Supply Chain Moves Online

Dec. 21, 2004
Despite new Web-based systems, manufacturers want even better connections with suppliers and customers.

Half a dozen years ago, few people in business had heard of advanced planning and scheduling (APS) software. When APS finally came of age in the late 1990s as manufacturers became serious about applying software to streamline their production schedules, the solution du jour suddenly became supply-chain software. The goal was to move beyond internal efficiencies to streamline material and product handoffs -- both from suppliers and to customers. Finally, in the latest twist, all of this is -- you guessed it -- moving to the Web. The leader among the many APS, supply chain, and Internet-based collaboration software vendors is a fast-growing, $570 million software company called i2 Technologies Inc. Founded in 1988 by former Texas Instruments Inc. software engineers, Irving, Tex.-based i2 early on was known as Intellection. Its product was software that enabled companies to schedule their complicated production lines so that potential bottlenecks -- called constraints -- were managed effectively. Converting the heathen to this notion, though, was anything but easy, especially since i2's executives espoused the view that manufacturing resources planning (MRP II) was on the way out. Their reasoning was that MRP II, due to its relative inflexibility, lacked the kind of instant capabilities manufacturers needed to respond quickly to changes in customer orders, equipment breakdowns, and other vagaries of the real world. Initially, the company struggled with sales of under $10 million a year and a handful of customers, including Caterpillar Inc. and Timken Co. Its customers tended to be large companies that were big enough that their various far-flung manufacturing units often had sufficient autonomy to go out and buy obscure software packages to smooth production scheduling. Eventually, though, i2 and other APS vendors, most notably its chief competitor, Manugistics Group Inc., Rockville, Md., made inroads, seeing their software adopted by some of America's -- and the world's -- biggest manufacturing firms. The market became so hot that the giant enterprise software firms, including SAP AG, wanted a piece of the action. SAP, which initially had agreed to share customers with i2, later had a falling out with the Texas firm and decided to work to build its own APS system, which has yet to catch on. Other enterprise software companies embraced APS through acquisitions, most notably PeopleSoft Inc. with its purchase of Red Pepper Software, and J.D. Edwards & Co. with its acquisition of Numetrix. In the late 1990s software to improve supply-chain activities suddenly became as hot as the cell phone. Again, i2 was quick to capitalize, repositioning its software to capture a good chunk of the market. The company continued to rapidly adapt its software to monitor, manage, and optimize not only what went on inside the walls of the plant, but also what went on when connecting to other plants, suppliers, and customers. Finally, with the Internet sweeping over corporate America faster than a flu epidemic, i2 was quick once again to reposition itself as the doctor with the right medicine for an eager manufacturing market. Although last spring SAP announced its online trading system, based on its Web-based portal for corporate procurement, being first to market wasn't necessarily a guarantee of success. With an established base of customers already using its supply-chain systems, i2 was able to outmaneuver the larger firm with something called TradeMatrix, introduced last October. "We have an opportunity to redefine e-business just as we did with the planning and scheduling business in the 1990s," says Jim Wilson, vice president for TradeMatrix at i2. The idea behind TradeMatrix is hardly new in this era of e-business. But i2 plans to make money operating the online trading system by taking a percentage of each transaction. Also, i2 is offering companies the option to use whatever modules of its APS or supply-chain-management software they need over the Web, as a kind of software utility for scheduling, planning, and collaborating with suppliers and customers. "We're going to be able to serve up a lot of the things that differentiated i2 in the past over the TradeMatrix," says Wilson. One pro-duct is i2's Internet Fulfillment Server, which develops a fulfillment plan for a company placing an order for a product that ultimately will be provided by more than one vendor. Competitors are moving to offer their own online marketplaces. Manugistics, for instance, is working with Burlington Northern Santa Fe Corp.'s Web-based clearinghouse called FreightWise Inc. to connect shippers and carriers. FreightWise will use Manugistics' Web-based transportation management software called NetWorks Transport. Without a doubt the ability to connect immediately with suppliers -- and shippers -- is what makes supply-chain management software so attractive to manufacturers. "We have to have intelligent, real-time capability within our factories, and we have to be able to collaborate with our suppliers in real-time," says Robert Briggs, a Caterpillar general manager. Not only is the ability to plan the supply chain's activities crucial, but manufacturers also need to be able to measure the results. "We are dramatically increasing companies' knowledge about how well their supply chain is functioning," says Paul Albright, president and CEO of VIT. The Palo