Global Standard Improves Material Flow

Guidelines developed by the auto industry offer a roadmap for enhanced material handling, ease the identification performance gaps in the supply chain, and establish long-needed performance benchmarks.

Whether a company is based in Cleveland-or Casablanca, all global supply chains have essentially the same activities: receiving, storing, shipping and transporting. In the past however, these supply chains have spoken in different languages. The Global Materials Management Operations Guideline Logistic Evaluation (MMOG/LE) translates the terminology of material management and outlines processes whereby everyone, everywhere, can understand what is meant by world class. It sets up a procedure to measure, through self-examination and observation of suppliers, any organization's capabilities for material management.

The document is a several-years-long work of the Automotive Industry Action Group (AIAG) of Southfield, Mich., a 1,600-member organization that focuses on streamlining material and information flow between OEMs and suppliers, and Odette International Limited (London), its counterpart in Europe. Together, member workgroups from both organizations created a single set of global guidelines for material management.

The MMOG/LE assists manufacturers in structuring supplier development programs that in turn support lean manufacturing processes, says Aidan Hughes, materials manager, Gates Inc. (London, Ontario). His division makes pulleys, idlers and other parts of belt-drive systems.

"Lean manufacturing is not a document," says Hughes, "it's a philosophy that takes you through many of the elements required to support a world-class operation. MMOG/LE is the document in place to support the material flow side of lean practices."

Ford Motor Company has been an early adapters of the MMOG/LE. Mike Howard, supervisor, supplier performance for production in North America, says the company's transition to this program was relatively smooth because it had a strict supplier performance program already in place.

"The auto industry, however, is much more global now," he says. "Previously, we looked at suppliers to our U.S. plants one way and suppliers to other plants differently. Because of MMOG/LE and our Q1 program, which is worldwide, our [material management] plan no longer allows for regions to operate differently."

What MMOG/LE is
MMOG/LE is an in-depth self-assessment program of unified guidelines to help a company streamline its material-management program. It can be used to assess the potential of a supplier as well. Ford uses audit teams to work with its suppliers, and potential suppliers, to achieve better practices and reach the Q1 level.

DaimlerChrysler has a slightly different take on the use of the document. It is rolling out the MMOG/LE guideline along with its new product launches. It asks new suppliers to use the document to do a self-assessment and submit the MMOG/LE score. DaimlerChrysler then measures that score against its established supplier performance ratings. If there's a wide difference between the two, it works with those suppliers whose scores show, through gap analysis, the most opportunity for improvement.

The structure of MMOG/LE is somewhat complicated and not the kind of thing a single person can fill out by checking off yes and no boxes, says Morris Brown, AIAG's product manager. "It's designed to be user friendly," he says, "however we [AIAG] offer training classes on how to use the document, which has been translated into Spanish."

He adds that because of the comprehensiveness of the document, managers from many areas of a company have to get involved, thus making all departments more aware of the critical importance of material management and logistics.

The evaluation sheet at the end of the document places suppliers into A, B, or C classifications based on how the organization complies with the many questions. The guideline has six chapters, and 61 questions with 206 criteria to be evaluated. A " perfect" score would be 351. A given score on a specific point, such as "strategy and improvement" is best used to evaluate an area where a company is deficient and needs improvement. The numbering and terminology of MMOG/LE is consistent with ISO/TS16949:2002, the international quality standard for the auto industry.

Howard says the benefits to Ford can be measured in a couple of ways. "There are two parts of the rating process," he says. "The communications side and the actual shipping performance of the supplier. Looking at the overall ratings of all our suppliers, we see those average numbers [of both aspects] increasing."

He adds that there now appears to be a correlation between improved supplier ratings with the fact that he has an audit group in place to go out and do an audit of the suppliers' processes.

At Gates Hughes says he has been able to measure the effectiveness of the guidelines by it's impact on premium freight charges.

"By ensuring that we have effective procedures and work instructions in place," he explains, "we are able to ensure that our people understand the needs of our customers throughout the supply chain."

He adds that as conformance to production schedules improves, tighter inventory control—meaning lower inventory levels—can be established. "As a result," Hughes says, "we've been able to react much quicker to changes in demand from our customers. This, in turn, means we have to pay less in premium freight charges when something is requested on short notice."

Global implications
Because the MMOG/LE was developed through AIAG by manufacturers and suppliers from around the world, implementing it at locations beyond North America has gone relatively smoothly.

"I was on the audit team for our facility in Mexico," says Hughes, "and there were no significant issues. The document and training is available in Spanish, that helps."

The glossary of the document is particularly critical since it helps bring commonality to terms used in material handling and logistics.

"Fundamentally, business practices are much the same worldwide," says Howard. But there are different levels of technology usage. "In Europe there is a lack of the sophisticated software programs we take for granted in the U.S. They still have a higher reliance on faxing, for example, rather than the large MRP products that are available."

He notes that in Eastern Europe there is an even greater reliance on manual systems to verify information. "One area of the document where we had a lot of discussion was the use of bar code scanning to generate and validate ASN [advance shipping notice] data. At a lot of points in Europe it's still a manual process, using the 'four-eyes' approach to verification."

The standard in North America, as defined in the document, is to do the verification and notification electronically. As Hughes points out, the means of electronic communications are now such that the time and ability to communicate with a supplier eliminates the geographic boundaries manufacturers and suppliers formerly had. "The [timing] issue now becomes one of transport," he says. "When you consider all the activity along the supply chain, from time of ordering to time of building a product, historically it used to take three to four months before a product was shipped. With the effective implementation of MMOG/LE, the delivery of goods to a facility is effectively shortened."

The reason for this, says Hughes, is because a company using the guideline will have manufacturing processes in place that reduce the amount of work-in-process inventories. It also means the amount of material in the supply chain is significantly less.

Working together
When it's time to assess the supplier's material management program, Howard says Ford works with its suppliers by providing copies of the audit's agenda and what the auditors will be looking for. "The suppliers know, up front, what's important to us so they can have the documentation ready to go."

The audit covers everything from how the supplier receives material, its day-today activities, engineering team management, inventory management verification, on through shipping finished product. Howard adds that Ford expects its suppliers to demonstrate these things. "We go through the whole process of how they reach each point, how they verify, how they crate the shipment and how they create the final shipping documents."

How a supplier communicates all of these steps is also important. If a communication problem is noted any place along the line, the MMOG/LE can be used to point out what needs to be worked on.

"We meet with the highest level of managers at the company," says Howard, "so we have everyone's cooperation from the beginning. Most of these suppliers also provide products for other OEMs so it's most effective for them to cooperate with us and be in compliance with other OEMs."

In addition, he says, when everyone is using the same standard, not looking to do things differently, in reduces bureaucracy in the system and saves money.

Hughes says the document benefits suppliers, like Gates, as well as the OEMs.

"The implementation of the guideline has allowed us to take a common approach with all of our customers [six OEMs and several Tier 2 suppliers] using the business systems we have in place to fit all of their requirements."

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