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BUSINESS OF NUTS
an early version of the
internet of things
AND BOLTS
By Bublu Thakur-Weigold,
Stephan Wagner and
Tee Bin Ong
T
The business of nuts and bolts and screws and fasten- Bossards team saw the significance and opportunity in deliv-
ers is full of contradictions. In the eyes of an inexpe- ering a lowly screw to the factories of the world. The tech-
rienced buyer, the category is an ideal opportunity nology they then developed became the SmartBin, electronic
for savings to exploit commodity markets around scales that transmit material requirements from the customer
the world. A screw is a screw is a screw: cheap, plen- in real time back to a proprietary IT system. With it, a tradi-
tiful, standard trivial. tional fastener company from the German-speaking Mittel-
But are they really insignificant? One only has to imagine stand had entered the business of automatic replenishment and
what happens when the box, bought for a few dollars, empties: business continuity.
Alarms ring as the production line goes down. The scramble Today, that insight, together with carefully managed pro-
to replenish begins while the company tries to protect its prof- cess innovation, has paid off in operating margins almost dou-
it. As the picture on the next page makes clear, without fasten- ble that of the industry and this in one of the most expensive
ers, even the shiniest sports car looks more like a scrap heap. business locations in the world. This story is about how the
Back in 1999, Bossard Holding AG was fighting a battle small company, a so-called hidden champion, transformed
against commoditization. The companys products were con- itself from a standard c-parts supplier into a customer logistics
sidered easily interchangeable and faced fierce price competi- service provider. Enabled by SmartBin technology, Bossards
tion from suppliers in China. At the time, it seemed inevitable team essentially created an internet of things more than a
that all European manufacturing would move to low-cost decade before the trendy idea even had a name.
countries, and e-business was the trend to watch. You have to understand how Bossard is driven, said Urs
However, from the small alpine town of Zug, Switzerland, Gttinger, a pioneer of Bossard SmartBin. The screw itself is
First kanban First barcode Pilot prototype SmartBin rollout SmartBin Smart factory logistics
deployment deployment using standard 1,500 custom flex wireless release
at Toyota at Wrigley scales scales installed enabled
worldwide
Customer orientation meant adapting to some shop floor managers who had their own specifications about height, color and
location of the bins.
ing the introduction of an automated supply replenishment be worked out. Early prototypes experimented with financ-
system based on weight sensors and computers. The birth of ing models, not all of which were profitable. One of the first
SmartBin at a company that was expert at fulfilling orders but markets to adopt was Malaysia, which had the sales volume
not at computing optimal order quantities would not be easy. and geographic dispersion to justify a SmartBin approach. The
People would have to learn new skills and tools. Internal pro- first customer wanted to know how accurate the scale was and
cesses would have to adapt accordingly. The company would worried about internet connectivity, as modems were being
have to invest up front in expensive new technology and in used to transmit data.
assets whose value was in no way proven. Some customers deliberately tampered with the system to
The companys installed base of customers, who knew test the response of their supplier. They removed a bin and
Bossard as a c-part supplier, would have to open their shop waited. When the Bossard technician arrived in person with
floor to a screw-maker armed with wired scales, eager to take a box full of screws to the false alarm, the customer explained
over reordering for them. The leadership team members who that it was just to see whether the promised service level
believed in this future scenario enough to invest money in would be kept.
it had their work cut out for them.
Scaling up
Piloting learning tuning The patient investments in presence and dialogue began to
The original scales, bought ready-made, cost more than 900 pay off for customers who began to measure at least 30 percent
Swiss francs (about $900 in todays money) and turned out to reductions in transactional costs, combined with lower inven-
be far too sensitive to work in a stable way. It became clear tory and fewer stock-outs.
that the priority was not to create a cheap new technology to Back in Switzerland, compared to the days when contact
weigh metal parts but to perfect a vendor-managed inventory was maintained through intermittent orders, the distance
(VMI) process that would allow both sides, customer and sup- from the shop floors of their customers was shrinking because
plier, to make a decent margin. now the company knew much more precisely what was hap-
The hardware of the scale would have to fit the software pening at its customers locations. Non-value-adding activity
of the replenishment program and then be fine-tuned until it had been eliminated in the factory, while new job categories
was acceptable to both customer users and Bossard. The key, as were created at headquarters in Switzerland. One example is
Gttinger said, was making sure the process worked. the customer logistics specialist who masters software, process
I was here as a hardware guy, Gttinger recalled. But I flow, replenishment logic, customer facing and service. This
soon learned it was only a small part, and it was all about the proved to be a role that more closely resembled consulting
process. than technical support.
A number of issues of varying complexity would have to Today, there are more than 200,000 scales installed and
High
Leverage Strategic
items items
Profit impact
Noncritical Bottleneck
items items
Low High
Supply risk
The near-field communication (NFC) technology enables David Dean, Bossards CEO, noted that the company in-
real-time updating of the system status without any deliberate vented the internet of things before it became fashionable. At
(or error-prone) action on her part. She then is guided through the same time, he regrets how little logistics services like theirs
the entire transactional flow with intelligent graphics. This are appreciated by traditional commodity managers who are
shop-floor worker essentially holds a detailed inventory map trained to manage a Kraljic matrix of parts (see Figure 2).
in the palm of her hand, increasing her agility, precision and, The short-sighted tactical approach is to squeeze suppliers
not least, productivity. and cash in on one-off spend reductions, often at consider-
able hidden expense to the end-to-end system. Visionary
Business transformation and brand building companies like Tesla, however, can work with suppliers who
Looking back, the expansion of Bossards core competency can provide transparency, analytics, business continuity and,
into integrated supply chain management has proven to be a of course, the nuts and bolts of their vehicles. Such systems
strategy that successfully moved the corporations position up point to a different scenario for the future of the manufactur-
the value chain. This has had material impact on talent devel- ing industry.
opment and, not least, on the financial results of the company.
Imagining the value from their customers point of view and Bublu Thakur-Weigold is associate director, programs at the Swiss
capitalizing on the insight was only the first step. The chal- Federal Institute of Technology Zurich (ETH Zurich) and is a partner
lenges that the sales and executive leadership team at Bossard at e3 Associates International.
now face involve the nature of customer relationships and, ul-
timately, defining what the companys brand really stands for. Professor Stephan Wagner holds the Chair of Logistics Management
Will the procurement teams at their customers accept a and is director of the executive MBA in supply chain management at
supplier whose brand is trusted for custom-made, high-tech the Swiss Federal Institute of Technology Zurich (ETH Zurich).
fasteners as a supply chain partner to whom they delegate the
inventory management of their entire shop floor? Will Smart- Tee Bin Ong is vice president of sales and marketing at Bossard
Bin and its successors have to compete with the goliaths of Group, based in Zug, Switzerland. He joined Bossard Malaysia as
ERP software? Time will tell. country manager in 1999.