut costs, and improve its ability to service customers.

Altera, for example, created efficiencies by combining three locations that once handled test, assembly, and packaging into one, according to John Daane, chairman, president, and chief executive of the San Jose-based company.

In Motorola's case, the company began investing in China's state-owned enterprises and teaching local suppliers the fundamentals of supply chain management"including strategic planning and Six Sigma and statistical process controls.

With China contributing $5.7 billion to Motorola's sales last year, the company saw a clear need to create a domestic supply base capable of filling the bill of materials for products such as cell phones and PDAs.

Motorola, Schaumburg, Ill., wants to be able to "design anywhere and build anywhere, with regional customer fulfillment bases," said Andy Winterbottom, vice president and director of semiconductor procurement.

Out of 'the black hole'

Woodward Industrial Controls, an operating unit of Woodward Governor Co., Rockford, Ill., had a similar epiphany that it said has transformed the company.

In April 2002, the 130-year-old manufacturer of industrial power and aircraft engine equipment recognized that a number of its supply chain processes had fallen into what director of global purchasing Mark Lauterbach termed "the black hole."

A lack of visibility into inventory data combined with the use of multiple in-plant stores meant that Woodward was more prone to stockouts and ill-equipped to use what it did have on its shelves to its best advantage. The company was also mired in a series of labor-intensive procedures, including in-house assembly and kitting.

"We approached our suppliers and business partners to probe for ideas. But instead of just asking what they thought we should do, we asked, 'If it was you, how would you do it?' " Lauterbach said. "We were learning how to design a better supply chain."

Within four months, the company had created a cross-functional team with members from purchasing, manufacturing, finance, customer service, and marketing, who began reviewing proposals. Ultimately, the team opted to outsource inventory and in-plant store management as well as assembly functions to distributor Arrow Electronics Inc., Melville, N.Y.

Substantial results

The result? Woodward claims to have reduced its inventory by 50%, while improving turns. In addition to cost savings associated with total cost of ownership, material costs have decreased because Arrow is in a position to aggregate companywide information, Lauterbach said.

"They have actually come to us and shown us instances where we were buying components from the same supplier under x number of different contracts. Now we can leverage those purchases," he said. Fewer stockouts and the ability to track materials through the system also help Woodward Industrial to be more flexible in meeting customers' needs, Lauterbach added.

And there are broader implications. Unlike other industries such as consumer electronics and computing, Woodward's products have a relatively long lifecycle"up to 40 years in some cases. Arrow now helps keep track of component costs, lead times, and obsolescence issues that allow Woodward to make better design and manufacturing decisions.

"They are truly our eyes on the market, with a long-term view of each commodity," Lauterbach said.

Roberta Duffy is editor of Inside Supply Management, published by the Institute for Supply Management.