Extend Supply Chain Execution into Production to Improve Fulfillment ExtendSupplyChain.htm Executive Brief Industry Directions Inc. September 2004 www.industrydirections.com Fulfilling customer orders rapidly and at minimal cost has long been a strategic objective for many manufacturers. Achieving this goal is becoming a competitive imperative. However, in today's dynamic, fast-paced marketplace, this is a major challenge. Order requirements change, and so do conditions across the supply chain. Material is unavailable; employees are absent; machines break down; and partners may miss expectations. In short, plans - even best laid plans - go awry. When one event disrupts the plan, it kicks off a ripple of execution activities to compensate. These activities are critical to meeting commitments. However, they often jeopardize profit margins. According to AMR Research's "Connecting Planning and Execution for Results," the handling of exceptions typically accrues as much as 50 percent of supply chain overhead costs. Additionally, it puts as much as 30 percent of revenues at risk. Manufacturers' profits rely on their ability to execute flexibly and intelligently. As a result, many supply chain management (SCM) implementations have shifted focus from supply chain planning (SCP) to supply chain execution (SCE). SCE helps manufacturers make profitable decisions and take action based on actual conditions as they change. (Figure 1.) Supply Chain Execution concepts and software focus on: w efficient materials movement, w real-time visibility across execution locations, w rapid identification and notification of events or exceptions to plan, and w improving order promising, or available-to-promise (ATP). Even with SCE implemented, manufacturers struggle to consistently meet order delivery performance goals. One reason is that most SCE strategies and systems on the market today focus exclusively on warehousing, distribution and transportation. Manufacturing is a "black box" from which finished or semi-finished goods appear on the shipping dock. A major portion of a manufacturer's fulfillment capability is not considered in the supply chain execution equation. Production: Obvious Yet Missing Link in SCE At some level, companies realize manufacturing is a critical part of their supply chain. The major elements of the Supply-Chain Council's Supply-Chain Operations Research-model (SCOR) are plan, source, make, deliver and return. Plan is the SCP side, and source, make, deliver and return constitute execution. Manufacturing, or make, lies in the middle. In many industrial supply chains, production and sourcing constitute most of the value-added costs and also the longest cycle times. Further, the biggest opportunity for profitable response is often in manufacturing and supply. Improving fulfillment performance requires extending real-time SCE to include production. Those who take this step are likely to outperform competitors, in the process gaining customer loyalty and market share. How did so many companies' supply chain execution strategy omit the core of their business - manufacturing? Primarily, it is the result of legacy silo organizational structures and conflicting incentive systems, which have resulted in a fragmentation of domain expertise. For example, distribution has been completely independent of production not only among manufacturers, but also among the providers of software solutions. Each link in the supply chain is supported by its own independent system. Real-time information flows only within Source, within Make and within Deliver, not between them. (Figure 2.) Traditional SCE software ensures real-time information flows - but only among distribution and logistics. Plants and outsourced suppliers are not included. Without manufacturing as an integrated real-time component of SCE, communication across the fulfillment chain requires manual intervention. (See example boxes left and p. 5.) Usually distribution, customer service and manufacturing personnel in various locations must first recognize the problem, then call each other and discuss possible solutions to complex situations. Thus, notification of exceptions to plan is slow, delaying any ability to explore and commit to alternative options. Order promising is compromised. Cycle times lengthen. Costs go up. Orders go out late. Customers grow unhappy, or worse, go elsewhere. Manufacturing-Centric SCE Only when manufacturing, distribution and sourcing are treated as a single execution process can the supply chain be fully responsive to the cascading impact of real world events. To support that, manufacturers need SCE that provides seamless information flow across the entire fulfillment scope: source, make and deliver. (Figure 3.) Since most companies have SCE systems in place, the best approach is to add in a production-oriented execution solution. This solution must integrate with existing distribution-oriented SCE in real-time to provide event visibility and responsiveness. While the software may be an add-in, manufacturing is likely to be central to adaptive yet profitable supply chain execution. In a lean, low-inventory or demand-driven environment, production is ideally triggered by customer demand - not from a plan. Production becomes the pivot point that powers real-time supply chain execution. Order changes or problems in distribution will be visible in manufacturing, which can then respond intelligently. Production can also alert suppliers in the "source" link of the chain to new needs as they arise. Similarly, production or supply issues can be instantly visible in distribution and customer service, allowing distribution response to stay on target with the customer. If no one in the chain can alleviate the problem, at least customers can be notified in a proactive or timely manner of orders they are not likely to receive as expected. This model can also extend the power of pull-based, lean concepts beyond the plant floor not only to suppliers, but also to