Supplier Logistics In the Driver's Seat

By Lisa Harrington

Increasing complexity in the automotive supply chain has created a host of global logistics challenges that have auto suppliers operating in overdrive. How are they steering their supply chains in the right direction? By finding creative ways to keep inventories lean, improve velocity,
and cut costs to meet manufacturer demands.

Early predictions on the cost n the 1970s, U.S. and European original equipment manufacturers (OEMs) got hammered by Japanese automakers and their just-in-time production systems. Today, competition is even more fierce.

Realizing they can't survive only by cutting internal manufacturing costs, automakers are looking beyond their corporate borders to suppliers to shoulder a growing portion of the burden. In turn, best-in-class suppliers are looking to supply chain management strategies for solutions.
"On a macro level, the biggest strategic question facing the auto industry today is 'What percentage of the automotive market will move to Asia Pacific?'" says Franco Gonsalves, vice president and business unit head, automotive and aerospace at Infosys Technologies Ltd., a global consulting and IT services firm.

"Right now, 82 percent of the market is in North America and Europe. By 2010, experts predict one-third of the world market will shift to Asia Pacific."

This will cause tremendous change in the configuration of the automotive manufacturing and supply base.

"Most car companies choose to locate assembly plants in regions where demand exceeds 200,000 units per model per year," Gonsalves continues. "As the shift to the Asia Pacific region occurs, Tier 1 and Tier 2 suppliers will begin to locate production in those countries. Because new plants take anywhere from one to five years to bring online, ideally, suppliers and OEMs will participate in joint planning processes to identify where to build new factories."

The pressures facing manufacturers and suppliers, such as globalization and cutthroat competition, create conflicting goals as these organizations work to meet cost-reduction targets, improve quality, and accelerate time to market. Supply chain management (SCM) activities play a significant role in many of these areas.

Mastering the automotive supply chain is challenging for suppliers and manufacturers alike. Why? SCM is tough to conquer because its processes are difficult to integrate across numerous functional areas, according to New Competitive Realities in the Automotive Value Chain, a study conducted by the IBM Institute for Business Value and the Office for the Study of Automotive Transportation (OSAT) at the University of Michigan Transportation Research Institute.

"SCM touches nearly all parts of an organization from strategic planning to sales, marketing, purchasing, product development, manufacturing, and logistics," the study notes. "The external SCM links with both Tier 1 and Tier 2 suppliers, when placed in the context of hundreds of suppliers located across the globe, clearly compound the complexity both manufacturers and suppliers face as they manage their supply chains."

An Evolving Industry
Many OEMs have consolidated purchasing functions into one global entity -- a move that has thoroughly changed how manufacturers view their supply base. Some manufacturers have created online portals, for example, through which they receive bids from potential suppliers anywhere in the world.

"This technology has raised the awareness level about the breadth of suppliers available to expanding global operations. Global sourcing increases the complexity of managing the supply chain and can create disconnects among high-level company objectives," the study explains.
Over the last several years, the industry has evolved to include not only local "build-to-print" suppliers but also billion-dollar global systems integrators capable of providing complete solutions.
"Automotive suppliers are now responsible for producing greater portions of vehicle assembly," notes Keith Nash, senior manager, manufacturing supply chain practice, Deloitte.

This modularization requires collocated plants, and creates the need for suppliers to work closely with manufacturers in both design engineering and supply chain coordination, says Gonsalves.
As manufacturers increase the complexity of their orders, the cost risk for suppliers escalates geometrically. Of particular concern to suppliers is inventory exposure -- in terms of both excess quantity and obsolescence.

"When companies have 'leaned out' their factories as much as possible, they often turn to low-cost-country sourcing to continue cutting costs," says Nash. "This practice has created capacity issues at U.S. ports. One Tier 1 supplier, for example, saw its ocean lead times increase from 28 days to 42 days. That's another 14 days of inventory in the supply chain.

"Companies get a low labor rate, but their transit times and risk of obsolescence increase, and they have to deal with container security issues," Nash continues. "Also, U.S. OEMs often make product engineering changes in mid-course, so suppliers have inventory in transit that immediately is either obsolete or has to be reworked."

Although the work is slow and difficult, the auto industry is making progress toward getting rid of inventory. Some transplant OEMs -- foreign OEMs manufacturing on U.S. soil -- send engineers to work with their Tier 1, 2, and 3 suppliers to train them on rooting out cost. "In return, they expect that in year two of your relationship, you'll reduce your prices," notes Nash.

On a larger scale, the auto industry is working as a group to reduce costs by streamlining and standardizing processes. Specifically, the Automotive Industry Action Group (AIAG), whose members include OEMs and their suppliers, has focused on improving the industry's materials management practices.

In the past, each OEM had its own proprietary materials management requirements so suppliers had different sets of processes for each customer. This was prohibitively expensive -- especially for smaller suppliers. In the late 1990s, the AIAG established a special task force to address the issue.

Common Processes
The Materials Management Operations Group (MMOG) developed a common set of guidelines for materials management. The result, published in December 2004, is MMOG/LE, a single set of global best practices standards, supported by AIAG as well as its European counterpart, Odette International.

MMOG/LE is a self-assessment tool that enables companies to rank their material planning and logistics performance and gain guidance toward best practice within the industry. MMOG/LE assigns three levels of supply chain proficiency -- A, B, and C -- with A being the best.