Alto, Calif., software firm makes a product called SeeChain that measures supply-chain effectiveness, providing a daily report card and identifying potential problems before they get out of hand. Indeed, the inefficiencies inherent in many supply chains -- regardless of which industry you're in -- are remarkable. With or without the Web connection, that fact alone continues to drive interest in APS systems, supply- chain management software, and Web-based trading marketplaces among manufacturers. "We had been losing sales due to stockouts," says Michael O'Hara, senior vice president in the Americas unit at Thomson Consumer Electronics, Indianapolis. The problem was exacerbated by excess inventory, inaccurate sales forecasts, and variations in demand, he adds. Thomson chose to go with i2 as the technology part of the solution. "We knew a change in our business processes would improve the quality of information and our own response to that information," O'Hara explains. The company uses i2's Demand Planner system to perform weekly forecasts. "For the first time we are able to look at issues of volume together with our own customers." The results included reduced leadtimes, improved sales forecasts, more stable inventory, a 40% improvement in fill rates, increased turns, reduction in out-of-stock items, and 60% fewer order cancellations. In another case, integrated steelmaker Weirton Steel Corp., the employee-owned former division of National Steel Corp., last May began using i2's Factory Planner. The company had set a goal of reducing overall inventory by 60% through more efficient planning and scheduling as a means to reduce excess production. One change the company made was to focus its planning effort on a day's operations, rather than a full week's. That change, coupled with the new software to streamline production planning, has enabled the company to cut losses due to over- or under-production. "We really hadn't done a good job of not overloading operations," says Jim Marshall, distributed systems architect at Weirton in Weirton, W.Va. "We'd swing from a massive overload to a massive underload and we really didn't know it." Simply put, Weirton is moving toward a pure make-to-order production plan instead of a partial make-to-stock one. Marshall says the company's ability to apply inventory to orders already has improved by more than 20%, and its finished goods inventory has fallen by 15%. The steelmaker also is benefiting from a new capability to perform what-if simulations on its production plans. "As conditions changed in our marketplace, we were able to adjust some of the things we were doing almost on the fly," Marshall adds. "We are using what-if modeling capabilities every day." In another steel industry example, in the nearly five years that Bethlehem Steel Corp.'s tin mill in Sparrow's Point, Md., has been using i2's Rhythm Factory Planner, on-time delivery to customers has improved from 75% to a high-90% rate. Moreover, the planning function, which formerly took three full-time employees, now takes one person 15 minutes per day. Another issue is inefficient replenishment of parts inventories and resulting material shortages. That was the problem at Cummins Engine Co. Inc.'s sprawling 1-million-sq-ft engine plant in Jamestown, N.Y., which makes engines for the Dodge Ram pickup truck, among other vehicles. "We had frequent unplanned material shortages," says Michael T. Carney, director of materials. "Our replenishment of inventory was poor and we had a lot of waste. There was havoc. All these issues impacted our ability to deliver in-sequence, cost effectively, and on time." For this plant that assembles 180 to 200 engines daily, a key aspect of operations is the need for materials to be delivered consistently in sequence when needed. In the past, the plan for sequencing had been done manually. After switching to i2's Rhythm Sequencer two years ago, the company was able to take into account all kinds of production constraints that affect the process and, ultimately, the optimum sequence of deliveries from vendors. For instance, Cummins planners identified 30 potential problem parts whose availability is closely monitored. "Previously we wouldn't know if we were out of one of these until we went to build the engine," says Daniel T. Imfeld, manager of logistics and materials. Today, each of the plant's 1,100 employees can check each day's real-time production sequence through any of 800 personal computers. "We're trying to take the confusion away from the folks on the plant floor," Imfeld adds. The Cummins plant has achieved impressive gains with the new sequencing system. Engine throughput time has improved from 17 hours to under 12 hours, while inventory turns have increased from 32 to nearly 50. Finally, says Imfeld, "Quality went way up because we are not putting the wrong parts on an engine." Despite all these production scheduling and planning examples, software industry analysts expect the biggest opportunities for supply-chain improvements will come via a slew of collaborative applications over the Internet. For example, Bethlehem Steel has begun using the Internet to select carriers to deliver steel to customers. The steelmaker uses an optimization system to rank carriers, tendering loads on the Internet to be accepted or rejected depending on the carrier's schedule and capability. The system replaces the old method of placing telephone calls and sending faxes to transportation carriers.

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