Medical Marvel From order to invoice, Siemens Computed Tomography optimizes total logistics to serve its customers.
David Drickhamer Siemens AG, Medical Solutions Computed Tomography, Forchheim, Germany
At A Glance
- 1998 Die Fabrik des Jahres "Factory of the Year," Produktion/A.T.Kearney
- 1998 Award for Logistics Excellence, European Logistics Association
- 2001 Global Supply Chain Excellence Award, Supply Chain Council
- Delivery time cut from 22 weeks to 2 weeks
It's a simple question that manufacturers rarely get to ask in person. Before he can return home, the systems expert from Siemens Computed Tomography division has to ask it. He is visiting a customer to finalize the installation of an X-ray system, the same system that he performed final tests on several days ago back at the factory in Forchheim, Germany. "Are you satisfied?" he asks the customer. This interaction with people who will be using what they manufacture gives team members an opportunity to really understand customer expectations, says Franz Grasser, former VP of logistics for Siemens CT who moved to another division of the company in January. Standing in front of the customer when the system is not working is a great motivator, he adds. "After you have found and solved the problem, your first priority when you get back [to the plant] is to make absolutely sure that the problem will never occur again." How great a motivator is it? Siemens CT, in four years, has slashed installation time from several weeks to just three days, including transit time. While that's a huge improvement for the organization, Grasser emphasizes that it's their customers who reap the true benefits because the faster the equipment is up and running, the faster they can start making money. Located a half-hour north of Nuremberg, the Forchheim plant produces mid-range and high-end X-ray systems at prices ranging from US$300,000 to US$750,000. Each system is manufactured to customer specifications and includes the X-ray unit, the bed on which the patient lies, and the controls and software. Last year the factory shipped 1,250 systems, double the output of four years ago, with nearly the same size workforce of 430 people. In operation, the computed tomography machine focuses an X-ray beam on one side of the body that is picked up by a detector on the opposite side. To create a three-dimensional picture, a highly advanced ring motor spins the 800-pound, 1.5-meter diameter assembly around twice per second. The unit must revolve quietly so the patient feels as comfortable and relaxed as possible, and smoothly, because any variation in the rotation speed reduces the quality of the images appearing on the monitors. Speed is critical to minimize radiation exposure. Basic computed tomography technology was developed more than 25 years ago. Today the market for the machines is fairly mature with a large chunk of each year's sales coming from replacement systems. Competing with divisions of General Electric Co., Toshiba Corp. and Philips, Siemens CT is the only supplier with manufacturing facilities in Western Europe. To make up for 3% to 5% annual price erosion, and labor cost increases, Siemens managers set a minimum cost savings goal of 10% per year. To hit that target, like many manufacturers, the company has restructured and simplified its production processes. Out went the do-what-you're-told management structure (two management levels were eliminated), in came autonomous teams that manage their own work, plan their own overtime and schedule their own holidays. Based on their performance, the teams can receive up to an additional 40% of their monthly salaries. Under the guiding principles of speed and simplicity, these teams have revised the factory layout to establish clear material and information flows. They have also helped break down functional barriers and execute an organizational vision that starts with the customer order and flows all the way through to final invoice. "In many cases managers are only focusing on manufacturing. What about the material management costs? What about the order-management costs? What about shipping, delivery and installation costs?" asks Grasser, who as VP of logistics was responsible for the division's operational performance. "We can show that it's possible to produce competitive medical equipment in Western Europe, paying higher salaries, by organizing the entire supply chain as intelligently as possible. It's not a question of labor cost, it's a question of whole process costs." Knowing the costs of each of these sub-processes -- logistics costs are 3% of sales for example -- Siemens CT managers can optimize the total process to best serve the customer. This might mean spending more money in one area. For example, all X-ray systems sent outside of Europe are shipped airfreight. This costs more, but from a total process view it accelerates the total cycle time, decreases the amount of capital tied up in inventory, and speeds cash flow, delivering a higher economic value added. Each sub-process is evaluated using three key measures that should be familiar to any manufacturing manager: cycle time, first-pass yield and on-time delivery. These are calculated on a weekly basis, and reviewed every Friday afternoon at 3 p.m., when any problems are discussed and quickly resolved. To calculate the quality performance across the organization, Siemens CT multiplies together first-pass yield performance for each sub-process: order management, scheduling, materials logistics, assembly, testing, shipping and installation. When