An A-level supplier "far surpasses minimum standards in every aspect of materials management and can be considered at or near world-class standards," the document says.
"MMOG/LE is an Excel file that contains yes/no questions about companies' supply chain practices," explains Morris Brown, program manager for materials management at AIAG. "The practices are ranked in importance -- F3, F2, and F1, with F3 being most important.

"After filling out the survey, companies can determine their score and rating. If it doesn't meet world-class standards, they can use a gap analysis tool to assign a time frame for accomplishing the changes needed to get to world-class status."

One company using MMOG/LE to evaluate its operations is Denver-based Gates Corp., one of the world's largest manufacturers of industrial and automotive belts, hoses, and related products.
"The F3 items on MMOG/LE are the high-impact areas, so we immediately established robust systems to address those items," explains Aidan Hughes, materials manager at Gates' London, Ontario plant, who served on the MMOG/LE development committee.

"If you don't have good business processes in place for these areas, you risk disruption to your customer. Once we covered the F3 items, we worked through the F2 questions.

"Whatever the materials management group can do to enhance performance and help meet customer objectives factors into being awarded business," Hughes notes.

Ford, for example, requires its suppliers to meet certain standards to be considered MMOG/LE Level A. Part of Ford's approval process includes an endorsement from its materials logistics group saying a supplier meets all requirements.

"When we set up our London plant, we used the tools imbedded in the MMOG/LE to determine the processes we'd need to meet Ford's quality requirements," explains Hughes.
The fact that MMOG/LE has been adopted in Europe by Odette's members is significant. "We're collaborating with Odette to make this a truly global document," explains Brown. "If you're a supplier to DaimlerChrysler, whether you're located in Stuttgart, Germany, or Auburn Hills, Mich., the materials management requirements will be consistent."

AIAG and Odette are working on rolling out MMOG/LE in Asia as well.
"If I achieve Level-A status at my facility, I know I have the best possible business processes in place to serve my customers," says Hughes. "Being able to demonstrate that gives me a leg up on the competition."

Transformation at Work
Eaton Corp., a diversified industrial manufacturer with 2004 sales of $9.8 billion, believes supply chain management is key to its current and future success. The nearly 100-year-old Cleveland, Ohio-based company is a global leader in supplying fluid power, as well as electrical, automotive, and truck components and systems. It sells products to customers in more than 125 countries.

"The competitive global marketplace has really turned up the heat for us," says Rick Williams, director, supply chain management for Eaton's Fluid Power Group, Automotive Division. "We saw the emergence of competitors in regions of the world we didn't even know about."
Three years ago, Eaton embarked on a campaign to radically change the way it does business, focusing on its supply chain in particular.

"We are evolving from a supplier resource management organization -- where we managed with a price-based transaction orientation -- to an integrated supply chain organization, where we manage based on total cost and value delivered," explains Williams.

To enable this transformation, Eaton's supply chain strategy focuses on four key areas:

1. Globally competitive sourcing. Switching to globally competitive sourcing meant layering a total cost of ownership approach over simple low-cost-country procurement. "Buying material at the lowest price is not enough. You have to take into account all the cost elements that make up a delivered product -- including inventory," says Williams.

2. Business intelligence. Eaton wanted to migrate from simply collecting data, which was difficult or impossible to use in many cases, to turning information into actionable business intelligence. "In a global, 24/7 operating environment, if you can't move and exchange data freely you have nothing," Williams says.
Eaton made a variety of changes. It decided to invest in new information infrastructure, build a data warehouse, and digitize supplier transactions to allow collaboration and performance measurement. The company also created a sales and inventory operations planning solution that included visibility tools, and implemented standard information processes and tools across the company.

3. Globally integrated logistics. Eaton's goals in this area include optimizing logistics globally, developing a standard international logistics model, and creating an integrated global logistics competency.

4. Supplier development and collaboration. Eaton identified its top 50 suppliers worldwide and is working with them to create collaborative relationships. Eaton gives key suppliers access to its inventory and production planning system, for example, so suppliers can view factory demand on a real-time basis, enabling them to more effectively plan replenishment. This also reduces the demand uncertainty that forces suppliers to carry higher inventories, which, in turn, takes significant cost out of their operations.

In late 2002, Eaton began executing its new integrated supply chain management strategy in its Fluid Connectors Division (FCD). FCD, which has plants around the world, makes hose and tube assemblies used for air conditioning, power steering, oil cooling, active body control, and a variety of couplings and spoilers. Customers include BMW, GM, DaimlerChrysler, Ford, Toyota, Honda, and Volkswagen.

To improve its manufacturing efficiency, FCD shifted some of its production to Queretaro, Mexico. It partnered with a third-party logistics provider for distribution operations to support the new plant.
"Warehousing and distribution are not core competencies for us," Williams explains. "Manufacturing is what we do. We believed an integrated and optimized supply chain could be a strategic weapon, a competitive differentiator. So we were looking for a full-service supply chain solutions provider."

Eaton contracted with Caterpillar Logistics Service Inc. (CLS) to set up a 33,000-square-foot Mexico Logistics Center, which operates six days a week, 24 hours per day. The Mexico Logistics Center receives raw materials from North American and overseas suppliers, and provides raw material manufacturing line-side support -- including point-of-use ordering and line-side delivery -- to Eaton's production plant.

