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2010

 

Kinaxis will be conducting its annual training and user conference, Kinexions, October 25-27 in Scottsdale,  Arizona.  Details and agenda for the conference can be found on the Kinaxis web site.

 

I thought it would be a great idea to speak with some in the community who have plans on attending or speaking at the conference to get a sense of what may be on their minds. My goal was to provide a snapshot of relevant industry/technology issues and trends on people’s minds. A huge shout-out goes to Lori Smith of Kinaxis in providing me with introductions.

 

This posting summarizes my discussion with Karen Martin, Business Process Expert, Master Scheduling, Raytheon Missile Systems. Karen has been with Raytheon for six years and describes her role as rather unique, one of a systems troubleshooter for applications supporting planning and manufacturing scheduling.  At Raytheon Missile Systems, planning and scheduling encompasses bill-of-material and lead-time maintenance, material masters and other data and information needs for multiple manufacturing plants.

 

Karen’s involvement comes from the very unique and complex nature of the missile defense business, where the supply chain and manufacturing environment is primarily engineer or manufacture-to-order, and where there are distinct parameters in certain component lead times or manufacturing capacity. Orders in the defense industry are characterized as ‘event-driven’, where activity does not happen without contracts, with many requirements for custom designs and parts.

 

When evaluating the need for advanced technology, Raytheon’s teams focused on depth of functionality, real-time updating and ease-of-use as important considerations for the selection team. One of the more important considerations centered on needs for data mining, specifically providing more of a going-forward vs. historic perspective to planning needs.  Previous to the investment in technology, a lot of time had to be invested by many to either gather or interpret information requirements.  The ability to be able to move analysis needs from weeks to hours was an important benefit.  The ability to perform simulations with high speed data gathering was also a big plus, and Karen describes this capability as the coolest of all for teams to utilize. Current systems are configured for forward scheduling, but Karen and her associated scheduling teams are discovering and deploying more requirements for backward as well as forward scheduling analysis.

 

Karen is looking forward to attending her first Kinexions conference.  Since she resides in Arizona, her travel will be a short car ride. Her primary goal is to meet attendees from other industries who face similar challenges in planning and scheduling complex, make-to-order products, and would like to hear and exchange learning and best practices with as many attendees as she can. Karen is also taking advantage of the various training opportunities, especially in the use of constraints management.

 

If you happen to run into Karen Martin at Kinexions, do introduce yourself.  And by the way, she is a great hockey fan.  Ask her about her favorite team.

 

Bob Ferrari

 

This is a first in a series of blog postings regarding interviews with some in the community who plan to attend and speak at the upcoming Kinexions conference on October 25-27.

 

I talked with Mark Utter, Senior Director of Supply Chain for Qualcomm. Mark’s responsibilities lie within the QCT or semiconductor business, one of three business units at Qualcomm.  QCT is termed a fables provider, positioned lower in the supply chain for mobile devices as a supplier of communications chips for various manufacturers, who in-turn supply the various mobile carriers.  The QCT supply chain begins with fabrication of custom semiconductor chips sourced at multiple Fabs.  The chips then move to die bank, assembly and test, finished goods, and to manufacturing customers. Supply chain business processes incorporate dimensions of customer and supplier collaboration, postponement, and sense and respond capabilities to quickly react to the constantly changing needs of each participant of the supply chain.

 

Qualcomm’s business has undergone a significant amount of change over the past four years, moving from a purely 100% flow-thru business model to one of specific fulfillment of individual customer needs.  Mark describes this business as highly dynamic, with up to 40-70% of volatility within lead-time windows. The supply chain incorporates a planned push-pull fulfillment model to shorten overall response times to customers while managing longer lead times for fabricated wafers. Speed and flexibility are very important for competitive presence.  A monthly S&OP process is supported by weekly feeds of demand signals, with some needs for daily inputs to S&OP to accommodate customer exceptions.

 

Mark believes that the fabless semiconductor supply chain will face intense competition in the coming months and years with even higher service expectations, The industry will continue to have a strong influence from end consumer functionality needs and more resource responsibility and process needs will continue to be pushed further down in the supply chain.

 

QCT had previously invested in a sophisticated APS system in order to optimize supply chain planning needs.  The organization then discovered that the pace of business was moving faster than planners could respond in a timely manner.  Frustrated planners were instead utilizing spreadsheets to perform quicker analysis, which was outside of the primary control system.  A decision was made to migrate to a heuristic based planning and response model to better match QCT’s business clock speed.

 

In his presentation at Kinexions, Mark will be elaborating on the specific decision criteria that led up to this switch, the overall implementation process, and the results achieved to date.

 

Mark is looking forward to attending his first Kinexions conference. He plans to do some networking and share business process learning and best practices with other attendees.

 

Be advised that Mark is a former New Yorker, talks fast, and has a demonstrated passion for excellence.

 

Bob Ferrari

 

Last week I had the opportunity to keynote a webcast regarding ongoing global manufacturing and supply chain challenges within the pharmaceutical and life sciences industry. 

 

One of the key observations I made was that this industry is undergoing tremendous change, a change that places a fundamentally new perspective on global supply chain capabilities.  Industry players are quickly evaluating whether they will adopt either of two business models: research and drug development or high volume producers of drugs and medicines.  Rather frequent announcements of acquisition activity all seem to reflect on a market response to these strategic needs as companies acquire other companies to initiate these changed business models.  Future top line sales growth also comes from the emerging economies where supply chain and distribution models are far different.

 

Today brought yet another headline, Pfizer, Inc. announced that it would acquire pain drug producer King Pharmaceuticals Inc for $3.6 billion. Other recent announcements tend to reflect on other industry player acquisitions of high volume generic drugs or vaccine producers.