visited in December, this figure stood at 70% and rising. As a result of these initiatives, Siemens CT has shortened delivery time from 22 weeks to two weeks, cut processing times 76%, reduced inventory 40% and improved delivery reliability from 60% to 99.3%. At double the output, the factory floor is half of its previous size, which allowed for consolidation of the engineering and marketing departments within the same building. Such dramatic improvements would not have been possible without the assistance of suppliers. Recognizing that bad quality or missing parts are often the cause of poor delivery performance, Siemens CT has established single-source partnerships with about 30 A suppliers. They've eliminated all interim warehousing, and all consignment stocks belong to suppliers. Thus the responsibility for overall process performance is shared with partners. "I want suppliers who are really acting like partners, who are really interested in improving our common process," states Grasser. "As long as those wooden boxes are [in the kanban area], it belongs to the supplier. That's important because it gives my supplier the opportunity to optimize his response to the process." Today 90% of procurement volume ships direct to the line. The process has streamlined the number of times paper changes hands to order parts -- from 18 to one in one example. Ordering and delivery are now controlled via fax-based kanbans -- a form is faxed to the supplier when components are removed from designated locations. For some components -- a large sub-assembly that comes from an Israeli supplier for example -- they've even established a Web-cam kanban system. The Web-cam is trained full-time on the suppliers' consignment area on the factory floor. At any time the supplier can log on and check the demand status for that particular sub-assembly. Siemens CT has also extended this "visible supply chain" concept to their customers. The X-ray examination rooms must be specially shielded and typically require a significant amount of preparation, as long as two to three months. To monitor the construction progress, Siemens CT has installed Web cameras at customer sites in Europe, the United States and Japan, which allow the company to schedule system assembly, final testing and installation to correspond with room availability. The installation process itself can be complicated. Roofs or walls sometimes need to be removed so the equipment can be lowered in by crane. Because streets often need to be closed, everything is timed to the hour. If the company schedules installation for Monday at 8 a.m., delivery will be sometime between 7 a.m. and 9 a.m. In the last four years, installations missed that one-hour window only three times. All three were in the center of Paris, a logistical nightmare by anybody's standards. Once a handicap, the overall logistical performance of Siemens Computed Tomography is now a competitive advantage. The factory is pushing sales and marketing to sell more products because the plant has the capability to deliver. It's an enviable position for any manufacturing manager, but when asked if he thinks the operation has reached world-class status, Grasser hesitates. "I think we are good. I think we are one of the best, but I'm not sure, and therefore I don't ever like to say we are world class. I think we are on the way. That's my formulation for my team." Someday, maybe they'll get there.
Web-Exclusive Best Practices Benchmarking contacts: Claudia Wörle, material management,
, +49 91 91 18-8954; Karin Ladenburger, order management,
Take A Step Back
Key to the success of the Siemens Computed Tomography division is the attention that the managers and the empowered teams have dedicated to long-term, strategic goals. Franz Grasser, former vice president of logistics for Siemens CT, sharply criticizes his fellow operations managers for focusing too much on fighting fires. "They don't take the opportunity to take one step back, close the door and think about the complete situation," Grasser states. "In many cases managers are crying for additional fire crew members. 'There's another fire, I need two more fire crew.' " He advises managers to take the time to identify root causes and really solve their problems, and not spend time helping their fires grow. Interestingly, Grasser views kaizen and the whole "continuous improvement" bandwagon as a small contributor to world-class performance. In visiting other manufactures, he has observed that roughly 90% will say they're doing kaizen. Continuous improvement should be a given, he says. "Why should I stress that I have to brush my teeth every day?"
