Seamless flow of information in a supply chain helps eliminate waste created by fluctuating demand thus creating a perfect lean market.
With thousands of combinations and options for its luxury cars, BMW line workers at its plant in Leipzig, Germany only assemble the same car once every nine months This advanced customisation may be the future of manufacturing. What does it mean for suppliers in Asia? When demand for a particular item changes frequently, suppliers must adapt. Lean manufacturing techniques can squeeze excess time and resources out of fulfilment, but they will not help to plan for frequent changes in demand.
Instead, suppliers must find ways to understand and respond to the rate of demand, and adjust their rate of manufacturing. To do so, they need the right information at the right time. Consider an example from another industry: the automated teller machine (ATM) system. Banks’ fluid exchange of information makes it possible to access an account anywhere in the world. Customers and banks alike benefit from the right information at the right time – something economists call the “perfect market.”
Imagine if demand information flowed through the supply chain as easily. Suppliers could adjust their production to the fluctuations in demand – and eliminate waste – to create the perfect lean market. Seamless flow of information in a supply chain helps eliminate waste created by fluctuating demand thus creating a perfect lean market.
What does it take to build a perfect lean market? From a closer look at the ATM model, there are five elements: systems, standards, collaboration, automation and connectivity.
The first ATM systems only let a customer withdraw cash from his own bank. Recognising the value of customer convenience, banks collaborated on service charge agreements, technology and standards to create networks to connect and communicate automatically with one another. Banking on stronger customer relationships, financial institutions made the networks interoperate, so customers could use any ATM. Today, banks have extended that connectivity to PC networks, and users can transfer funds to other PC users. As the industry improves systems, standards, collaboration, automation and connectivity, the perfect market in financial services continues to improve.
While the banking industry was getting connected, the automotive industry exchanged information by fax and telephone. But in the last decade, enterprise technology and manufacturing techniques have improved suppliers’ ability to get information to the right place with less intervention. Insight into the state of production, supply and even customers’ inventory levels helps suppliers make goods “just-in-time” to meet demand. Over the same decade, global competition has continued to rise. Suppliers and Original Equipment Manufacturers (OEMs) rely on vendors and supply chains spanning longer distances than ever before, as pressure mounts to reduce costs, increase value and improve compliance with warranty, quality and delivery requirements. Fast-flowing information is essential to overcome these challenges.
The flow of information begins with enterprise adoption of the five elements – systems, standards, collaboration, automation and connectivity – that contribute to perfect market conditions.
Doing business with multi-national Original Equipment Manufacturers (OEMs) today requires electronic interaction such as EDI (electronic data interchange) and Internet-based exchange, instead of e-mail, telephone and fax-based communication. A leading OEM recently told me that “manual processes coincide with more errors,” in contrast to electronic interaction via materials resource planning systems, bar code scanning and EDI.
That comment is significant. As Original Equipment Manufacturers (OEMs) depend on goods from long distances, they can’t afford longer delays caused by errors in order fulfilment. In fact, automobile companies not only expect their suppliers to use technology for the same functions that Original Equipment Manufacturers (OEMs) do; they require it. My recent visit to suppliers in China made it crystal clear that technology for EDI, bar code scanning and enterprise resource planning (ERP) is mandatory.
Of course, suppliers and customers may use different systems that do not interoperate. Technical standards for EDI and Web services, for example, help ensure that systems exchange information without human intervention. As Original Equipment Manufacturers (OEMs) centralise functions shared by operating units and facilities worldwide, the suppliers who choose open, standards-based technology make more attractive vendors.
One example of a business process standard that is being embraced worldwide is the latest Global Materials Management Operations/Logistic Evaluation (MMOG/LE) guide for materials handling. According to the Automotive Industry Action Group (AIAG), the guidelines initially focused on materials flow process and continuous improvement. Now, they indicate where enterprise technology can help automate best practices. These standards encourage consistent practices that make it easier for companies to work together. Original Equipment Manufacturers (OEMs) and suppliers can use key performance indicators to measure their compliance or performance in keeping with business protocols.