"We receive raw components and move them directly to the production line without Eaton ever touching them," explains Jorge Pintado Villafana, Caterpillar's logistics center manager.
The Mexico Logistics Center provides outbound finished goods distribution to FCD's Laredo, Texas, logistics center, and crossdocks for U.S.-based OEMs. It also performs incoming component inspection services per engineering drawings.

"We deliver component material to the plant every three hours," Villafana notes. "The plant sends finished product back to us, which we store and ship to the final customer. We handle approximately 1,100 different raw component parts numbers, and 300 finished goods parts numbers."

Space utilization was a key issue for FCD in relocating production to the Queretaro plant. The company was concerned about losing valuable manufacturing floor space to warehousing. "We actually realized a nearly 50-percent gain in manufacturing capability space by allowing CLS to focus on logistics," reports Williams.

Reducing Inventory, Attacking Costs
Perhaps the biggest challenge at the Queretaro operation was managing inventory effectively. "We had to figure out how to get the right inventory level and lean out the supply chain to a degree that was cost-competitive for us but also reduced costs for our suppliers," Williams explains.

"The first step toward leaning out inventory was stabilizing our manufacturing demand requirements and tightening up our supply chain," he continues. "This allowed us to react to demand fluctuations quickly without excessive build-up of material or finished goods inventories."
Eaton wanted to move the Queretaro production plant toward a consignment inventory model, so the company placed these supplier stocks across the U.S. border at its Laredo facility. Suppliers own their inventory until it is delivered to Eaton's Queretaro manufacturing plant, and CLS manages supplier deliveries to the Laredo facility.

"The concept behind consignment is to make sure the supplier gets information as quickly as possible, from the time the demand signal comes out of the assembly plant, to the time they can replenish," Williams explains.

Eaton's new IT capabilities come into play here. "Our suppliers were not able to access our inventory database to see demand," says Williams. "They just shipped to schedule. So we weren't able to flex our inventory up or down to reflect real demand." As a result, FCD carried excess inventory.

Today, FCD gives suppliers access to its in-house inventory levels so they can view consumption and plan replenishment appropriately. "If our suppliers can help us significantly reduce our inventory, that takes cost out of our supply chain," Williams notes. "We give them credit for that."
Within the Mexico Logistics Center itself, FCD looked to CLS to optimize costs. CLS is currently identifying costs associated with each warehouse function by SKU and by activity -- determining what it costs to receive, inspect, store, pick, pack, and ship particular products from particular suppliers.

"Using this information, we can determine a financial penalty for supplier non-compliance," Williams explains. "If inspecting their product consumes 'x' amount of warehouse space, we can associate a cost with that. By understanding these costs, we can have intelligent conversations with our suppliers about how to eliminate these pain points."

CLS helped FCD improve customer service for its OEMs by meeting finished goods delivery needs. These elevated customer service levels helped the group win important new business from Chrysler, GM, and Ford. At the same time, inventory -- raw material, work in process, and finished goods -- declined substantially; more than 24 percent in 2004, and nearly 30 percent in the first four months of 2005.

A Continuing Challenge
Clearly, increasing complexity creates a host of supply chain challenges for automotive suppliers. "Manufacturers are making serious efforts to integrate their SCM processes internally," says the IBM-OSAT study.

"Unfortunately, they pay far less attention to collaborating on SCM with their suppliers. Manufacturers' SCM efforts, in particular, often increase the complexity of SCM to the point where it conflicts with their and their suppliers' main business and organizational goals."

This means suppliers have to find creative ways to collapse time and improve the velocity of their supply chains. "If you figure out how to be flexible within a short time frame, you will make money," Nash says. "How do you increase flexibility? Through a well-coordinated set of processes, supported by technology, that allow you to react quickly."

"The comparative ability of automotive suppliers to master the complexity of SCM is the new competitive reality that will determine which supply chains ultimately succeed," concludes the IBM-OSAT study.

Source: Inbound Logistics

A plane that could change the game

Editorial Page
By Raquib Siddiqi
Jul 30, 2005, 11:50

Cutting costs has become an obsession for major carriers worldwide. Nowhere is that more true than in the U.S., where big airlines in serious trouble with heavy losses, as they continued to battle rising costs. While foreign carriers tend to be in better shape, the industry knows the key to survival lies in being lean and mean.

If only carriers could get their hands on a Boeing 7E7 now. Experts say the plane, which will go into service in 2008, could redraw airline economics. Much has been said about the 7E7's fuel-sipping nature. But Boeing Co. (BA) is luring carriers with other potential cost savings, too. And thanks to more efficient factories, it aims to build each 7E7 in half the time it takes to crank out a widebody jet. That would get new planes to carriers faster when demand surges. "The 7E7 is a significant step forward for the economics of a plane," says Peter Gardner, vice-president for technical issues at Cathay Pacific Airways Ltd.

While U.S. carriers are not in a position to buy new planes now, Continental (CAL), American (AMR), and Northwest (NWAC) have all shown interest in the 7E7. Meanwhile, foreign carriers have ordered 62 7E7s, and Boeing expects 200 more orders by yearend. And while strong defense sales helped the company post second-quarter income of $607 million on $13.1 billion in revenues, reversing a year-ago loss of $192 million, Boeing is hiking its 2005 earnings forecast thanks to renewed strength in its commercial business. Says Boeing Commercial Airplanes CEO Alan R. Mulally: "We feel good about where we're going."

