Until a
crystal ball comes along that lets companies forecast exactly what
their customers will want so they can make it in advance, large
corporations will continue to turn to just-in-time manufacturing.
This process lets manufacturers purchase and receive components
just before they're needed on the assembly line. As a consequence,
it relieves manufacturers of the cost and burden of housing and
managing idle parts.
Although companies such as SAP AG offer enterprise resource
planning software to coordinate supply chains so they can handle
just-in-time processes, analysts say there's still a lot of room for
improvement by using the Web.
Most observers point to automotive firms such as Torrance,
Calif.-based Toyota Motor Sales USA Inc. as the earliest and
highest-profile adopters of just-in-time processes. High-tech
companies such as Round Rock, Texas-based Dell Computer Corp. and
San Jose-based Cisco Systems Inc. have followed suit.
"The Toyota production system is famous for efficiency and
coordination, but it has been a highly manual system with very
low-level technology," says Tom Jones, a senior vice president at
Miami-based Ryder System Inc., which outsources just-in-time
supply-chain services.
But Toyota has been working to make its supply chain more
flexible by moving it onto the Web, and other car companies such as
Dearborn, Mich.-based Ford Motor Co. have been following in Toyota's
treads, says Jones.
The Web allows the automakers to send requests for parts to their
suppliers as the need arises, regardless of whether disparate
computer platforms are involved. For instance, if a car company
experiences a high demand for a certain color vehicle, it can notify
its paint supplier and get the product delivered to its factory
quickly and with a minimum amount of human intervention or
paperwork.
Build to Order
In the high-tech area, companies are turning to a build-to-order
process in which a product is customized and manufactured according
to specific customer requests, making just-in-time manufacturing and
delivery key, says Michael Burkett, a senior research analyst at AMR
Research Inc in Boston.
At Dell, the process is called "pull to order," says company
spokesman Venancio Figueroa. "It's a critical element of our
build-to-order manufacturing process," he says. The model
contributes to "increasing the accuracy of doing business, both from
a customer and supplier standpoint."
Once the parts are delivered, the assembly-line process can begin
prepping components. Dell then begins manufacturing the actual
computer. Afterward, it tests and does custom integration work for
the finished product.
The build-to-order process is only one part of Dell's approach to
efficiency - to further improve the manufacturing processes, the
company also relies on special hydraulic tools, conveyor belts and
tracks, reducing the need for human intervention by half. This means
better overall quality, says Figueroa.
Dell is able to achieve a four-hour production cycle time using
an Internet-based supply-chain management system, Figueroa says.
After getting an order, Dell notifies its suppliers about what
components are needed, and they're delivered within an hour and a
half.
"With our pull-to-order system, we've been able to eliminate
warehouses in our factories and have improved factory output by
double by adding production lines where warehouses used to be," says
Figueroa.
Dell plans to save $15 million in the first six months with its
build-to-order process; within three years, that figure should be
$150 million, says Figueroa.
Dell generally fulfills customer demands within five days, and
the firm plans to reduce that time by relying on more extensive
Web-based collaborative technologies, he says.
In addition to the manufacturing efficiencies, there are other
reasons why build-to-order is appealing. For instance, it helps
prevent manufacturers from being stuck with inventory that may
become obsolete as it sits gathering dust in a warehouse, says
Burkett. Or if there's a design change to a manufactured product, a
company can be stuck with useless inventory that it has to dispose
of at a loss.
Pros and Cons
There's a flip side, however. The just-in-time method demands a
very disciplined assembly-line process, says David Dobrin, an
analyst at Surgency Inc. in Cambridge, Mass. The entire factory has
to be in sync to successfully exploit its methods. Manufacturers can
afford fewer errors in the delivery of the supplier's component; if
a part isn't there, the assembly line stops, and that can result in
the loss of manpower and cash.
Moreover, just-in-time manufacturing doesn't necessarily mean a
company is saving money on its supply chain - often, companies just
have a distributor or supplier maintain a warehouse, either on-site
or nearby, says Dobrin.
This is an area where the Internet could improve existing
processes, say analysts. Like Dell, other companies are trying to
establish faster, more efficient communications with their suppliers
by using the Web, says Dobrin, and the older form of communication -
electronic data interchange - is being phased out.
The Web permits very intimate contact between supplier and
manufacturer. For instance, Cisco shares its manufacturing schedules
with suppliers so they'll know how much inventory they need to have
on hand.
There can be obstacles to getting these Web processes for
just-in-time manufacturing up and running. Cincinnati-based Procter
& Gamble Co., for instance, is struggling with variations in
data-formatting methods among its suppliers, according to CIO Steve
David. Human intervention is required to do the data translation,
which slows the process.
In the near term, Procter & Gamble plans to get 50% of its
orders to the Web next year, taking two days off the order cycle
time.
For the long run, David says, he hopes to have a
just-in-time-based supply chain that's accessible to everyone, from
the retailer to Procter & Gamble's suppliers to the suppliers'
suppliers. However, for that to happen, "we need to have data
visibility across all of the supply-chain partners," he
says.
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