Learn from the Best of the Best
Looking for great ideas? Market leaders in industries outside your own have found ways to control costs in key processes.
by Tobias Rinza, senior project manager of the Logistics Strategy Competence Center of Miebach Logistics
The boom of Web-based technology ventures has many implications for the "Old Economy." Traditional industry sectors are under pressure to compare their performance with other industry sectors. Several trends are driving this:
• The globalization of markets;
• Product individualization;
• Range of variants;
• Mass customization;
• Time and cost reduction.
The "old economy" companies realize that logistics and supply chain management (SCM) can be key elements in successfully meeting these trends. Logistics used to be known as "box handling." Today it is a competitive instrument for product diversification.
Traditionally, industry recognized the automotive sector for its logistical competence. During the 1990s highly complex production and supply processes were dominant elements of innovation. At the same time there was a dramatic decrease in logistical costs. These developments pointed the way forward in the development of logistical systems.
Because of the need to respond immediately to ever-changing requirements and developments in the automotive world, it is no surprise that other industries are interested in how to do this.
How do you identify the right methods for your own company from the broad range of methods in the automotive industry?
Pure data benchmarking on an abstract level often turns out to be deceptive, primarily because a direct comparison is not possible in most cases. Process benchmarking, however, has proven itself. This combines a comparison of selected partial steps within the complete processes and a subsequent transfer of so-called best practices; i.e., the optimal material handling methods and techniques.
The fashion industry
The automotive industry has done a good job limiting complexity. Typical examples are modularization concepts, especially the purchasing of complete pre-assembled components and systems.
Some companies in the fashion industry already make use of this philosophy: To be able to offer tailor-made garments, the client is measured automatically (Body-Scan). Subsequently finished textile components of the corresponding but standardized sizes (collar, sleeves, etc.) are sewn or even stuck together automatically in a fraction of the time taken for traditional processes.
Automotive companies are regarded as world champions in the setup and continual development of supplier bases. The development of industrial parks is a key result. To bind suppliers geographically, car producers often offer product life cycle contracts and single-sourcing deals. In return, they receive fixed delivery times, decreasing transport costs and on-hand buffer stocks (without increased storage costs). Additionally they realize a far-reaching reduction in the chance for disrupting production.
In the interim, some innovative construction companies have discovered these advantages as well.
Prefabricated houses, again modularized into standardized components, whole floor and roof elements, can be pre-assembled almost completely by local suppliers.
They undertake the production of complete bathroom modules, tiled and with a complete set of fixtures and fittings, and integrate them into the building. The production methods for completely brick-laid side walls can be highly automated through the use of robots and follow a process similar to body assembly in the automotive industry.
Suppliers are controlled by key performance indicators (KPIs), which are, for the example cited, a direct translation from car producers.
The automotive industry also leads know-how in timing production processes and in the organization of related supply processes, especially direct delivery modes (e.g., Just-In-Time and Just-In-Sequence). These offer great opportunities for other industries. The main advantage is in avoiding classical stock buffers by delivering goods directly after manufacture to the next point of use.
An example, represented by a company from the mail-order/e-commerce sector, uses the described delivery principle successfully. It involves incoming client orders for white and brown goods that are passed on to the manufacturing companies. Material flows are consolidated with other articles efficiently by SCM systems to prepared units ready for dispatch. Before loading, final value-added adjustments (like adding different colored side walls) can be made. Through the crossdock principle the goods leave the distribution center on the same day, without taking up any storage capacity or requiring additional handling. Invoicing is done the same way as in the automotive sector; i.e., automatically when the dispatch label is scanned.
A disadvantage for suppliers is that manufacturers also copied the long payment periods from the automotive industry, stifling cash flow.
In sourcing centers the stocks of several suppliers are consolidated close to the production unit (ownership of the inventory remains with the manufacturer). If warehousing is unavoidable, it should occur at only a single point within the supply chain process, where stocks are held. In these centers (mostly operated by third-party service providers), all parts are stored until they are required for consumption.
A company in the electronics sector has already copied this concept successfully: High-value control units, semiconductors and other components are located in a single area as consignment stock.
This, on one hand, reduces the buffer stocks, and frees former warehouse areas for use as production areas, creating a one-off beneficial cash-flow effect. An additional benefit for assembly is that obsolete parts no longer require storage space.
While the automotive industry is the leading trend-setter in physical logistics, it is itself searching in other industry sectors for models controlling information flows. Online banks and Internet brokers coordinate considerable amounts of data in real time. The system architectures delivering these results offer further possibilities for high-speed data processing and process-cost optimization. MHM
About the Author
Tobias Rinza is senior project manager of the Logistics Strategy Competence Center of Miebach Logistics in Berlin and is responsible for the automotive global activities of the Miebach Logistics Group. The Miebach Logistics Group is an international consultancy for integrated logistic solutions concerning strategy, engineering, IT and people & operations. Miebach’s U.S. offices are located at Atrium 1, Suite 290, 900 Victors Way, Ann Arbor, MI 48108, (734) 769-6562. Visit them on the Web at www.miebach.com.