So will Boeing deliver? Much depends on getting its new manufacturing process right. In the 1990s, Boeing ramped up hard after putting in place a supposedly more efficient system -- with nearly catastrophic results.

This time, key suppliers believe Boeing will do better because it has been improving the work flow in its factories. "Nothing like a near-death experience to change bad habits," says Richard Aboulafia, an aerospace analyst at Teal Group. "Boeing's factories are more efficient than at any time in its history." Indeed, Boeing has cut the final assembly time of a 737 in half, to 11 days; Airbus has only been able to reduce its A320 final assembly from 40 days to 24.

With the 7E7, Boeing aims to work even faster. Suppliers will build huge chunks of the fuselage, which -- in a break with the past -- will be packed with plumbing, electrical systems, and computers before being shipped to Seattle for final assembly. By outsourcing more of the manufacturing, Boeing aims to build a 7E7 -- from start to finish -- in four months, rather than the traditional 12. The strategy, though, carries logistical risk, since it relies heavily on suppliers. Still, most analysts believe Boeing has established a sufficiently strong relationship with its partners.

Cheaper to fly

If Boeing can build its plane faster, carriers stand to benefit. Typically, by the time airlines take delivery of a new plane, they must reconfigure the interior because the market has changed. That's expensive: It once cost Cathay $1 million to shift a toilet three inches on one 747. "If you cut the delivery time in half, you can respond to market changes and avoid costly interior makeovers," says Gardner.

Carriers also like how the plane could help cut costs and lift revenues. The plane is expected to be 10 per cent cheaper to operate. Its composite fuselage won't require checking for cracks, which costs $2 million to $4 million per plane for aluminum jets. And its 20 per cent better fuel economy will allow airlines to carry cargo on longer flights, a potential revenue-booster.

Boeing still faces plenty of challenges. Airbus says it will respond with an improved or new A330, which will closely match the 7E7's operating costs. Boeing also will have to manage a whole new way of building planes. And with delivery three years off, airlines have time to see if Boeing can hit its performance goals. But if it does, the 7E7 could be the best news the industry has had in years.


© Copyright 2003 by ittefaq.com

Source: The New Nation

Lean Automotive Supplier Uses Robots, Flex Machines to Increase Productivity

By Mary Kay Morel, Staff Writer/Editor, Motoman Inc .
(Posted 07/29/2005)

Aztec Manufacturing Corporation (Romulus, Michigan) is a tier-one full-service supplier of mid- and high-volume precision-machined castings and forgings to the automotive industry. A minority-owned small business, Aztec currently employs 95 people in its 73,000 square foot facility. The company had sales of approximately $30 million in 2004 and projects $34 million in sales for 2005. Ford Motor Company is its largest customer. In keeping with its lean manufacturing initiatives that help the company stay cost-competitive, Aztec has successfully implemented several robotic work cells into its manufacturing process since 2001.

‘‘Aztec Manufacturing Corporation is committed to growing its business through investments in factory automation, which include the use of robotics in our machining and assembly operations,’‘ said Greg Lopez, the company’s president.

Automation has helped Aztec increase productivity and maximize throughput, improve part quality for the end-customer, and provide 100% part inspection for quality assurance. Robotic work cells perform some of the more ergonomically difficult tasks, primarily material handling and machine loading/unloading.

In 2002, Aztec implemented the first of three double-column, turret-type flex machines in the world. Built by Ann Arbor Machine Company (Chelsea, Michigan), and loaded/unloaded by Motoman robots, these highly flexible custom machine tools perform multiple CNC operations – drilling, tapping, milling and boring – all on the same machine. Each flex machine can have as many as eleven axes.

Unlike a typical CNC machine where the part is in a fixture and tools come in from the column, the tools that do the cutting in these flex machines rotate on the four-sided center turret. The fixtures that hold the parts are on columns that travel in three, four or five axes.

The robots load/unload two parts at a time into/from these flex machines. These can be identical parts or sets of RH and LH parts, depending on the operation. Each flex machine has two ends, so the robot loads/unloads the first end and then the other using a dual gripper. For some jobs, the robot facilitates A-B loading. It takes a set of partially machined parts out of one set of fixtures, turns them over and puts them into another set of fixtures for additional operations.

These AAM flex machines save floorspace and eliminate the need to transfer parts between multiple machines for CNC operations. This simplifies work flow and greatly enhances productivity.

In the first AAM flex machine cell, a Motoman UP50-35 robot picks parts from a power and free palletized infeed conveyor and loads/unloads an eleven-axis flex machine. After machining, the robot returns the parts to the conveyor, where an operator adds studs and feeds raw parts back onto the input indexing conveyor.

A Motoman UP130 robot picks up two identical front track-bar mounting brackets used in Ford vehicles and loads/unloads the second AAM flex machine. The robot first removes two parts from one end of the machine, rotates the gripper and loads two raw parts. It then repeats the process at the other end. The UP130 robot unloads track-bar mounting brackets two at a time from either end and drops the pairs ‘‘randomly’‘ onto dunnage, since there is no need to pack them in layers. The robot was actually programmed to drop the parts off so that they are evenly distributed around the dunnage.

‘‘We don’t do a lot of robot programming ourselves – mostly we just tweak the programs or touch up program points, as needed. We had a Motoman application technician come in to program the random packout operation,’‘ Terry Sims, Aztec’s engineering manager, said.