distribution. Warehouses, distribution centers and transportation can be thought of as extended "workstations" in the efficient management of the flow of goods through production to the end consumer. The adaptability of supply chain execution increases when you add radio frequency identification (RFID). RFID tags can be placed on all material in movement - sourced material and components coming into the plant; work in process (WIP); and semi-finished and finished goods in distribution. This greatly enhances the end-to-end visibility and exception alerting timeliness across the supply chain. (Figure 4.) The essence of an adaptive SCE strategy is where production is not only integrated, but actually central to execution. Manufacturing can then respond to variability at any point in the chain. Production becomes the coordinating force for supply and distribution. This creates both a "bottom-up" and "center-out" orientation for SCE. Critical System Requirements Adaptive SCE requires an architecture that includes real-time, closed-loop production and execution management. Functional areas include detailed scheduling, work dispatching, RFID-tagged WIP and real-time information from individual pieces of equipment and work centers. These feed a single data model to provide decision support and adaptive event management across one or multiple plants. To monitor and manage all resources and execute alternatives across the entire supply chain, manufacturing and distribution SCE solutions must link in real-time. The manufacturing-focused SCE solution must also easily integrate with other enterprise systems. These include SCP, enterprise resource planning (ERP), manufacturing execution systems (MES), product lifecycle management (PLM), and customer relationship management (CRM). In such an environment, real time events anywhere are visible in real time everywhere. Intelligent workflow sends alerts to decision-makers when exceptions to plan occur. Ideally, the SCE system will also generate and recommend alternatives. This type of real-time SCE spanning not only distribution but also production and sourcing supports an extended supply chain that is fully responsive and adaptive to demand. The manufacturing-centric SCE architecture must start with a single plant that has a real-time, closed loop automation architecture in place and extend out to keep the entire supply chain synchronized. The critical components include: w Intelligent decision support and analytics: Beyond reporting, companies need to see the financial and operational impact of events on other nodes in the supply network. Truly understanding the data also requires extensive drill-down capabilities. w Customer-configurable business rules: Built-in, user-configurable business rules to support best-practice decision making and execution in the company's unique environment. w Multi-site: Multiple owned, supplier or outsourced plants - as well as warehouses, distribution centers, and transportation carriers - become additional work centers in the data and control models for execution. w Integration capability: Adapters for two-way connections to distribution-centric SCE as well as other existing and new systems help ensure all execution is in sync with plans, and plans can re-sync quickly based on real time execution status. w Single data model: A unified, consistent information base underpinning all real-time operation analytics, decision-making, and execution. w Temporal data store: Comprehensive temporal data repository for preserving time-stamped operational activities and events available for real-time trend alerting and analysis. w Real-time machine/work center control: Capable of monitoring and providing process data visibility in seconds or sub-seconds. w Closed loop automation: Real-time bi-directional information flow linking operational event sensing activities with decision support and command response to ensure maximum asset utilization and performance. With this comprehensive foundation, no point within the plant is a dead-end in the flow of information. Production-centric SCE integrated to distribution-centric SCE delivers supply-chain wide sense-decide-and-respond capabilities. All options for profitable response become available: at a plant, warehouse, distribution center, transportation carrier, or supplier. The Manufacturing Imperative in Adaptive SCE SCE must extend its reach from distribution back into production. Manufacturing-centric SCE has the power to dramatically improve supply chain performance. Fortunately, a new generation of solutions is coming into the market that addresses this need. One example is Brooks Automation's Supply Chain Execution solution. It is based on proven scheduling, order dispatching, event modeling and monitoring, and transport activity management. Brooks also provides available-to-promise (ATP), visibility, multi-site control, workflow and decision support. These solutions integrate with Brooks MES or any other MES as well as distribution-centric SCE and other enterprise systems. Brooks has an SCE solution that provides execution at the factory floor. It has repeatedly delivered dramatic improvements in inventory levels, fill rates, and product cycle time reduction. Brooks' Supply Chain Execution solution implements these proven technologies for factory floor improvements and applies them to multiple manufacturing sites. The solution enables real-time response at the factory floor to demand signals from any enterprise system, thus ensuring the supply chain operates in its most agile configuration. Dynamic production-centric SCE can link together all fulfillment activities: source, make and deliver. Only through that linkage can the entire supply chain adapt quickly and profitably to changes in demand or supply conditions. To consistently lead in customer metrics, manufactures must break down the barriers between production and distribution. The supply chain can then act as a single, unified, highly coordinated entity to reliably fill orders.