Standards-based systems alone do not make a perfect lean market. Suppliers and manufacturers must agree to use both technical and process standards. Just as banks collaborated to connect proprietary networks, each supplier can embrace standards to work with other tiers of the supply chain and respond quickly and seamlessly to demand. Automotive suppliers are taking action. For example, they are using EDI and the Internet to automate business interaction and collaborate with their customers.
In addition to cutting the time, costs and risks of manual labor, automation accelerates action. EDI messages help speed tasks that otherwise require time-intensive manual work, from forecasting to shipping schedules and advance ship notification. ERP software generates the performance indicators that decision-makers need to refine production plans and schedules for greater efficiency and higher yield.
Advances in manufacturing automation are improving suppliers’ ability to act on changes in demand. Today, ERP software automates processing of broadcast messages from the OEM so that suppliers can sequence production with OEM demand and plan according to the clock, thinking in terms of hours or minutes, instead of days.
Suppliers today have more computing options than they had a decade ago. A supplier might maintain mission-critical manufacturing execution systems on its premises, and choose a third party to maintain others such as EDI off-site. The supplier might pay to use third-party systems “on demand” for other functions such as inventory visibility.
These computing models raise new issues for connectivity. When data is stored on-premise and hosted off-site, connectivity must be seamless with vendors as well as trading partners.
The perfect lean market is well within reach: Suppliers like JCC Piston Inc. (JCC) are bringing it closer by becoming perfect lean companies. A US$50 million supplier based in Fuzhou, China, JCC provides aluminium alloy pistons and casting parts for automobiles and more to domestic and multi-national customers, from Ford to PSA Peugeot Citroen, Bombardier and Anhui Jianghuai Automobile Co.
The latest Global MMOG/LE guidelines served as the catalyst for JCC’s transformation. Compiled by North America’s AIAG and its European counterpart, Odette, the standard provides a supplier self-assessment guide and continuous improvement tool that helps manufacturers evaluate their operations and develop a plan for world-class materials processes.
Based on Ford’s requirements for greater collaboration and world-class materials handling, JCC completed the Global MMOG/LE self-assessment and took steps to bring its performance up to the industry standard. JCC replaced e-mail, telephone and fax with EDI integrated with new ERP software to support best practices such as automatic input of customer forecasts and schedules. JCC collaborated with Ford throughout its transformation to validate new business processes and systems’ performance. Process compliance and technology improved JCC’s production efficiency, halved its raw material and finished goods inventory and made supply ordering and production scheduling more efficient. JCC’s quality and monthly delivery performance gains earned Ford’s sought-after Q1 status and a promotion to Tier-1 supplier.
JCC’s experience suggests that several distinctive business conditions emerge from the combination of systems, standards, collaboration, automation and connectivity.
The first is clarity in communication and supply chain connection. Using an enterprise application, JCC’s quote process uses ERP data to produce an estimate in half a day, where it once took three days of research and manual calculation.
The second quality is agility. Responsiveness based on fast processing of information. For JCC, agility led to delivery improvements – especially crucial for a long-distance supplier – and lower expediting costs. Its business is now driven by prompt enterprise-wide visibility into customer requirements.
The third characteristic is unity, where the process of sharing information is no longer proprietary. Through unity, perfect lean companies can form perfect lean relationships with customers; these relationships can form perfect lean supply chains; and the chains can link to form the perfect lean market.
Unity has profoundly improved JCC’s business: The supplier now advises others that information and knowledge are important to the future and investments in technology pay off. JCC’s experience as a perfect lean enterprise makes it very clear: The future lies in the perfect lean market.
1- “BMW’s Dream Factory,” BusinessWeek, October 16, 2006.
Keywords: Perfect Lean Market, Electronic Data Interchange (EDI), Global Materials Management Operations/Logistic Evaluation (MMOG/LE), Original Equipment Manufacturers (OEMs)