 

This activity brings a new awareness to global supply chain competitiveness, efficiency and adaptability. Reviewing key supply chain metrics for the industry, one can find strong evidence that increased acquisitions bring increased supply chain challenges when the acquirer attempts to consolidate what perhaps may have been inefficient inventory and working capital practices.  For instance, in the category of Days Inventory Outstanding (DIO), the 2010 Working Capital Scorecard published in CFO Magazine noted that the pharmaceutical industry average DIO in 2009 was 39 days, vs. and overall 1000 company average of multiple industries of 39.3 days.  However, a snapshot of some key industry players who were involved in large acquisitions paints a far different perspective.  Merck had a DIO of 109 days and Pfizer, 91 days.  In the category of Days Working Capital (DWC), the CFO analysis noted an average 73 days vs. the multi-industry average of just 39.3 days. A look at other supply chain benchmarking data more than likely will point to other areas requiring attention.

 

In prior business models, pharma and life sciences companies measured and placed business emphasis on their ability to deliver innovative new drugs from clinical trials through market launch.  As this new era of the industry unfolds, the lens must also shift to global supply chain capabilities in end-to-end efficiencies, responsiveness, risk management and agility to rapidly changing business needs. This an industry that needs to bring more outside thinking and proven supply chain best practices to demand visibility, extended supply chain collaboration and visibility.

 

Bob Ferrari.

 

While visiting in Canada this weekend on a weekend vacation with some of the family to visit Niagara Falls, I picked-up a copy of the Toronto Globe and Mail weekend edition to scan the business section.  There are not many newspapers that still provide high quality content, and I have to state that the Globe and Mail was a refreshing change that really impressed me on the depth of its reporting. This is a newspaper that is well-written with informative business and supply chain related articles.  If you are ever in their circulation area, do pick-up a copy.

 

What caught my interest was a four page spread, Bombardier’s C Series poised to take flight, penned by Greg Keenan.  This article provided insightful depth on how aircraft maker Bombardier is taking a huge strategic gamble on the supply chain deployment and market launch of its new C-Series aircraft scheduled in 2012.  The C-Series is a 100-150 single-aisle passenger aircraft that is the the cornerstone of the company’s plan to compete head-on with the likes of Boeing and Airbus for advanced, lightweight commercial aircraft that can deliver compelling fuel efficiencies for airlines. 

 

The C series will also feature an outsourced global supply chain for many of its major components, allowing Bombardier to concentrate solely on innovation, design and final assembly needs. For instance, the fuselage is sourced with Shenyang Aircraft in China.  The wings will be manufactured in Ireland, the tail section in Italy, and the landing gear in Germany.  All of the major components are to be shipped to Bombardier’s final assembly facility outside Montreal’s Mirabel airport for final integration.

 

If all of this sounds rather familiar, it is very similar in concept to the Boeing 787 Dreamliner outsourced supply chain, where first customer shipment remains over two years late.  We have penned numerous commentaries on Supply Chain Matters regarding the various supply chain snafus encountered by the 787 Dreamliner program, not the least of which centered on Boeing’s lack of program coordination and communication with all of the major outsourced suppliers.  Boeing, thus far, has had to assume direct responsibility for two Dreamliner major suppliers and a second final assembly facility is in the works.  Boeing was not alone in navigating these perils, since Airbus also had  its own supply chain challenges with the A350 program.

 

Bombardier hopefully has the opportunity to gain some key learning as it embarks on its own highly global outsourced program. Consider for instance that one of the largest assemblies, the fuselage, will be assembled in Shenyang China and shipped via by a combination of ocean and surface transportation to Montreal. The wings will feature innovative, lighter weight composite materials, and in-turn will have to make a trans-Atlantic voyage from Ireland and surface transportation transfer to Montreal. All of this implies a strong dependency on cost efficient and reliable global transportation.

 

Bombardier management acknowledges the risks about to be undertaken in the C-Series program.  The stakes are high, over $211 billion in revenues over the next 20 years. The program has also slipped from its original 2010 market entry timetable.  Gary Scott, the company’s president of commercial aircraft and high visibility leader for the C-Series has had 29 years of prior experience with Boeing and its 737 program.   We would therefore surmise that Mr. Scott has had the benefit of learning both the importance  and  riskiness of major global supply chain coordination and visibility has become for aerospace providers with a large outsourcing footprint.

 

The Mail article astutely points out that airlines like Southwest have previously demonstrated the compelling cost and efficiency savings of adopting and operating on just one model of aircraft and thus the C-Series faces significant challenges in its goal to displace an existing Boeing or Airbus fleet. On the flip side, Scott and Bombardier management are of the belief that the sourcing of major aircraft components to a supplier in China could place the company in the favorable eyes of China’s expanding airlines.  Then again, as we have all observed in other critical growth industries, such as alternative energy or high speed rail, China could decide to source solely to stand-alone Chinese aerospace providers.

 

Thus far, Bombardier engineers have been leveraging simulation and visualization technologies to evaluate the various engineering dimensions of the C-Series. From a global supply chain perspective, engineers have also been savvy enough to leverage existing excess capacity in Montreal to launch a prototype test facility for the C-Series, prior to actually building a new assembly facility. 

 

One hopes that Bombardier’s engineers will be able to get a better perspective of the global supply chain engineering, planning and synchronization challenges that must be overcome, since there is little room for error.  The company will also be wise to leverage advanced information and business intelligence technology tools to enhance global supply visibility and synchronization.

 

With the C-Series program, Bombardier is in a high-stakes gamble for competitiveness among global based airline customers.  Successfully integrating and synchronizing a globally sourced supply chain may well be the key differentiator in long-term success.  The aerospace industry and we, at Supply Chain Matters and Kinaxis Supply Chain Community,will certainly be monitoring developments over the coming months.

 

Bob Ferrari