The third AAM flex cell uses another Motoman UP130 robot to facilitate A-B load of a set of raw RH and LH rear disc-brake adaptor parts for another Ford vehicle. The robot takes the finished parts to an automated probe inspection station that checks for the presence of threads in the four M8 holes in each LH and RH part. If the parts are acceptable, the robot places them on an indexing turntable. If the parts fail, the robot drops them off at a reject chute.

The turntable indexes parts through a partition fence to a Motoman UP50-35 robot that picks up a set of RH and LH parts and presents them to a bolt-running machine that shoots four bolts into each RH and LH brake-adaptor assembly. The UP50-35 robot then packs out the parts into separate dunnage containers for RH and LH parts located on an outfeed conveyor, and also places a stiff cardboard sheet between layers. When the two dunnage containers are full, they shuttle out on the conveyor and two empty dunnage containers shuttle in.

The company also uses robots for other machine-loading and material-handling applications. Another UP130 robot picks parts off of a walking beam conveyor and loads them into/from a CNC machine. This robot also packs out parts into dunnage and places thick cardboard sheets between layers.

Aztec’s first robot, a Motoman UP20, installed in May 2001, previously performed material handling for a part that is no longer in production. This robot is currently being redeployed to unload a conveyor coming from a dial index machine and a pair of horizontal machining centers (HMCs).

As a just-in-time supplier, delivering quality parts on time is extremely important for Aztec. As production volumes increased, Aztec implemented robotic work cells to improve productivity. ‘‘Operations in most of our work cells were never performed manually, so there is no comparison information between manual versus robotic production,’‘ Sims said.

‘‘Robots make the people we have more productive. We run three shifts of production a day, five days a week. Absenteeism is never a problem with the robots, because they are always there. The robots perform machine loading/unloading operations that would be ergonomically hard on a human operator,’‘ Sims said.

Production equipment reliability is a must. ‘‘Service and support were also keys for us when we were deciding to implement robotic automation. We haven’t had any trouble with the Motoman robots. If we need a spare part or help with something, all we do is call their customer service hotline.’‘ Sims said. Motoman’s Detroit facility is located in nearby Wixom, Michigan, and that physical proximity is also convenient if programming support or other assistance is needed.

Robotic automation has improved manufacturing processes and helped the company grow and prosper despite difficult times for the automotive industry. As a small business, Aztec Manufacturing has used the resources of the Michigan Manufacturing Technology Center (MMTC) to help with its lean manufacturing initiatives.

The company’s founder and CEO, Frank Lopez, is politically active in promoting the interests of small businesses and worker development, and was recognized as ‘‘Advocate of the Year’‘ in June 2005 by the Small Business Association of Michigan (SBAM).

Source: Robotics Online

Manufacturers Improving Performance, Further Increasing Bottom-Line Results with Lean Strategies, Says AberdeenGroup;

July 12, 2005 05:53 PM US Eastern Timezone

Manufacturers Improving Performance, Further Increasing Bottom-Line Results with Lean Strategies, Says AberdeenGroup; Report Cites Better Customer Responsiveness and Production Efficiencies Among Multiple Payoffs

BOSTON--(BUSINESS WIRE)--July 12, 2005--Best-in-class manufacturers using lean techniques such as kanban and value stream mapping are now further leveraging these technologies to improve production efficiencies and customer responsiveness. According to a recent Aberdeen best practices research report, these companies are also reporting significant improvements in manufacturing performance and bottom-line results.

The new report, "Best Practices in Lean: The Momentum Builds," showcases nine best practice case studies, expanding on findings and insights first published in Aberdeen's 2004 "Lean Strategies Benchmark Report." That report cited that companies successfully able to implement lean techniques were up to three times as likely to become best-in-class performers, and up to six times less likely to be severely impacted by customer pricing and service issues. The results published in "Best Practices in Lean: The Momentum Builds" document further improvement on those original gains.

"Best-in-class companies are benefiting from lean initiatives and are in the process of deploying lean techniques across manufacturing, into the enterprise, and out to supply chain partners -- including customers and suppliers," says Jane Biddle, vice president of manufacturing research for Aberdeen, and author of the report. "Each company represented in the best practices report is clearly a leader in its category."

The nine companies profiled in this study illustrate success strategies and the business challenges they faced; lean strategy investments; technology deployments; as well as results from their strategies and technology investments.

Major study findings include the following:

-- Customer, competitive, and shareholder pressures are driving manufacturers to expand lean programs;

-- The number of technology solutions continues to increase the deployment options compared to what was available just 12 months ago; and

-- Technology-enabling lean practices are becoming requisite for achieving scalability, manufacturing flexibility, and managing a truly customer-responsive supply chain.

To download a complimentary copy of the report, please follow this link: http://www.aberdeen.com/link/sponsor.asp?cid=1950

About AberdeenGroup, Inc.

AberdeenGroup provides fact-based research and insights focused on the global, technology-driven value chain. Aberdeen's benchmarking, market and solution assessments, sales acceleration programs, and conferences support Global 5000 value chain and technology executives -- and the solution providers who serve them. For more information, visit www.aberdeen.com or call 617-723-7890.

Source: Business Wire

Easter Seals takes new approach to doing business

Easter Seals takes new approach to doing business
Sunday, July 03, 2005

By Erin Morain, erinmorain@bpcdm.com
The passage of the Sarbanes-Oxley Act in 2002 left many publicly traded companies scratching their heads and scrambling to find the resources needed to comply with the act’s numerous provisions.

