Creating an Efficient & Responsive Supply Chain

Presented to the National Shipbuilding Research Program 31 July 2007 Dr. William R. Killingsworth Executive Director, MIT Forum for Supply Chain Innovation billk@mit.edu

MIT Forum for Supply Chain Innovation

Formed in 2002; European Section 2006 Led by the MIT School of Engineering & Sloan School of Management David Simchi-Levi, Charlie Fine, Bill Killingsworth Members Include Industry and Government

Hitachi Holding Co.

Major Research Areas

MIT Forum for Supply Chain Innovation

Matching Products with Supply Chain

Inventory Positioning/Push-Pull Manufacturing & Distribution Network Design Strategic Suppliers, PSM

Visibility, Identification, and Sensor Networks

RFID, Wireless Networks Interoperability Sensors, GPS

Major Research Areas

MIT Forum for Supply Chain Innovation

Product Development and Life-Cycle Design

Integral vs. Modular Design Product Clockspeed Make vs. Buy Portfolio Management Contracts: Risk and Profit Sharing Collaboration in Forecasting, Planning & Execution Communication; Supplier Committees Purchasing and Supply Management

Supplier and Customer Relations

Major Research Areas

MIT Forum for Supply Chain Innovation

Risk Management in Global Supply Chains Supply Risks Demand Risks Development of Mitigation Strategies

Todays Supply Chain Pitfalls

Long Lead Times Minimized Inventories Uncertain Demand and Supply Complex Product Offerings Component Availability Downsizing/Out-sourcing Globalization/Off- and near-shoring Shrinking Supplier Base Troubled Supplier Relations Fragile Supply Chains

Designing the Supply Chain for the Specific Product

Many companies attempt to shove everything through one supply chain structure and then wonder why some problems continue; Must recognize that products have different characteristics and generally need to be managed in a different manner with an aligned supply chain; and Efficiency and Responsiveness are generally in direct conflict.

Fishers Framework
Functional Products Innovative Products

Efficient Supply Chain

Match

Mismatch

Responsive Supply Chain

Mismatch

Match

Marshall L. Fisher, Harvard Business Review, March-April 1997

DEMAND CHARACTERISTICS & SUPPLY CHAIN DESIGN

Demand Volume

High

Push
Fast & Efficient

Push Pull
Delayed Differentiation Distribution Strategy

Push Pull
Distribution Strategy
Low

Pull
Responsive & Adaptive

Low

High

Demand Uncertainty

A Key Design Element: Push-Pull Supply Chains

The Supply Chain Time Line

Suppliers

PUSH STRATEGY

PULL STRATEGY

Customers

Low Uncertainty

High Uncertainty

Push-Pull Boundary

Examples of Push Supply Chains

Automotive
Mercedes in Vance, Alabama
160,000 M and R Class vehicles per year Two Shifts New vehicle comes off line every 90 seconds 300,000 Odyssey Minivans and Pilot SUVs per year Two production lines; two shifts New vehicle comes off each line every 90 seconds

Honda in Lincoln, Alabama

Baby Care: Over 300,000,000 packages of Pampers sold annually Key Focus: Efficiency, Just in Time, Velocity & Coordination

Examples of Push-Pull Supply Chains

Dell
Buys to Forecast; Makes to Order Modular Product Design Delayed Differentiation Dynamic Pricing to Correct for Forecast Errors

Furniture

Make to Order Pull Hold and accumulate for regional shipment Push What About Ikea?

Key Focus for Push-Pull are Responsiveness to Market of One, then efficiency

PUSH PULL SUPPLY CHAINS

Raw Material Supplier Manufacturers / Assemblers Retailer End-Users

Material

Material

Material

Shipbuilders

Push

Pull

Buy to Order (manufacturing postponement high)

Boeing

Push

Pull

Make to Order

n ive Dr

n ive Dr

re Fo by

Dell HP

Push

Pull

Assemble to Order

nd ma De by

st ca

Push

Pull

Make to Stock

Pampers

Push

Pull

Ship to Stock (manufacturing postponement low)

Denotes a Stockholding Decoupling Point

Source: Towill (2005) Decoupling for Supply Chain Competitiveness

Five Lean Fundamentals

Specify value: Value is defined by customer in terms of specific products and services Identify the value stream: Map out all end-to-end linked actions, processes and functions necessary for transforming inputs to outputs to identify and eliminate waste Make value flow continuously: Having eliminated waste, make remaining value-creating steps flow Let customers pull value: Customers pull cascades all the way back to the lowest level supplier, enabling just-intime production Pursue perfection: Pursue continuous process of improvement striving for perfection
Source: James Womack and Daniel T. Jones, Lean Thinking (New York: Simon & Schuster, 1996).

