Supply Chains Eye the Plant Floor

Jan. 1, 2005
As manufacturers gain control over inventory and grab accurate demand signals from their customers, the last blind spot in the global supply chain is the plant floor. Manufacturers are peeking into their manufacturing execution systems to complete the visibility into their global supply chains.

When you talk to manufacturing experts about integrating the global supply chain, you hear everything from, “Woe is me!” to, “We’ve got this thing knocked.” On one point, everyone agrees: you can’t do it the old way any longer. The “old way” is characterized by manufacturers that calculate production quantities based on sales forecasts. Forecast-based manufacturing was a disaster in 2001 when the downturn came and forecasts were worthless. The cellular telephone handset market in 1999 was the poster child for bad forecasting. “If you added up what all the handsets original equipment manufacturers (OEMs) forecasted in 1999, it came to 300 percent of the total handset market,” says Dave Cooper, vice president of supply chain solutions for contract manufacturer Solectron Corp., of Milpitas, Calif.

Manufacturers ended up with a mountain of inventory to support the inaccurate forecasts. As executives looked across billions in undelivered goods and unneeded inventory across the globe—soon to go obsolete—they collectively sighed, “There’s got to be a better way.”

A better way

Now manufacturers are struggling to get every piece of data they can in order to cut down inventory to just-in-time (JIT). They are determined to make products only when they have a purchase order in house. The move to integrate the global supply chain is intrinsically tied to the struggle toward lean manufacturing. OEMs are using globally dispersed plants to adjust production to demand instead of forecast. Welcome to the world of demand-driven global manufacturing.

The importance of shifting to demand-driven manufacturing increases when a company manufactures and sells its products globally. “The greatest difficulty for a manufacturer is the ability to predict when a downturn or upturn in demand will occur,” says John Fontanella, vice president of supply chain management research at the Yankee Group, a Boston market research and consulting firm. “A global supply chain amplifies the problem because you’re dealing with different cultures and different ways of doing business.”

The adjustment toward demand-based production started at both ends of the manufacturing plant. On the supplier side, manufacturers have worked to keep inventory levels down. Some manufacturers don’t even take possession of the inventory until it is grabbed from the bin. On the customer side, they’ve worked hard to get realistic demand data. Recently, these two areas of improvement have been moving toward the center—the plant floor.

Manufacturers are struggling to get a view into all their plant floors around the world. “Manufacturers are creating a network of manufacturing assets that lets them leverage demand across the globe,” says Kevin Bernier, director of plant intelligence solutions for GE Fanuc Automation, in Charlottesville, Va. “Now they’re looking for a multi-plant production execution layer that gives them flexibility so they can see what’s being done at each plant, and they want the ability to change according to customer request.”

MES resurgence

Manufacturers can track their supply lines, but they don’t know what is being produced where, until they get a look inside the plant floor. That means manufacturing execution systems. “MES was a bad word for about five years, but in the last eight months, there has been dramatic interest in MES,” says Tim Sowell, vice president of product strategy, at Lake Forest, Calif.-based Invensys Wonderware. “Before you start linking plants together, you have to understand what’s going on in the plant—MES turns on the light inside the plant.”

Getting good plant floor information has become particularly important because not everything in the plant starts and finishes there. “In most cases, you have half-finished parts going from plant to plant,” says Amir Livne, executive vice president of business development at Israel-based Tecnomatix. “To run that efficiently, you need connectivity from one production management system to another.”

The true key to getting a handle on global manufacturing may be the ability to integrate information across multiple MES instances. “After getting my suppliers and vendors to line up, now I have to get my plants to line up,” says Wonderware’s Sowell. “There hasn’t been a standard to communicate between MES systems.” He notes that the need to communicate across MES systems is becoming increasingly important as various governments ask for the ability to trace the genealogy of products. Product genealogy became a factor in Europe as governments worked to trace the source of mad cow disease. Now it’s becoming a factor for auto manufacturers who need to track vehicles for recall. “There’s a need to understand the supply chain in order to satisfy government regulations,” says Sowell.

As manufacturers focus on global visibility, the attention shifts to the MES level. Some believe that MES has to evolve into a more enterprise-like product. “Over the past few years, manufacturers have invested in ERP (enterprise resource planning) and supply chain management systems, but they’re still struggling with how they’re going to take that information and tie it back to manufacturing,” says Vivek Bapat, director of supply chain solutions at Milwaukee-based Rockwell Automation Inc. “So you’re seeing a resurgence of the MES to a bigger entity as manufacturing enterprise software.”

Global data feeds

In some instances, this has been achieved. Solectron has developed the ability to grab plant floor information and feed it back to its OEM customers. The ability to translate MES data into meaningful supply chain information is part of the company’s competitive offering. “If our OEM customers ask for shop floor data, we can provide it,” says Solectron’s Cooper. “We can provide data feeds from ERP and shop floor execution systems from anywhere in the world.”

For the process industries, operating globally might mean the need to work with different suppliers with products that don’t compare with those coming from North American suppliers. “Coca Cola and Campbell’s Soup are large global companies that have to comply with regulations in individual markets,” says Rory Granros, vice president of product management for Formation Systems Inc., a Southborough, Mass., supplier of product lifecycle management software for the process industries. “When someone in Denmark says you can’t use a particular food dye, you need to know what can replace it and where to buy it.”

Granros also notes that global process manufacturers such as Coke need to be able to alter product formulas to account for countries that require cane sugar instead of high fructose corn syrup. Because these companies don’t tend to have integrated ERP systems that contain recipe alternatives, they can turn to a vendor such as Formation Systems to maintain global specifications on formulas that can contain recipes based on alternative ingredients.

Adrian Gonzalez, analyst at ARC Advisory Group, in Dedham, Mass., believes that process manufacturers have a particularly hard time adjusting to demand-driven global manufacturing. “Campbell’s Soup says you can have any soup you want so long as it’s chicken and it’s in a 10-ounce can,” says Gonzalez. “They can’t switch easily from a 10-ounce can to a 16-ounce can, so a company like Campbell’s struggles with demand-driven manufacturing.”

At Honeywell Inc., Phoenix, Pat Kelly agrees that the key to integrating the global supply chain is to shift from forecast-based manufacturing to demand-driven production. As Honeywell’s market segment leader for the process solutions business, Kelly believes that the answer lies in being able to look into the individual silos of plants across the globe. MES integration, again. Kelly notes this can be difficult, depending on where the plant is located. “In China, they’re really just starting to look at the value of improving the information components.”

As manufacturing becomes more and more global, manufacturers are struggling to get their information systems to catch up with dispersed plants. They have succeeded in lining up their global supply base and adjusting logistics to satisfy their globally dispersed customers, but they’re still in the process of figuring out what should be made at which plant. They need to know what’s going on inside each plant in order to effectively move from an inefficient forecast-based production model to demand-driven manufacturing. The last piece of darkness in the global supply chain is the plant floor. So manufacturers are now trying to integrate their MES so they can shine a light on the plant floor, globally.

See sidebar to this article: Picking the Optimal Plant Location