Though non-profit organizations escaped those regulations, Easter Seals Iowa has established an approach to adopting “best practice” techniques that could serve as an example to other Easter Seals affiliates and non-profit organizations nationwide that struggle to manage limited resources.

The organization has partnered with Pioneer Hi-Bred International Inc. and adopted the Six Sigma methodology in order to streamline its processes and thereby be a more responsible steward of donors’ money.

“I think in the long run it is going to help us show people that we run ourselves like a business,” said Easter Seals Iowa President and CEO Donna Elbrecht. “When we can borrow best business practices from the business community, we need to make sure we can do that and shoulder that responsibility. And it really has changed how we do business now.”

Six Sigma was designed for the manufacturing sector, has since been adopted by service companies and has rarely, if ever, been used by non-profit organizations. Pioneer began its work with Six Sigma in 2000 to address issues related to production and supply management, sales, research and administrative procedures. Dan Hoi, director of business improvement systems, said the company has been able to measure its success in using the methodology as it improves the effectiveness of its processes and measures the financial benefits that result.

Through initial discussions with Elbrecht, who had initially approached Pioneer to request funding for an Easter Seals rural solutions program, Hoi and others at the company found the organization had a foundation in place to support Six Sigma. Jason Nielsen, vice president of strategic management at Easter Seals, completed Six Sigma’s five-week training course through funds provided by Pioneer. Through the training, he examined one of the charity’s chronic problems, billing denials, in which bills are not paid when they are initially submitted, and developed a workable solution.

Pioneer worked with Easter Seals’ board of directors to explain the company’s experience with Six Sigma and what its methodology could bring to the organization. Two Pioneer employees worked with Nielsen as volunteer mentors. Elbrecht, who has worked with others at Pioneer to share the information with other Easter Seals affiliates, said the organization could not have successfully implemented Six Sigma without the company’s guidance.
“Like with anything, we could have gotten the books and tried to figure this out, or tried to scrape up the dollars to send someone to the Six Sigma academy,” she said. “I think we probably would have gotten there, but probably much slower.”

Nielsen said the Six Sigma approach, which stresses the elimination of variation, is at least as applicable to non-profit organizations as to for-profit ventures, largely because of their limited resources. Easter Seals faced $440,000 in billing denials in 2004, a sizable sum for an organization its size. But the newly devised approach allowed the organization to save $68,000 in its first project.

“We are forced by our funding, by our staffing structure, to make sure that our processes are as efficient as possible,” Nielsen said.

Elbrecht said a similar partnership and the use of the Six Sigma methodology would be “a nice cultural change” for other non-profit organizations, enabling them to work with teams, identify chronic problems, gather facts and evaluate processes statistically. But she believes Easter Seals’ ability to adopt Six Sigma gives the organization an unmatched level of credibility.

“When you start talking about what differentiates us from other non-profits that are doing good work as well, Six Sigma is one of those things that I’ve been able to say makes us different,” she said. “Not only are we doing good things, but I can show you measurable results, I can show you best-practice tools of Six Sigma that show you we’re taking our work seriously, and that if you invest with Easter Seals, you have more assurance that we’re going to make sure those dollars get results.”

Non-profit fallout
Though the Sarbanes-Oxley Act, passed in response to the corporate and accounting scandals at several corporations, applies only to publicly traded companies, some non-profit organizations believe the act should serve as a wake-up call.

BoardSource, a resource for non-profit board members, said non-profit leaders must demonstrate that they’re governing their organizations effectively or face similar regulations. As a result, they should consider voluntarily adopting some of the act’s governance practices.

“I think for us as a non-profit, we really felt it was better for us to take the lead and come into compliance with what the for-profit sector has to do anyway,” said Donna Elbrecht, president and CEO of Easter Seals Iowa.

Easter Seals, both nationally and in Iowa, has adopted most of the act’s provisions, which Elbrecht said allows the organization to achieve its mission and manage funds responsibly.

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Content © 2005 Des Moines Business Record

Source: Des Moines Business Record

Caterpillar Hits Record Second-Quarter Sales

PEORIA, Ill. – Bolstered by continued global strength in the markets and industries it serves, Caterpillar today reported record second quarter sales and revenues of $9.360 billion and record profit of $760 million, or $1.08 per share. First half of the year results were also records, with company sales and revenues of $17.699 billion and profit of $1.341 billion, or $1.89 per share.

"Our global markets continue to exhibit the fundamental strengths needed for further growth, and Team Caterpillar remains well positioned to leverage this unprecedented opportunity now and in the years ahead," says Caterpillar Chairman and Chief Executive Officer Jim Owens. "We're aggressively pursuing improvement - utilizing our leadership position, strong cash flow and global capabilities in engineering, purchasing, sales and manufacturing to enhance the value customers and stockholders receive from an investment in
Caterpillar."

SALES FIGURES. Sales and revenues of $9.360 billion were up $1.777 billion, or 23 percent, compared to $7.583 billion in the second quarter of 2004. Improving sales volume and price realization drove the increase in sales and revenues.

Profit of $760 million, or $1.08 a share, was up 34 percent compared to profit of $566 million in the second quarter of 2004. The main contributors were improved price realization and sales volume, partially offset by higher core operating costs, about half of which were material costs.