The Typical Sequentially Cascading Supply Chain

Raw Material Suppliers

Second Tier Suppliers

First Tier Suppliers

Sequentially Cascading Supply Chains Are Generally Neither Efficient, Nor Responsive

Prime

Orders

Depot

Command

The Goal: Transform the Enterprise

Raw Material Suppliers

The Sequential Enterprise

Transform

Integrated Collaborative Supply Network

Distribution Points Raw Material Suppliers Command

Second Tier Suppliers

Orders
First Tier Suppliers Prime

Customer
Depots Command

1st , 2nd And 3rd Tier Suppliers

Depots Prime Manufacturers

Steps in the Transformation

Define and Map the Nature of the Supplier Network Identify Strategic Partners Enable Visibility, Collaborative Forecasting, Planning and Execution Maintain Positive Supplier Relations

Traditional Supply Chain Structure

Manufacturer Contract
Systems Supplier Systems Supplier Structure Supplier Structure Supplier Final Assembly Supplier Supplier Supplier Supplier Supplier

Product Flow

Supplier

Rotor Head Suppliers

Company A Bolt Company B Shaft Company C Rev Spring Company D Bolt Company E Bushing Company F Bushing Company G Seal Seal Sleeve Seal Seal Company H Rev Limiter Company I ID Plate ID Plate Company J Stop Nut Plain Nut Bracket Assembly Company K Shim Shim Company L Washer Company M Support Company N Weight 120 Days 120 Days 120 Days 120 Day 189 Days 197 Days 120 Days 110 Days 210 Days 239 Days 170 Days Company S Bearing Bearing Bearing Bearing Bushing Sleeve Company T Adapter Weight Liner Spacer Lower Liner Tank Bolt Company U Base Shield Company V Boot 260 Days 180 Days 170 Days 230 Days 250 Days 275 Days 100 Days 113 Days 210 Days 176 Days 197 Days 281 Days 260 Days 134 Days 176 Days 155 Days 210 Days 080 Days Company O Sleeve Bushing Sleeve Washer Nut Key Company P Hub Hub-Class Pin-Class Pin Company Q Pitch Housing Company R Cover Retainer Hydroform Cover 180 Days 180 Days 170 Days 231 Days 120 Days 168 Days 155 Days Company W Weight Weight Company X Collar Cover Assembly Company Y S him Company Z Ring Company AA Shaft Sleeve Company BB Washer Company CC Washer Retainer Company DD Droop Stop Arm Plate-Class Liner Block Stop Washer Pin Assembly Pin Assembly Plug Tank Assembly Beam Cap Company EE Washer Company FF Tank Company GG Cover Company HH Tank Assembly 080 Days 110 Days 100 Days 100 Days 250 Days 250 Days 250 Days 197 Days 275 Days 250 Days 280 Days 173 Days 210 Days 176 Days 150 Days 150 Days 126 Days 100 Days

300 Days 320 Days 290 Days 250 Days

Prime/LCMC

075 Days

120 Days

167 Days 119 Days

Shaft Assembly Supply Chain (1 of 2)

Outside Processing (35) 35 (M) Retainer

Comp C 10 (M) Anodize (10) 20 (M) Comp A Paint (10) (material)

Retainer 90 (M) 50 (PA)

50 (M) 50 (PA) 150

158

100/mo

Comp D 10 (M) Comp A (material)

100/mo

Adapter Outside Processing1 (10) Outside Processing2 (10) 20 (M)

Comp E (material)

125 (M) Comp A

100 (M) 200 50 (PA)

100/mo

Now 350 Mfg Days!

Company G 150 (M) (material) Comp F (Forge)

Adapter Outside Processing3 (10) Outside Processing4(10) Outside Processing5 (20) 40 (M) 30 (M) Spacer

Prime

250 130 (M) Comp A 50 (PA)

100/mo
In-house Mfg Subassembly A (30) Subassembly B (30) Adapter (300)

Notes: (A) Supplier Admin Lead Times (M) Supplier Mfg Lead Times (PA) Prime Administrative Lead Times Red denotes Prime Lead Times Purple denotes monthly capacity without impact to normal through put

Comp B

168 118 (M) 50 (PA)

N/A

6/mo

Shaft Assembly Supply Chain (2 of 2)

Comp J (casting)
80 (M) Finishing, coating and paint (15) 15 (M)

Comp I 10 (M) Comp H (material)

Support Assembly 30 (M) 50 (PA) Bearing

Bolt

40 (M) 50 (PA)

N/A

100/mo

Comp K 120 (M) Comp H (material)

Comp G Subcontract 20 (M) 135 (M) (material) 10 (M) w/LTA Machining Comp M 50 60 (M) Outside (material) processing Comp P (material)
100 (M) 40 (M)

Now 350 Mfg Days!