Not-So-Fancy Flip Chart
Nobody said best practices have to be high tech. In the production area of Siemens Computed Tomography division they use a simple flipchart to track order status. Every day at 10:15, the people from the manufacturing line meet with managers in a designated place on the factory floor for 15 to 20 minutes. They discuss each customer order and write down any issues. Missing parts are a frequent problem. When the errant part arrives an assembly worker marks it on the flip chart, giving anyone who's interested an immediate view of what issues have been resolved what issues are still outstanding.
Staying On Top Of Customer Orders
Like Fed Ex's package tracking system, where you can enter a number and follow a delivery through to its destination, Siemens Computed Tomography organization uses an internal project management tool to track the order status for its x-ray systems. Linked to the systems of its major freight forwarders, the communication system allows Siemens project managers in its customers' countries to instantly know the status of an order whether it's in production, testing, packing, or in the air and on its way. Each user can customize the display to see only the projects with which he or she is involved. The system has effectively replaced many phone calls and e-mails and frequent miscommunication, according to company managers.
Training The Experts
The representatives that Siemens Computed Tomography division sends to its suppliers to complete the final installations of their x-ray systems are well qualified. These system experts, a.k.a. CT specialists, have completed a yearlong training program. During this stint they gain experience working at each of the assembly steps, becoming intimately familiar with the complexity of the whole system. Before they are allowed to go to customer site and finalize the installation, they spend at least six months in the final test area. Because the system experts are so well qualified, they can complete the on-site set-up relatively quickly. They don't have to read and follow instructions because they know the system. Siemens CT began this program almost three years ago in Germany and have cut installation time from two to three weeks to three days for its high-end model, and two days for its mid-range model. The company has since extended the program to western Europe, and the current challenge is to implement the strategy in the rest of the world.
Making Up For Lost Time
Finding the time and resources for adequate training is a perennial issue for manufacturers.
's Best Plants typically dedicate over a week to training per employee per year. Siemens Computed Tomography division is no exception. Employees there spend six days each year in various training programs and seminars, including language classes so that they can better communicate with their international client base. This amount of training requires an even greater commitment in Germany. Each German worker has 30 days of vacation per year, plus an additional five sick days. Add in the time spent training and that equals 40 days, or almost two calendar months, of zero productivity.
Open Your Doors To Suppliers
The Siemens Computed Tomography plant in Forchheim, Germany, built and shipped 1,250 x-ray systems in 2001. At such low volumes many manufacturers say it's just too difficult to enlist the cooperation of their suppliers, even when the parts are relatively expensive, as they are for Siemens CT. It's a simple matter of understanding according to Grasser. "If you tell them that you can't accept it, they will never understand. But if you show them that you have no systems in stock, if they can see with their own eyes exactly how you are planning and running your assembly lines, they will understand the need to increase their delivery reliability," says Grasser. "We invited our major suppliers in to visit our manufacturing process and went through the process to make absolutely sure that our suppliers understand why they have to react, why they have to deliver exactly as [required], and why it is not allowed to have a first-pass yield lower than 95%. . . . How can they understand it if they don't have a chance to see it? Give them a chance. Open your own doors. Show them your process."
Simplifying Material Handling
Material handlers used to move the x-ray systems through the Siemens Computed Tomography factory by forklift. Today floor space is extremely tight, and the two-ton machines are rolled manually on red trolleys. The trolleys arrive in the factory supporting the primary subassembly, and carry the units all the way down the line and into the final test chambers. The machines then are rolled through shipping, rigging, and all the way to the installation site, where the trolley is removed and returned to the supplier. One added benefit of the trolleys is that the machines now fit into a standard air-freight container, which the company uses to ship all of its products outside of Europe. These containers are supplied free of charge by the shipping company, saving Siemens CT the added expense and time of packaging.