"We're very pleased that this quarter marks another improvement in our profitability as measured by return on sales – 8.1 percent this quarter compared to 7.5 percent a year ago," Owens added. "Somewhat better prices were a positive factor in the profit improvement, and for the most part, we expect the price increases announced earlier this year to hold in the marketplace. That said, we are closely monitoring the competitive landscape and are determined to hold our market position. Further, our results continue to be positively driven by literally hundreds of 6 Sigma projects which are being completed every month."

OUTLOOK. The outlook for 2005 has been increased over previously reported levels. Sales and revenues are now expected to be up 18 to 20 percent from 2004. The profit outlook for 2005 has also been improved to reflect an estimated profit range of $4.00 to $4.20 per share.

The previous outlook reflected sales and revenues up 16 to 18 percent, and profit per share of $3.89 to $4.03, up 35 to 40 percent from 2004.

"The strength of our markets is clearly not a blip on the radar," Owens says. "Key indicators such as low interest rates, robust commodity prices and needed investment for capacity in electric power and energy production point to continued growth. While this growth is expected to continue in the near term, we're laying a solid foundation for our future by staying focused on prudently managing our cost structure and margins while continuing to invest in new products and production capacity to meet strong customer demand."

Thursday, July 21, 2005

Source: Lawn and Landscape

Best Practices for Best-in-class Performance Highlighted

By Editorial Staff

Metrics, strategy alignment, balancing needs, executive sponsorship key to reaching world-class, Hackett reports

Atlanta — July 29, 2005 — Achieving world-class performance in sales, general and administrative (SG&A) functions is no simple matter, yet the rewards are exceptional and can include reduced cost and staffing, improved strategic alignment and other benefits that enable finance, information technology (IT), human resources (HR) and procurement operations to have a significant impact on a company's bottom line, according to speakers at the 15th annual best practices conference of business process advisory firm The Hackett Group.

Speakers at Hackett's conference, dubbed "Enterprise Performance Management: Building Harmony in Purpose and Execution," shared practical insights into how they have enhanced the value their organizations deliver to the business and shareholders. Several common themes were discussed by the speakers.

For example, executives described how they relied on metrics to focus and drive continuous improvement, and they stressed the value of aligning SG&A activities with the strategic priorities of the business. Several described how they balanced the competing needs for cost reduction and improved value delivery, particularly in the context of business process sourcing decisions. Executive sponsorship to drive successful process transformation was clearly articulated, as was the importance of attracting talent to enable changes in the operating environment.

Nearly 400 executives from many of the world's largest companies attended the two-day conference in Atlanta. They heard from CEOs, chief information and financial officers, and other senior executives from 12 top companies, including Alcoa, Georgia-Pacific, Honeywell, InterContinental Hotels Group and Nextel Communications, among others. In addition, The Hackett Group provided an overview of its recent findings into world-class performance metrics and best practices.

Using Metrics to Drive Continuous Improvement
Richard T. Roth, chief research officer at Hackett, set the stage with his presentation of preview findings from The Hackett Group's 2005 Book of Numbers research. Hackett's research quantified the performance gap in efficiency and effectiveness between world-class and typical companies in finance, information technology (IT), human resources (HR) and procurement. For 2005 finance costs rose at both typical and world-class companies for the first time since Hackett began capturing this data 13 years ago, in part due to increased spending on compliance as a direct result of regulations related to Sarbanes-Oxley. World-class companies also focus on reducing complexity and lowering error rates across the board.

Using metrics to drive continuous improvement was a theme that carried through many of the speaker presentations. At Georgia-Pacific Corp., benchmarking has played a key role in helping the $20 billion company take $100 million out of its IT budget over the past few years, and the company is using metrics to tee up another $33 million in savings. "Benchmarking can uncover opportunities where you simply don't expect to find them," said James Dallas, Georgia-Pacific vice president and chief information officer. "They're also an exceptional catalyst for galvanizing an organization for change. They get people's attention."

InterContinental Hotels Group Americas President Stevan Porter also found that benchmarking and its resulting metrics helped his company confront the "burning platform" of reducing costs and increasing shareholder value in the face of a hostile takeover bid. "We had a powerful balance sheet, cash, global distribution and a solid portfolio of brands," Porter said. "We truly didn't think we had too many issues. But we suddenly found ourselves getting some pretty harsh criticism. Metrics played a key role in helping us determine where, when and how to achieve our goal of taking out $100 million in overhead over a 12-month period."

The Value of Business Alignment
Several speakers stressed the value of aligning SG&A activities with the needs and strategic priorities of the business. In IT, where world-class executives bring in major projects on time 30 percent more often than typical companies, and also meet specs and come in on budget significantly more frequently, service-level agreements (SLAs) are a common tool for helping to accomplish strategic alignment. Hackett's 2005 Book of Numbers research found that world-class IT organizations are 61 percent more likely than typical companies to have formal SLAs in place.

In procure-to-pay, Mary Stubbs, a Six Sigma Black Belt for Honeywell's Global Business Services, made a similar point. "We use SLAs with both penalties and rewards, to incentivize the right behaviors and get people excited," Stubbs said. "We also take a very customer-centric approach, by understanding how we can add value, managing expectations, and focusing on communications, education, and relationship-building."

Balancing Priorities
Balancing between the need for efficiency and effectiveness, particularly in the context of outsourcing, is another key success strategy that speakers discussed. While world-class companies generate superior results in both areas, speakers pointed out that the focus should be on evaluating processes individually to determine how best to approach them.
Outsourcing is not always the best solution, according to Roth. "Highly transactional areas like HR administration, payroll or technology infrastructure can be strong candidates for outsourcing, if you begin by optimizing processes and reducing complexity," said Roth. "But for activities that provide real competitive advantage, companies may choose to hold onto these within their organization areas. You want people handling them who are close to the business."