50/mo 200
60 (M) 265 50 (PA) 150/mo 20 (M) 260 50 (PA)

Comp L

Tube

Comp L

Washer

100-150/mo

Prime

Outside processing Comp R (material)

10 (M) Mount 55(M)

(M) 197 Comp N 22 15 (A) 50 (PA) 500/mo

Comp Q

Notes: (A) Supplier Admin Lead Times (M) Supplier Mfg Lead Times (PA) Prime Administrative Lead Times Red denotes Prime Lead Times Purple denotes monthly capacity without impact to normal through put

10 (A) 150 48 (M) 50 (PA) N/A 110 (M) 160

Plate Assembly

Comp S

50 (PA) N/A

Strategic Partner Structure

Partner/Supplier Contract

Supplier Supplier Supplier Supplier Supplier Supplier Supplier Supplier

Large Scale Systems Integrator

Final Assembly

A C
Pre-Integration Systems Partner

B
Structure Partner

Integrator owned product in several levels of the supply chain Drives the requirement for multi-tier visibility
Product Flow

Supplier Supplier

Improvements Via PSM Analysis & Strategic Sourcing

Typical Benefits of Procurement & Supply Management (PSM) More Effective Buying Techniques Spend Analysis Who buys what from whom with what funds Market Intelligence What is happening in the market, raw material trends Logistical Efficiencies Enhancing PLT, ALT, Asset Management Savings Opportunities Opportunities to save money Process Efficiencies Streamline current supply chain processes & integrate

Maturity Model for Collaboration and Process Interoperability

Demand Network Optimization

Supply Network Yield Management

Orchestrating

MultiMulti-tier Federation

MultiMulti-tier Visibility, Collaboration Data sharing with 1st Tier partners

Improved Market Share

Collaborating

Anticipating

Every company for itself

Internal optimization

Reacting

Every department for itself

Slow & sequential planning

Process Maturity

Information Maturity

* Source: AMR Research, Inter-Enterprise Supply Chain Coordination Needs a Platform,, 2003

Improved Margins

SingleSingle-Tier Partnering

Exostar Solution: Multi-tier visibility

Exostar Conference: October 9, Washington DC

Gain Consolidated Visibility Across Tiers

Forecast & Commit Cycle Order Management Cycle Consumption Replenishment

Logistics Management

COMPONENTS

WHERE USED

Prime or SI

Tier 1 Suppliers

Tier 2..n Suppliers

RFID Industry Transformations -- CapGemini

Retail & CPG Textiles X X X X X X X X X X Food HighTec & White Goods Luxury Items Distribution Courier & Postal International Logistics Manufacturing & Packaging Life Sciences / Pharma Healthcare Aviation Automotive Energy / Utilities Defense Government Financial Documents & Securities

RFID Enabled Supply Chain Transformation Opportunities

DC / Warehouse Operations International Trade / Customs / Security Pedigree / Track / Trace / Theft / Counterfeit Cold Chain Logistics Inventory Management / Real-Time Optimization Mobile (Returnable) Asset Management / Utilization Store Operations / Consumer Driven Replenishment Asset Maintenance & Monitoring (MRO / SPL) Mission Demand Planning Managed Service Provision Information Sharing (EDI, GDS, EPCIS) Manufacturing (Work in Progress) Reverse Logistics (Returns / Recalls / Waste)

X X X X X X

X X X X X X

X X X X X X

X X X X X

X X X X X X X X X X X X X X X X X X X

X X X X X X X X X X X X X X

X X X

X X X X

X X X X

X X X X

X X X

X X X

X X X

X X X X

X X X X

DC / Warehouse Operations
Shipping Loading

Packing

y y y y y y y

Improved In-Bound / Receiving Improved Out-Bound / Loading Improved Staging Improved Picking Improved Packaging Improved Miss-placed Items Improved Cross Docking
Receiving Marshalling Cross sorting

Investor Relations Public Relations Community Relations Employee Relations Customer Relations Government Relations

Where is Supplier Relations? What is Supplier Relations?

Four Columns of Collaboration

The Toyota Model

Strong Supplier Supplier Relations Relations Strong

Open Communication

Supplier Associations

On-site Support & Training

Reduce Supplier Burden

Conclusions
Think Globally; Act Globally; and Do Not Stop With Local Islands of Optimization

Summary: Enabling Both Efficiency and Responsiveness in a Pull Supply Chain

Streamline supply chain through the use of strategic partners; Involve strategic partners in design and development process; Identify critical bottlenecks and lead time drivers; develop corrective actions; Enable visibility, collaborative planning and forecasting; and Strengthen supplier relations.

Coming Events You Are Invited

14-15 November 2007 Road Trip for Forum!
To Be Held at GE Global Research Labs Schenectady, New York Real Time Global Tracking and Logistics Wireless Sensors and Networks

29-30 November 2007 European Road trip!

To Be Held at the Newly Opened DHL Innovation Center near Bonn, Germany Sponsored by the European Section of the MIT Forum for Supply Chain Innovation, Hasso Plattner Institute