“Up to now, the supply chain model promoted by enterprise and supply chain software vendors has been what I call ‘Communist command-and-control’”—Pamela Lopker, the founder, chairman, and president of QAD Inc. [Photo courtesy of QAD Inc.]
Pamela Lopker bought a Ford Expedition recently. The dealership said she would get it in six weeks. It took seven. Lopker has a problem with that. “It only takes 72 hours to build a car,” she points out. So, where’s the delay? It’s in the supply chain.
Lopker is the founder, chairman, and president of QAD Inc. (Carpinteria, CA), an enterprise resource planning (ERP) supplier. Needless to say, she’s been studying these sorts of supply chain issues for a while. Here are some of her thoughts on why there are problems in communicating from one company to another, and what she thinks needs to be done to help accelerate order to delivery of cars and trucks.
AD&P: Why does it take six weeks to get automotive parts to automakers?
Lopker: Automotive production starts when you order a car from the car dealer. The dealership periodically places those orders to the automaker. The automaker plays around with these actual orders to create “wish-to-be” orders, which the automakers call their “marketing forecast.” Then they decide what they’re going to tell the next layer down, the Tier 1 suppliers, to make in terms of seats, carpets, big-buy parts, and so on.
Each link typically adds a week for receiving and processing orders, developing requirements, and placing orders to the next supplier down. The delays in information flow are all from internal processes, usually because suppliers tend to batch things up. That’s how you get to a minimum of six weeks to make your part. We need to adjust the batches to lots of one. We need to have information flowing continuously through the supply chain so we can be reactive to actual customer demand.
AD&P: I thought EDI was supposed to speed the flow of communications?
Lopker: Electronic Data Interchange (EDI) is a point-to-point distributed model. It’s more of a rigid technology. EDI works well from the OEMs to the Tier 1 suppliers, but that’s because there are only a dozen OEMs and only a hundred Tier 1 suppliers. When you go from the hundred Tier 1s to the thousands of Tier 2s, the cost of having tight EDI links for every partner combination becomes prohibitive. EDI works very well for very tight relationships, where you have few partners doing 80% of the business. The new XML standards are much more flexible, but still fairly expensive to set up between two partners. XML is good for faster, lightweight connections, between trusted trading partners.
AD&P: Is data transmission the only problem?
Lopker: The real issue is in processing production information into orders. The state-of-the-art today is to run material requirements planning (MRP) nightly or weekly, planning production orders, and then using that production plan. We need to go to more of a rate-based manufacturing model rather than a work order-based manufacturing model. We need to be able to reschedule manufacturing on the fly, resequence production according to actual demand coming through the supply chain. If I have three blues and five reds coming down a production line and a couple of the blues are not in demand yet, but my next order is for a purple, I need to be able to put in that purple and move the blues back.
AD&P: But wasn’t that the purpose of ERP?
Lopker: Yes. But did ERP fulfill that vision? No. ERP’s initial focus was on internal operations, not the connectivity of demand between enterprises. That is the next evolution in manufacturing management. We currently spend a lot of time developing processes for accounting, manufacturing, and distribution—once you get the order into the enterprise. But what value is there to saying you need 1,000 items when you already have 999 of those already sitting on the shelf somewhere in the pipeline?
We need to change that to a system based on the continuous pull of what is actually required by the car dealerships. It is the pull signal that goes through the series of tier suppliers that support the dealership.
AD&P: Isn’t there supply chain management (SCM) software supporting those sorts of inter-enterprise communications you’re talking about?
Lopker: Up to now, the supply chain model promoted by enterprise and supply chain software vendors has been what I call “Communist command-and-control.” Each of the vendor’s software basically has to be the center of the universe and everybody has to hook up to it. Supply chain partners aren’t buying into that model.
Information management in the supply chain has to follow a distributed model that lets everybody maintain their own systems and their own connections to their customers and suppliers. Yet, the model must also pass information through the supply chain. Future distributed information chains won’t be just EDI; they will be a mix of things: EDI, Internet, XML, some sort of comma delimited files, and periodic batch file transmissions.
AD&P: Aren’t trading exchanges better at distributing the pull signal across enterprises?
Lopker: No. They were premature; the technology wasn’t there. But even if the technology was there, the real resistance is a “capitalistic resistance.” Who wants to give up control of contacting customers or suppliers? Who are you if you don’t own your relationship with the customer and the supplier?
AD&P: So the goal is?
Lopker: The big vision, the next step, is 100% connectivity, thereby eliminating the waste and delays in production and information flow, and helping manufac-turers accurately match supply to demand. With this vision, automotive manufacturers can start looking at the different layers of connectivity and what each needs. They can create a demand-pull system based on “what is” instead of “what if.”
Figure out how to connect to your top customers in a way that best supports your business processes and their business processes. Also look at how you can get orders through your enterprise as fast as possible so that your suppliers know what those orders are as fast as possible. Offer a combination of visibilities. Post your orders and production schedules on an Internet site. Allow your suppliers to download this information, using EDI, XML, batch files, or whatever, so your suppliers can have that information immediately. Then you and they can start integrating that information into their production systems.
AD&P: What technologies will make this happen?
Lopker: I belong to a group I call “supply chain execution” as opposed to “supply chain planning.” We provide a set of applications: EDI, production visibility, consignment and vendor managed inventory (VMI), and replenishment logic. Visibility software provides customers and suppliers with self-service capability over the Internet so they can see their orders, see your inventory, and see the invoices. This helps in implementing kanban internally and helps supply chain partners see the consumption of inventory, shipments, and on-order inventory against actual production.
Consignment inventory and VMI are important for smoothing out the flow of the supply chain, especially as more suppliers move and store inventory to their customers’ sites. This coupled with production visibility will enable suppliers to determine if they want to ship daily, hourly, every three days, and so on, and how much inventory they want to keep in the buffer or at their supplier’s or customer’s site. Replenishment logic helps remove delays by automatically monitoring the pull in the supply chain and determining how much should be manufactured and how much should be shipped automatically.
AD&P: Is any of this controversial?
Lopker: It has been. Certain [ERP and SCM software suppliers] and trading exchanges say that all orders come into and out from them. I say, “Bull. Nobody is going to buy into that.”
We need to have an open communications standard for the 12 to 20 visibility tools out there already, all proprietary. For the Tier 2s and Tier 3s not using EDI, visibility through the Internet is really good stuff. However, the Tier 2s and Tier 3s today must go through at least five or six screens to get all the information about all their customers. They have to go through the Ford system to see what’s going on at Ford,then through the General Motors system to see what’s going on at GM, then through Supply Solutions to see what’s going on at Johnson Controls, then through QAD’s MFGx.net to see what’s going on at Metaldyne or DURA, and so on.
We should be defining an interoperability standard so customers can go into our screens and combine all the information from any [ERP and SCM system, trading exchange, portal site] into a single point of visibility. By doing this, suppliers can see the demand from each of their customers and aggregate and download that information directly into their enterprise systems. That would be a huge step forward in reducing automotive production—going from six weeks to six hours.