InterContinental Hotel Group's Porter said that this type of prioritization was a key element in his company's effort to improve shareholder value. The company evaluated activities based on their strategic value to the company and created three categories. In areas which directly impact profit generation, the company determined that world-class performance levels were required. For areas deemed as strategic support, the decision was made to target performance levels that were superior to the competition, but not necessarily world-class. Finally, for areas deemed as business necessities, the focus was almost exclusively on efficiency, standardization and cost reduction. A key part of the strategy for this last category was the establishment of finance shared service centers around the globe.

Executive Sponsorship
Many speakers stressed that getting buy-in from senior leadership, then using it to drive participation in process transformation efforts, is another key strategy for success.
At Georgia-Pacific, building support for transformation efforts was critical. The CEO, chief operating officer and other members of the senior leadership team set the tone for their transformation efforts, and this helped ensure that functional leaders understood why this plan was right for them.

In addition, senior leadership was actively engaged in coordinating efforts through an executive steering committee. This helped ensure a focus on end-to-end process improvement. "You've got to expect resistance, and leadership from the top is one way to deal with it," Dallas said. "It plays a major role in helping get the front line people engaged."
Right People in the Right Places at the Right Time

Fostering and managing talent also is critical as companies make major changes across SG&A functions, according to several speakers. Hackett's 2005 Book of Numbers research showed that in most cases, world-class organizations are willing to pay their staff more, as a result of the greater business acumen and experience. This is of course only possible once the routine transactional activities have been minimized.

In procurement, for example, world-class pay staff 41 percent more and dedicate 74 percent more hours of training per employee than typical companies. In HR, world-class companies are five times more likely to have formal retention plans in place.
Leaders also need to examine the mix of talent within their organization in the context of business process transformation efforts ensuring that as changes are made to business processes and sourcing, they assess whether staff has the right skills, the ability to make change and are empowered to make decisions.

Source: Supply & Demand Chain Executive

Six Sigma and business continuity

In October 2004 Continuity Central published an article, posing the question “Is Six Sigma a useful business continuity aid?”. Jack Freson, a Certified Black Belt in Six Sigma, answers the question with an unequivocal “Yes, why not?”

In this article Mr Freson explains his response:

Six Sigma The first thing we must understand is that Six Sigma does nothing until the organisation wanting to use it makes a commitment to the methodology. Once this happens, the process is simply one of using the methodology to achieve improvement. The one part often overlooked is that Six Sigma is focused on continuous improvement, so the process is never ending. It is the constant striving to take what you are doing today and improve it. Can Six Sigma be used for improving business continuity, security and emergency management? Yes it can. One must start with the DMAIC process taught within Six Sigma as a disciplined approach to project management. DMAIC stands for, Define, Measure, Analyse, Improve, and Control.
Six Sigma combined with a proven vulnerability assessment method In the area of business continuity, we don’t just employ the Six Sigma DMAIC process, it needs to link into a proven vulnerability assessment method, but such linking brings definite advantages. Since Six Sigma looks to include all knowledge, the result is a well disciplined project incorporating the latest knowledge in the business continuity area which together is designed to give you a well-rounded business continuity plan. The plan will include how to improve security, how to keep the business operating in an emergency, and a method to achieve continuous improvement.

The quest for data It has been mentioned in other articles that Six Sigma is customer focused and uses the DMAIC project management process. Both of these are an essential part of the Six Sigma methodology. Also, important are management commitment to the process, team work, and statistical analysis of information. The last will be the most important part of a good business continuity plan, a plan that is in constant flux as it pushes towards improvement and the elimination of defects. The use of statistics has one important role and that is to allow us to get more and better information about our data. It will be the driver to guide us towards our improvement goals.

The chart below shows the merging of the DMAIC process with a proven security vulnerability assessment format. The assessment format seeks to know who the adversary is and what scenarios may be used to interrupt the business or harm the people. It bases improvement on achieving a balanced and layered security plan. Most importantly, it uses internal and external data. The initial assessment and plan development will use both sources of data. After the initial assessment and development of the security plan, the “continuous improvement loop” provides for analysis of how we are doing and gives us the basis for making changes to improve. However, we are only improving based on the external data used in the initial assessment. External factors may, and will change. Maybe some new adversaries, maybe new information from Homeland Security. Whatever the change, we must bring that information, the data, into our improvement loop. The new information is combined with existing data and an assessment is made as to the impact on our plan.

Conclusion While Six Sigma will enhance the vulnerability assessment to provide a state of the art business continuity plan, one must always realise that the plan cannot be a fixed document. It must not be allowed to become obsolete and any emergency response must be practiced. How often it must change is hard to say, but, if you continuously bring in new information, continuously analyse how your plan is performing, and update it, you will be improving the security and business continuity of your organisation. While most Six Sigma work has been towards physical security, the process is easily applied to the world of business continuity. In fact, a smart company would see the advantages of creating one system; one plan to handle both physical and IT security and contingency planning.

Jack Freson, Certified Black Belt, Sigma Team Solutions, LLC, Associate of Six Sigma Security, Inc Contact: 513-315-4440

Source: Continuity Central